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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
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ACT OF 1934
For the quarterly period ended September 30, 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
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMP I.D. NO)
5737 Kanan Rd. PMB 188 , Agoura Hills, California 91301
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818)735-6640
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28720 Roadside Drive, Suite 128, Agoura Hills, Ca 91301
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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 September 30, 2000
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Common stock, par value $1 1,222,905
Total Number of Pages 12
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FRAWLEY CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1: Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999........................ 3
Consolidated Statements of Operations -
Three Months Ended September 30, 2000 and 1999.................. 4
Consolidated Statements of Operations -
Nine Months Ended September 30, 2000 and 1999................... 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999................... 6
Notes to Consolidated Financial Statements...................... 7
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations................ 8-9
PART II: OTHER INFORMATION
Item 1: Legal Proceedings...................................... 10
Item 5: Other Information...................................... 10-11
Item 6: Exhibits and Reports on Form 8-K....................... 11
SIGNATURES........................................................... 12
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ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 72,000 $ 29,000
Accounts receivable, net 419,000 454,000
Prepaid expenses and other deposits 107,000 113,000
------------ ------------
TOTAL CURRENT ASSETS 598,000 596,000
Long-term accounts receivable, net 103,000 34,000
Real estate investments, net 2,667,000 2,966,000
Property, plant and equipment, net 452,000 475,000
------------ ------------
TOTAL ASSETS $ 3,820,000 $ 4,071,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable to stockholders $ 3,155,000 $ 3,023,000
Accounts payable and accrued expenses 1,281,000 1,142,000
Environmental reserve 78,000 100,000
Unearned revenue 53,000 35,000
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TOTAL CURRENT LIABILITIES 4,567,000 4,300,000
LONG TERM LIABILITIES
Notes Payable 70,000 70,000
Environmental Reserve 1,424,000 1,424,000
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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 (19,880,000) (19,362,000)
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(1,480,000) (962,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
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TOTAL STOCKHOLDERS' EQUITY (2,241,000) (1,723,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,820,000 $ 4,071,000
============ ============
</TABLE>
See notes to consolidated financial statements
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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<S> <C> <C>
REVENUES:
Net revenue $ 707,000 $ 620,000
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TOTAL REVENUES 707,000 620,000
COSTS AND EXPENSES:
Cost of operations 449,000 434,000
Selling, general and administrative
expenses 356,000 402,000
Interest expense 84,000 73,000
Loss from sale of real estate 125,000 22,000
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TOTAL COSTS AND EXPENSES 1,014,000 931,000
NET LOSS (307,000) $( 311,000)
========== ==========
NET LOSS PER SHARE:
Continuing operations $ (.25) $ (.25)
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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 STATMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
---------- -----------
<S> <C> <C>
REVENUES:
Net Revenues $2,122,000 $ 1,969,000
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TOTAL REVENUES 2,122,000 1,969,000
COSTS AND EXPENSES:
Cost of operations 1,324,000 1,321,000
Selling, general and administrative
expenses 951,000 990,000
Interest expense 240,000 207,000
Loss from sale of real estate 125,000 22,000
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TOTAL COST AND EXPENSES 2,640,000 2,540,000
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NET LOSS $ (518,000) $ (571,000)
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NET LOSS PER SHARE:
Continuing operations $ (0.42) $ (0.47)
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Weighted average number of
common shares outstanding 1,222,905 1,222,905
========== ===========
</TABLE>
See notes to consolidated financial statements.
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
<S> <C> <C>
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(518,000) $(571,000)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of real estate investment 125,000 22,000
Depreciation 23,000 24,000
Changes in operating assets and liabilities:
Short and long-term accounts
receivable, net (34,000) 140,000
Prepaid expenses and deposits 6,000 24,000
Accounts payable and accrued expenses 117,000 59,000
Unearned revenue 18,000 (36,000)
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TOTAL ADJUSTMENTS 255,000 233,000
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Net cash used in
operating activities (263,000) (338,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases - (45,000)
Environmental reserve paydown - (90,000)
Payments for real estate improvements (291,000) 161,000)
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Net cash used in
investing activities (291,000) (296,000)
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CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 332,000 374,000
Proceeds from sale of real estate 465,000 321,000
Repayment of borrowings (200,000) (50,000)
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Net cash provided by
financing activities 597,000 645,000
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 43,000 11,000
CASH, BEGINNING OF PERIOD 29,000 16,000
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CASH, END OF PERIOD $ 72,000 $ 27,000
========= =========
</TABLE>
See notes to consolidated financial statements.
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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 September 30, 2000, the results of
operations and changes in cash flow for the nine months then ended.
NOTE 2: The results of operations for the nine months ended September 30, 2000
as compared to the results of 1999 are not necessarily indicative of
results to be expected for the full year.
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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 September 30, 2000, operating revenues from Specialized
Health Services increased by $144,000 when compared to the same period in 1999.
For the three months ending September 30, 2000, the health care operations
reported a $38,000 profit compared to a $30,000 loss for the same period in
1999. For the nine months ended September 30, 2000, the Net Revenue was
$2,104,000 compared to $1,960,000 in 1999 and the profit of $122,000 compared
favorably to the 1999 loss of $14,000. 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 is currently seeking an investor to fund marketing and expansion of
the health care services or a purchaser for this subsidiary. No assurances can
be made that an investor will be found.
Real Estate
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For the quarter ending September 30, 2000 Real Estate Operations loss was
$301,000 compare to a loss on 1999 of $233,000. During the nine months ended
September 30, 2000 the real estate losses were $489,000 as compared to a loss of
$359,000 for the same period in 1999. Real estate losses continue as the company
incurs carrying costs and costs of improvements required to sell the properties.
In the third quarter, the Company sold a 12 Acre parcel for $465,000 and
recorded a loss on the sale in the amount of $125,000.
The undeveloped real estate market in Southern California is showing signs of
improvement. The Company is actively advertising the undeveloped real estate for
sale.
The Los Angeles County Regional Planning Commission which governs real estate
has held hearings on a plan to further restrict development of land in the Santa
Monica Mountains. If adopted, the plan would make it more expensive to develop
the land in the area.
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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 programs reported a net
operating profit of $121,000 for the nine months ended September 30, 2000
compared to a loss of $14,000 in 1999. Debt secured by the Seattle Hospital in
the amount of $1,022,000 has been extended until December 31, 2000.
The Company continues to incur legal expenses and has an obligation in 2000 to
contribute to the Chatham Brothers toxic waste cleanup lawsuit.
The Company intends to raise the capital for the Health Care business by
seeking partners in health care and selling real estate. The sale of real
estate may require further expenditure to prepare the land for sale, which
would be financed by borrowings. The sale of real estate 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.
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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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. Between 1995 and 1998, the State of
California adjusted the estimated cost of remediation on several
occasions. As a result, the Company has increased their recorded
liability to reflect their share. 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 September 30, 2000,
the Company had paid over $550,000 into the PRP group and had a cash
call contribution payable of $152,000. In addition, they carried
accrued short-term and long-term liabilities of $78,000 and $1,424,000
respectively.
The Company is in dispute with its 1988 licensee over the trademark
"Classics Illustraded". 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. In the licensee agreement, the
Company notified the licensee that the license would have to
investigate the international trademark involving "Classics
Illustraded." 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 third quarter 2000, Frances Swanson, sister of the Chairman of
the Board, loaned the Corporation funds to meet operating expenses.
The loans were secured by the Company's real estate. The following
loan was made in the third quarter:
July 4/th/, 2000 $27,000.00
Also Mrs.Gerardine Frawley, mother of the Chairman of the Board loaned
the Corporation funds. The loans were secured by the Company's
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real estate.
The following loans were made in the third quarter:
August 3/rd/ 2000 54,000.00
September 1/st/ 2000 50,000.00
September 29/th/ 2000 40,000.00
On August 31st, 2000, the Company sold a 12 acre parcel of land to an
unrelated party for $465,000. As part of that transaction, secured
debt and accrued interest on the property held by Gerardine Frawley ,
mother of the Chairman, was paid down in the amount of $248,172.44.
ITEM 6: Exhibits and Reports on Form 8-K
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No reports on form 8-K were filed during the quarter ended September
30, 2000.
Exhibit 27 -Financial Data Schedule
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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: November 16, 2000 By: /S/ MICHAEL P. FRAWLEY
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Michael P. Frawley, President
Authorized Officer and Chief
financial Officer)
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