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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 June 30, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
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EXHCANGE ACT OF 1934
For the transition period from to
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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)
28720 Roadside Drive, Suite 128, Agoura HIlls, California 91301
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818)735-6622
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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 June 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
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1: Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999.........................................3
Consolidated Statements of Operations -
Three Months ended June 30, 2000 and 1999...................................4
Consolidated Statements of Operations -
Six Months Ended June 30, 2000 and 1999.....................................5
Consolidated Statements of Cash Flows -
Six Months Ended June 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
Item 6: Exhibits and Reports on Form 8-K....................................11
SIGNATURES .......................................................................12
</TABLE>
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ITEM I: FINANCIAL STATEMENTS
FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 51,000 $ 29,000
Accounts receivable, net 334,000 454,000
Prepaid expenses and other deposits 134,000 113,000
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TOTAL CURRENT ASSETS 519,000 596,000
Long-term accounts receivable, net 80,000 34,000
Real estate investments, net 3,070,000 2,966,000
Property, plant and equipment, net 460,000 475,000
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TOTAL ASSETS $ 4,129,000 $ 4,071,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes payable to stockholders $ 3,184,000 $ 3,023,000
Accounts payable and accrued expenses 1,250,000 1,142,000
Environmental Reserve 100,000 100,000
Unearned revenue 35,000 35,000
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TOTAL CURRENT LIABILITIES 4,569,000 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 (19,573,000) (19,362,000)
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(1,173,000) (962,000)
Less common stock in treasury,
191,312 shares (at cost) (761,000) (761,000)
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TOTAL STOCKHOLDERS' EQUITY (1,934,000) (1,723,000)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,129,000 $ 4,071,000
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</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
June 30,
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<S> <C> <C>
2000 1999
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REVENUES:
Net revenues $ 619,000 $ 767,000
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COSTS AND EXPENSES:
Cost of operations 449,000 449,000
Selling, general and administrative
expenses 307,000 273,000
Interest expense 79,000 68,000
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TOTAL COSTS AND EXPENSES 835,000 790,000
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LOSS FROM CONTINUING OPERATIONS (216,000) (23,000)
NET LOSS $(216,000) $ (23,000)
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NET LOSS PER SHARE:
Continuing operations $ (.18) $ (.02)
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Weighted average number of
common shares outstanding 1,222,905 1,222,905
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</TABLE>
See notes to consolidated financial statements.
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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<S> <C> <C>
2000 1999
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REVENUES:
Net Revenues $1,415,000 $1,349,000
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TOTAL REVENUES 1,415,000 1,349,000
COSTS AND EXPENSES:
Cost of operations 875,000 887,000
Selling, general and administrative
expenses 595,000 588,000
Interest expense 156,000 134,000
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TOTAL COST AND EXPENSES 1,626,000 1,609,000
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NET LOSS $ (211,000) (260,000)
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NET LOSS PER SHARE:
Continuing operations $ (0.17) $ (0.21)
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Weighted average number of
common shares outstanding 1,222,905 1,222,905
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</TABLE>
See notes to consolidated financial statements.
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FRAWLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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<S> <C> <C>
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(211,000) $(260,000)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 15,000 16,000
Changes in operating assets and liabilities:
Short- and long-term accounts
receivable, net 74,000 74,000
Prepaid expenses and deposits (21,000) 15,000
Accounts payable and accrued expenses 108,000 69,000
Unearned revenue (27,000)
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TOTAL ADJUSTMENTS 176,000 147,000
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Net cash used in
operating activities (35,000) (113,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases (42,000)
Payments for real estate investments (104,000) (61,000)
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Net cash used in
investing activities (104,000) 103,000)
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CASH FLOWS FROM FINANCING ACTIVITES:
Short-term debt borrowings 161,000 260,000
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Net cash provided by
financing activities 161,000 260,000
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 23,000 44,000
CASH, BEGINNING OF PERIOD 29,000 16,000
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CASH, END OF PERIOD $ 51,000 $ 60,000
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</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 as of June 30, 2000, the results of
operations and changes in cash flow for the six months then ended.
NOTE 2: The results of operations for the six months ended June 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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The Hospital staff was shocked and saddened by the tragic suicide death of one
of our patients less than two hours after entering the hospital for treatment.
During the initial interview process, the patient had indicated no capacity for
harming himself, and specifically had disavowed any suicidal thoughts.
The tragedy further underscores the need to reach people suffering from
addiction as soon as possible.
During the quarter ended June 30, 2000, operating revenues from Specialized
Health Services decreased by $145,000 when compared to the same period in 1999.
For the three months ending June 30, 2000 the health care operation reported a
$50,000 loss compared to a $93,000 profit for the same period in 1999. For the
six months ended June 30, 2000 Net Revenue was $1,398,000 compared to $1,345,000
in 1999 and the profit of $84,000 compared favorably to the 1999 profit of
$16,000. Although revenue increased slightly, 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 the subsidiary.
No assurances can be made that an investor will be found.
Real Estate
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For the quarter ended June 30, 2000, Real Estate Operations loss was $111,000
compared to a loss in 1999 of $65,000. During the first six months of this year
Real Estate losses were $188,000 as compared to a loss of $126,000 for the same
period in 1999. Real estate losses continue as the company incurs carrying
costs, and costs of improvements required to sell the 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.
The Los Angeles County Regional Planning Commission, which governs real
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estate development, 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 land in the area.
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 $84,000 profit
for the six months ended June 30, 2000 compared to a $16,000 profit for the six
months ended June 30, 1999. Management believes the results will continue as the
company goes through the transition from third party reimbursement to direct
payment from patients. Debt secured by the Seattle Hospital in the amount of
$800,000 was due August 1, 2000 and has been extended to October 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 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 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.
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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 involving 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 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. In the license agreement the Company
notified the licensee that 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 2000, Michael P. Frawley, Chairman of the Board, loaned the
Corporation funds to meet short term borrowings and operating expenses.
The loans were secured by the Company's real estate. The following loans
were made:
May 30th, 2000 $ 9,334.00
June 2nd 2000 28,892.00
Also Ms. Frances Swanson, sister of the Chairman of the Board, made
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two loans to the Corporation. The loans were secured by the Company's
real estate. The following loans were made:
April 24th ,2000 $40,158.00
June 19th ,2000 28,510.00
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
June 30, 1999.
Exhibit 27
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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: August 31, 2000 By /s/ Michael P. Frawley
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MICHAEL P. FRAWLEY, President
(Authorized Officer and Chief
Financial Officer)
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