<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to ____________________
Commission File Number 1-6436
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FRAWLEY CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-2639686
(STATE OR OTHER JURISDICTION OF (I.R.S. EMP I.D. NO)
INCORPORATION OR ORGANIZATION)
28720 Roadside Dr., Suite 128, Agoura Hills, California 91301
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818)735-6623
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO_____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at March 20, 2000
- --------------------------- ----------------------------------------------
Common stock, par value $1 1,222,905
Total Number of Pages 11
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FRAWLEY CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999............................ 3
Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999...................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999...................... 5
Notes to Consolidated Financial Statements...................... 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations ............... 7-8
PART II: OTHER INFORMATION
Item 1: Legal Proceedings ..................................... 9
Item 5: Other Information ..................................... 9
Item 6: Exhibits and Reports on Form 8-K....................... 10
SIGNATURES ........................................................... 11
2
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ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 37,000 $ 29,000
Accounts receivable, net 459,000 454,000
Prepaid expenses and other deposits 105,000 113,000
------------ -------------
TOTAL CURRENT ASSETS 601,000 596,000
Long-term accounts receivable, net 105,000 34,000
Real estate investments, net 2,987,000 2,966,000
Property, plant and equipment, net 468,000 475,000
------------ ------------
TOTAL ASSETS $ 4,161,000 4,071,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable to stockholders $ 3,077,000 $ 3,023,000
Accounts payable and accrued expenses 1,151,000 1,142,000
Environmental reserve 100,000 100,000
Unearned revenue 57,000 35,000
------------ ------------
TOTAL CURRENT LIABILITIES 4,385,000 4,300,000
LONG TERM LIABILITIES
Notes payable 70,000 70,000
Environmental reserve 1,424,000 1,424,000
------------ ------------
TOTAL LONG TERM LIABILITIES 1,494,000 1,494,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1 per share:
Authorized, 1,000,000 shares; none issued
Common stock, par value $1 per share;
Authorized, 6,000,000 shares, issued
1,414,217 shares 1,414,000 1,414,000
Capital surplus 16,986,000 16,986,000
Accumulated deficit (19,357,000) (19,362,000)
------------ ------------
(957,000) (962,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (1,718,000) (1,723,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 4,161,000 $ 4,071,000
============ ============
</TABLE>
See notes to consolidated financial statements.
3
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
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<S> <C> <C>
REVENUES:
Net revenues $ 796,000 $ 582,000
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COSTS AND EXPENSES:
Cost of operations 426,000 438,000
Selling, general and administrative
expenses 288,000 315,000
Interest expense 77,000 66,000
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TOTAL COSTS AND EXPENSES 791,000 819,000
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NET LOSS $ 5,000 $ (237,000)
========== ==========
NET LOSS PER SHARE:
Continuing operations $ (.004) $ (.19)
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(.004) (.19)
========== ==========
Weighted average number of
common shares outstanding 1,222,905 1,222,905
========== ==========
</TABLE>
See notes to consolidated financial statements
4
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ 5,000 $(237,000)
-------- ---------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 7,000 7,000
Disposals of property, plant and equipment
Changes in operating assets and liabilities:
Short- and long-term accounts
receivable, net (76,000) 39,000
Prepaid expenses and deposits 8,000 35,000
Accounts payable and accrued expenses 9,000 (55,000)
Unearned revenue 22,000 104,000
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TOTAL ADJUSTMENTS (30,000) 240,000
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Net cash used in
operating activities (25,000) 3,000
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CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases 0 (3,000)
Refunds received on real estate (21,000) (19,000)
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Net cash provided by
investing activities (21,000) (22,000)
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CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 54,000 65,000
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Net cash provided or used by
financing activities 54,000 65,000
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NET DECREASE IN CASH AND CASH
EQUIVALENTS 8,000 46,000
CASH, BEGINNING OF PERIOD 29,000 16,000
-------- ---------
CASH, END OF PERIOD $ 37,000 $ 62,000
======== =========
</TABLE>
See notes to consolidated financial statements
5
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FRAWLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position at March 31, 2000, the results of
operations and changes in cash flow for the three months then ended.
NOTE 2: Revenues from continued operations for the three months ended March
31, 1999 totaled $796,000.
NOTE 3: The results of operations for the three months ended March 31, 2000
and 1999 are not necessarily indicative of results to be expected for
the full year.
6
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FRAWLEY CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Specialized Health Services
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During the quarter ended March 31, 2000, operating revenues were $780,060, which
compared to the revenue of the same period in 1999 of $581,835, resulted in a
$198,0000 increase. In 2000, the health care operation profit was $134,000 as
compared to a $77,000 loss in 1999. The first quarter operating results are not
necessarily an indication of the future quarters operating results. The Company
continues to face serious difficulties in attracting patients. There is a
decreasing number of insurance carriers providing benefits for inpatient
treatment and in many HMO plans there is little coverage for chemical dependency
treatment. Emphasis by insurance carriers on less expensive outpatient treatment
programs makes the Company's inpatient treatment less accessible to many
potential patients. The Company continues to present a strong argument for the
success rate of the Schick program, compared to other programs, but a more
prevalent theme in health care today is the cost of a program not the efficacy
of the treatment. The Company will continue to explore more effective ways of
attracting patients to the inpatient program.
The Company plans to continue to improve operations through additional reduction
in overhead and increasing patients in both the inpatient and outpatient
treatment programs. Schick will continue to offer educational material regarding
the addiction cycle and chemical dependency and to popularize aversion treatment
methodology.
Real Estate
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The real estate operating loss during the quarter ended March 31, 2000 was
$77,000 as compared to a loss of $61,000 for the same period in 1999. Real
estate losses continue as the company incurs carrying costs, improvements
required to sell the property.
The undeveloped real estate market in Southern California is showing signs of
improvement. The Company is actively advertising the undeveloped real estate for
sale. Management is confident the real estate market will continue to improve
along with overall economic conditions in Southern California and anticipates
recovery of its investments and any additional costs to hold and sell the real
estate.
Los Angeles County Regional Planning Commission which governs real estate
development has announced that they will have public hearings to review a plan
to down zone undeveloped land in the Santa Monica Mountains. The effect of this
plan is not clear yet.
7
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Liquidity and Capital Resources
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The Company's recurring losses from continuing operations and difficulties in
generating cash flow sufficient to meet its obligations raise substantial doubt
about its ability to continue as a going concern.
The Seattle Hospital and outpatient treatment program reported a $134,000 profit
for the three months ended March 31, 2000 compared to a $77,000 loss for the
three months ended March 31, 1999.Management, however, expects that cash flow
will tighten as the Company continues to experience a transition from third
party reimbursement to direct payment from patients. Debt secured by the Seattle
Hospital in the amount of $800,000 is due August 1, 2000.
The Company continues to incur legal expenses and has an obligation in 2000 to
contribute to the Chatham Brothers toxic waste cleanup lawsuit.
Servicing outstanding debt continues to be a significant burden on the
Company's operations.
The Company intends to raise capital for the health care business by seeking
partners in health care and selling real estate. The sale of real estate may
require further expenditures to prepare the land for sale which would be
financed through borrowings. The sale of the property is unpredictable and
highly uncertain and there is no assurance that the improvements will increase
the marketability of the property. The limited resources available to the
Company will be directed at revitalization of the health care business and the
continued reduction of non-producing assets.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
-----------------
The Company is named as a defendant in the Chatham Brothers toxic
waste cleanup lawsuit. In February 1991, the Company was identified
as one of many "Potentially Responsible Parties" (PRPs) in the Chatham
Brothers toxic waste cleanup site case, filed by the State of
California - Environmental Protection Agency, Department of Toxic
Substances Control (DTSC) and involved the Hartley Pen Company
previously owned by the Company.
On December 31, 1991, the Company and approximately 90 other companies
were named in a formal complaint. The Company joined a group of
defendants, each of whom was so notified and which are referred to as
Potentially Responsible Parties (PRPs) for the purpose of negotiating
with the DTSC and for undertaking remediation of the site. In January
of 1998 the final remediation plan was approved by the State and in
January of 1999 the PRP's consented to it, as well as the allocation
of costs, and the consent decree was approved by the Court. As of
December 31, 1999, the Company had paid over $550,000 into the PRP
group and had a cash call contribution payable of $129,000. In
addition, they carried accrued short-term and long-term liabilities of
$100,000 and $1,424,000 respectively.
The company is in dispute with its 1988 licensee over the trademark
"Classics Illustrated." In 1998, the Company terminated its license
agreement for breach of contract. The licensee has objected to the
termination stating that the company failed to notify the licensee of
a potential problem with the trademark in Greece. A Greek court has
ruled against a sublicensee in Greece. The Company believes that the
license agreement supports that it adequately notified the licensee
would have to investigate the international trademark involving
"Classics Illustrated." Management believes that there is no probable
risk of loss related to this dispute.
ITEM 5: Other Information
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Related Party Transactions.
In the First Quarter 2000, Michael P. Frawley, Chairman of the
Board, loaned the Corporation funds to meet short term borrowing and
operating expenses. The loans were secured by the Company's real
estate. The following loans were made:
February 11th, 2000 $20,000.00
March 6th, 2000 20,000.00
Also Ms. Frances Swanson, sister of the Chairman of the Board, loaned
the Hospital $14,000 on March 31, 2000, this loan was secured by the
Hospital's real estate.
9
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ITEM 6: Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRAWLEY CORPORATION
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(REGISTRANT)
Date: May 11, 2000 By: /s/ Michael P. Frawley
------------------------ ------------------------------------------
Michael P. Frawley
(Authorized Officer and CEO
and Chairman of the Board)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 37,000
<SECURITIES> 0
<RECEIVABLES> 1,316,000
<ALLOWANCES> 752,000
<INVENTORY> 55,000
<CURRENT-ASSETS> 50,000
<PP&E> 0
<DEPRECIATION> 1,208,000
<TOTAL-ASSETS> 4,161,000
<CURRENT-LIABILITIES> 5,879,000
<BONDS> 0
0
0
<COMMON> 1,414,000
<OTHER-SE> (3,132,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,161,000
<SALES> 796,000
<TOTAL-REVENUES> 796,000
<CGS> 426,000
<TOTAL-COSTS> 426,000
<OTHER-EXPENSES> 288,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 5,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,000
<EPS-BASIC> 0.004
<EPS-DILUTED> 0
</TABLE>
