-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LnGJbAK7NGVAv5tHQGS2880Zc/I6hChLSotcwJ76wcL/QnZbvUfN7cCgxGtDrjxH vb3AAQSB9Wg3706CI4MM9w== 0000898430-98-004368.txt : 19981214 0000898430-98-004368.hdr.sgml : 19981214 ACCESSION NUMBER: 0000898430-98-004368 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRAWLEY CORP CENTRAL INDEX KEY: 0000038824 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 952639686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06436 FILM NUMBER: 98767853 BUSINESS ADDRESS: STREET 1: 28720 ROADSIDE DRIVEUITE 1201 STREET 2: SUITE 128 CITY: AGOURA HILLS STATE: CA ZIP: 91301 BUSINESS PHONE: 8183823640 MAIL ADDRESS: STREET 1: 28720 ROADSIDE DRIVE STREET 2: SUITE 128 CITY: AGOURA HILLS STATE: CA ZIP: 91301 FORMER COMPANY: FORMER CONFORMED NAME: FRAWLEY ENTERPRISES INC DATE OF NAME CHANGE: 19780107 10-Q 1 FORM 10-Q 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 June 30, 1998 -------------------------------------------- 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 -------------------------------- FRAWLEY CORPORATION - ------------------------------------------------------------------------------- (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 Drive, Suite 128, Agoura HIlls, California 91301 - ------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (818)735-6622 - -------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) - -------------------------------------------------------------------------------- (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 ----- ----- 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, 1998 - -------------------------------- ----------------------------------------- Common stock, par value $1 1,222,905 Total Number of Pages 12 ----- FRAWLEY CORPORATION AND SUBSIDIARIES INDEX PART I: FINANCIAL INFORMATION PAGE NO. Item 1: Financial Statements Consolidated Balance Sheets - June 30, 1998 and December 31, 1997.............................. 3 Consolidated Statements of Operations - Three Months Ended June 30, 1998 and 1997........................ 4 Consolidated Statements of Operations - Six Months Ended June 30, 1998 and 1997.......................... 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997.......................... 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........................................ 11 Item 6: Exhibits and Reports on Form 8-K......................... 11 SIGNATURES ............................................................ 12 2 ITEM I: FINANCIAL STATEMENTS FRAWLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, ASSETS 1998 1996 ------ ------------- ------------- (Unaudited) CURRENT ASSETS Cash $ 40,000 $ 73,000 Accounts receivable, net 480,000 473,000 Prepaid expenses and other deposits 143,000 173,000 ------------ ------------ TOTAL CURRENT ASSETS 663,000 719,000 Long-term accounts receivable, net 72,000 113,000 Long-term notes receivable 25,000 Real estate investments, net 3,060,000 3,226,000 Property, plant and equipment, net 456,000 455,000 ------------ ------------ TOTAL ASSETS $ 4,251,000 $ 4,538,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Notes payable to stockholders $ 1,661,000 $ 1,647,000 Accounts payable and accrued expenses 914,000 1,020,000 Environmental Reserve 100,000 100,000 Unearned revenue 168,000 139,000 ------------ ------------ TOTAL CURRENT LIABILITIES 2,843,000 2,906,000 LONG TERM LIABILITIES Notes Payable to Stockholders 800,000 800,000 Notes Payable 70,000 70,000 Environmental Reserve 1,497,000 1,497,000 ------------ ------------ TOTAL LONG TERM LIABILITIES 2,367,000 2,367,000 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 (18,598,000) (18,374,000) ------------ ------------ (198,000) 26,000 Less common stock in treasury, 191,312 shares (at cost) (761,000) (761,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (959,000) (735,000) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,251,000 $ 4,538,000 ============ ============ See notes to consolidated financial statements. 3 FRAWLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended June 30, ---------------------- 1998 1997 --------- --------- REVENUES: Net revenues $ 754,000 $675,000 --------- --------- COSTS AND EXPENSES: Cost of operations 416,000 458,000 Selling, general and administrative expenses 360,000 145,000 Interest expense 62,000 65,000 --------- --------- TOTAL COSTS AND EXPENSES 838,000 668,000 --------- --------- PROFIT (LOSS) FROM CONTINUING OPERATIONS (84,000) 7,000 NET PROFIT (LOSS) $ (84,000) $ 7,000 ========= ========= NET PROFIT (LOSS) PER SHARE: Continuing operations $ (.07) $ .01 ========= ========= Weighted average number of common shares outstanding 1,222,905 1,222,905 ========= ========= See notes to consolidated financial statements 4 FRAWLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 30, ------------------------- 1998 1997 ----------- ----------- REVENUES: Net Revenues $1,399,000 $1,277,000 ---------- ---------- TOTAL REVENUES 1,399,000 1,277,000 COSTS AND EXPENSES: Cost of operations 861,000 886,000 Selling, general and administrative expenses 631,000 453,000 Interest expense 131,000 128,000 ---------- ---------- TOTAL COST AND EXPENSES 1,623,000 1,467,000 ---------- ---------- NET LOSS $ (224,000) (190,000) ========== ========== NET (LOSS) INCOME PER SHARE: Continuing operations $ (0.18) $ (0.16) ========== ========== Weighted average number of common shares outstanding 1,222,905 1,222,905 ========== ========== See notes to consolidated financial statements 5 FRAWLEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 30, ------------------------ 1998 1997 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(224,000) $(190,000) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Loss on sale of real estate property 79,000 Write down of long term debt (11,000) Write down of Advertising expense (156,000) Depreciation 16,000 15,000 Changes in operating assets and liabilities: Short- and long-term accounts receivable, net 59,000 53,000 Prepaid expenses and deposits 30,000 (18,000) Other assets Accounts payable and accrued expenses (106,000) (262,000) Unearned revenue 29,000 14,000 --------- --------- TOTAL ADJUSTMENTS 107,000 (365,000) --------- --------- Net cash used in operating activities (117,000) (555,000) --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Equipment purchases (17,000) (8,000) Long term debt paydown (87,000) (5,000) Payments for environmental reserve (150,000) Payments for real estate investments (16,000) (33,000) Proceeds from sale of real estate properties 103,000 --------- --------- Net cash provided by investing activities (17,000) 196,000 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term debt borrowings 101,000 137,000 Short-term notes receivable 547,000 Long-term notes receivable 12,000 --------- --------- Net cash provided or used by financing activities 101,000 696,000 --------- --------- Net cash used for continuing operations (33,000) (55,000) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (33,000) (55,000) CASH, BEGINNING OF PERIOD 73,000 148,000 --------- --------- CASH, END OF PERIOD $ 40,000 $ 93,000 ========= ========= See notes to consolidated financial statements 6 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 June 30, 1998, the results of operations and changes in cash flow for the six months then ended. NOTE 2: Revenues from continued operations for the six months ended June 30, 1998 totaled $1,399,000. NOTE 3: The results of operations for the six months ended June 30, 1998 and 1997 are not necessarily indicative of results to be expected for the full year. 7 FRAWLEY CORPORATION AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Specialized Health Services - --------------------------- During the quarter ended June 30, 1998, operating revenues from Specialized Health Services increased by $154,000 when compared to the same period in 1997. 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 - ----------- The real estate operating loss during the quarter ended June 30, 1998 was $204,000 as compared to a loss of $136,000 for the same period in 1997. Real estate losses continue as the company incurs carrying costs, improvements required to sell the property, and litigation cost with particular properties. The undeveloped real estate market in Southern California is showing signs of improvement. The Company is actively advertising the undeveloped real estate for sale. In the first quarter, the Company entered into a agreement to sell one small parcel of land which sold in May of 1998 for $102,000. 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. Liquidity and Capital Resources - ------------------------------- 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. 8 The Seattle Hospital and outpatient treatment program reported a $93,000 profit for the six months ended June 30, 1998 compared to a $38,000 loss for the six months ended June 30, 1997. 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 is due September 1, 1999. The Company continues to incur legal expenses and has an obligation in 1998 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. 9 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. During 1995, the State of California adjusted the estimated cost of remediation. Soil remediation is estimated at $2,000,000 with the Company's participation at 3.8% or $76,000. Water clean up is estimated at $6,000,000 with the Company's share at 5.67% or $340,000. The Company has recorded a liability for its estimated share of the assessments, net of insurance recovery, in the accompanying financial statements. In 1996, the PRP Group revised the cleanup estimate cost of the site over a 30-year period and included a cost for overhead and State oversight costs for the same period of time. Also at the end of 1996, the PRP Group announced that the allocation percentage would be changing. Although nothing has officially been released the Company has increased its reserve to reflect the higher cost estimate and the higher expected percentage based on discussion with PRP legal counsel and site management. The result was that the Company increased its 1995 reserve from $744,000 to $1,815,000 in 1996. Because of the long term nature of these expenses the Company has reclassified the liability into short term for $197,000, which the Company paid $150,000 in May 1997, and long term for $1,618,000. The Company is also liable for its share of site study costs and in connection with such costs, the Company paid into the PRP group $38,000 in 1993, $271,000 in 1994 and a cash call contribution of $190,000 in May of 1997. In 1991, Sun Sail Development Company sold 23 acres to Shula Inc. for $1,000,000, $600,000 in cash and a $400,000 note secured by a second Deed of Trust on the 23 acres. In 1994 Shula Inc. filed for protection under Chapter 11 Bankruptcy Code. Sun Sail Development wrote off the $400,000 note due to the bankruptcy filing. In 1996 Shula attempted to disallow Sun Sail as a secured creditor. Also in 1996, Sun Sail Development settled the matter by agreeing to a $300,000 note due in eight years at 10% interest payable in installments of $2,000 per month. The balance of the interest and principal is due at maturity. The note continues to be secured by a second Deed of Trust behind a $875,000 first Deed of Trust. The Shula bankruptcy plan reorganization and stipulated settlement were approved by the Bankruptcy Court on December 10, 1996. In April 1997 Shula Inc. made a principal payment of $15,000 and interest of 10 $2,000. Since collection remains doubtful the Company will recognize income from recovery of bad debt as payments are received. ITEM 5: Other Information ----------------- None ITEM 6: Exhibits and Reports on Form 8-K -------------------------------- No reports on form 8-K were filed during the quarter ended June 30, 1998. 11 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 --------------------------------------- (REGISTRANT) Date: December 7, 1998 By: /s/Michael P. Frawley ---------------------------- --------------------------- MICHAEL P. FRAWLEY, President (Authorized Officer and Chief Financial Officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1998 JUN-30-1998 40,000 0 1,328,000 776,000 66,000 77,000 4,668,000 1,152,000 4,251,000 5,210,000 0 0 0 1,414,000 (2,373,000) 4,251,000 1,399,000 1,399,000 861,000 861,000 631,000 0 131,000 (224,000) 0 (224,000) 0 0 0 (224,000) (.18) 0
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