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Delaware
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95-2639686
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|
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(STATE
OR OTHER JURISDICTION OF
INCORPORATION)
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(I.R.S.
EMP I.D.
NO)
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5737
Kanan Rd. PMB # 188, Agoura Hills,
California
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91301
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|
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(ADDRESS
OF PRINCIPAL EXECUTIVE
OFFICES)
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(ZIP
CODE)
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Common
stock, par value $1
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1,222,900
|
|
|
(Class)
|
Outstanding
at September 30,
2007
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|
PART
I: FINANCIAL INFORMATION
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PAGE
NO.
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|||
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Item
1: Financial Statements
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||||
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Consolidated
Balance Sheets September 30, 2007 and December 31, 2006
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3
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|||
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Consolidated
Statements of Operations Three Months Ended September 30, 2007
and
2006
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4
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|||
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Consolidated
Statements of Operations Nine Months Ended September 30, 2007 and
2006
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5
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|||
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Consolidated
Statements of Cash Flows Nine Months Ended September 30, 2007 and
2006
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6
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|||
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Notes
to Consolidated Financial Statements
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7
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|||
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Item
2: Management's Discussion and Analysis of Financial Condition
and Results
of Operations
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8
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|||
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PART
II: OTHER INFORMATION
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||||
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Item
1: Legal Proceedings
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9-10
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|||
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||||
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Item
5: Other Information
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10
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|||
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Item
6: Exhibits and Reports on Form 8-K
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10
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|||
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SIGNATURES
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11
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|||
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SEPTEMBER
30, 2007
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DECEMBER
31, 2006
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||||||
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(Unaudited)
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||||||
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ASSETS
|
|||||||
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CURRENT
ASSETS
|
|||||||
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Cash
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$
|
4,000
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$
|
8,000
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|||
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Accounts
receivable, net
|
4,000
|
4,000
|
|||||
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Prepaid
expenses and other current assets
|
-
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17,000
|
|||||
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TOTAL
CURRENT ASSETS
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8,000
|
28,000
|
|||||
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Real
estate investments, net
|
457,000
|
457,000
|
|||||
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Investment
in partnership
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16,000
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16,000
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|||||
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TOTAL
ASSETS
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$
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481,000
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$
|
501,000
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|||
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|||||||
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CURRENT
LIABILITIES
|
|||||||
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Notes
payable to stockholders
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$
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2,309,000
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$
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2,138,000
|
|||
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Accounts
payable and accrued expenses
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123,000
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164,000
|
|||||
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Environmental
reserve
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77,000
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77,000
|
|||||
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Interest
payable to related parties
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2,003,000
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1,840,000
|
|||||
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Deposits
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385,000
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374,000
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|||||
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TOTAL
CURRENT LIABILITIES
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4,897,000
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4,593,000
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|||||
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LONG
TERM LIABILITIES
|
|||||||
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Environmental
reserve
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1,120,000
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1,120,000
|
|||||
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TOTAL
LIABILITIES
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6,017,000
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5,713,000
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|||||
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STOCKHOLDERS’
DEFICIT:
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|||||||
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Preferred
stock, par value $1 per share:
|
|||||||
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Authorized,
1,000,000 shares; none issued
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|||||||
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Common
stock, par value $1 per share;
|
|||||||
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Authorized,
6,000,000 shares, issued
|
|||||||
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1,414,217
shares
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1,414,000
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1,414,000
|
|||||
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Capital
surplus
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17,209,000
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17,209,000
|
|||||
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Accumulated
deficit
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(23,398,000
|
)
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(23,074,000
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)
|
|||
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(4,775,000
|
)
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(4,451,000
|
)
|
||||
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Less
common stock in treasury,
|
|||||||
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191,312
shares (at cost)
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(761,000
|
)
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(761,000
|
)
|
|||
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TOTAL
STOCKHOLDERS’ DEFICIT
|
(5,536,000
|
)
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(5,212,000
|
)
|
|||
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$
|
481,000
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$
|
501,000
|
|||
|
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Three
Months Ended
SEPTEMBER
30,
|
||||||
|
2007
|
2006
|
||||||
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REVENUES:
|
|||||||
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Other
income
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$
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-
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$
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-
|
|||
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COSTS
AND EXPENSES:
|
|||||||
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Selling,
general and administrative
|
|||||||
|
expenses
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40,000
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40,000
|
|||||
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Interest
expense
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56,000
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51,000
|
|||||
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TOTAL
COSTS AND EXPENSES
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96,000
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91,000
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|||||
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NET
LOSS
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$
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(96,000
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)
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$
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(91,000
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)
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|
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NET
LOSS PER SHARE, COMMON
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$
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(0.08
|
)
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$
|
(0.07
|
)
|
|
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FULLY
DILUTED
|
$
|
(0.08
|
)
|
$
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(0.07
|
)
|
|
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Weighted
average number of
|
|||||||
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Common
shares outstanding
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1,222,905
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1,222,905
|
|||||
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Nine
Months Ended
SEPTEMBER
30,
|
||||||
|
2007
|
|
2006
|
|||||
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REVENUES:
|
|||||||
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Other
income
|
$
|
2,000
|
$
|
751,000
|
|||
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COSTS
AND EXPENSES:
|
|||||||
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Cost
of real estate sold
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-
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355,000
|
|||||
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Selling,
general and administrative
|
|||||||
|
expenses
|
163,000
|
205,000
|
|||||
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Interest
expense
|
163,000
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163,000
|
|||||
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TOTAL
COSTS AND EXPENSES
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326,000
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723,000
|
|||||
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NET
(LOSS)/INCOME
|
$
|
(324,000
|
)
|
$
|
28,000
|
||
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NET
(LOSS)/INCOME PER SHARE, COMMON
|
$
|
(0.26
|
)
|
$
|
0.02
|
||
|
FULLY
DILUTED
|
$
|
(0.26
|
)
|
$
|
0.02
|
||
|
Weighted
average number of
|
|||||||
|
Common
shares outstanding
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1,222,905
|
1,222,905
|
|||||
|
|
Nine
Months Ended
|
||||||
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SEPTEMBER
30,
|
|||||||
|
2007
|
2006
|
||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
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Net
(loss)/income
|
$
|
(324,000
|
)
|
$
|
28,000
|
||
|
Adjustments
to reconcile net (loss)/income to
net cash (used in)/provided by
|
|||||||
|
operating
activities:
|
|||||||
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Changes
in operating assets and liabilities:
|
|||||||
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Short
and long-term accounts receivable, net
|
-
|
(4,000
|
)
|
||||
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Prepaid
expenses and other current assets
|
17,000
|
24,000
|
|||||
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Accounts
payable and accrued liabilities
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133,000
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(4,000
|
)
|
||||
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Real
estate investments
|
-
|
355,000
|
|||||
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TOTAL
ADJUSTMENTS
|
150,000
|
371,000
|
|||||
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NET
CASH (USED IN)/PROVIDED BY OPERATING
|
|||||||
|
ACTIVITIES
|
(174,000
|
)
|
399,000
|
||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
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Short-term
debt borrowings from related party
|
171,000
|
115,000
|
|||||
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Repayment
of environmental reserve
|
- |
(150,000
|
)
|
||||
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Repayment
of borrowings
|
- |
(369,000
|
)
|
||||
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NET
CASH PROVIDED BY/(USED IN) FINANCING
|
|||||||
|
ACTIVITIES
|
171,000
|
(404,000
|
)
|
||||
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NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(3,000
|
)
|
(5,000
|
)
|
|||
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CASH,
BEGINNING OF PERIOD
|
7,000
|
7,000
|
|||||
|
CASH,
END OF PERIOD
|
$
|
4,000
|
$
|
2,000
|
|||
| 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 September 30, 2007, and the results of operations and changes in cash flows for the nine months then ended. | |
| NOTE 2: | The results of operations for the nine months ended September 30, 2007 as compared to the results of 2006 are not necessarily indicative of results to be expected for the full year. |
|
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.
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|
Real
Estate and Corporate overhead are producing losses that the real-estate
business is unable to absorb. The required investments in real estate
are
currently funded from loans.
|
|
The
Company continues to incur legal expenses and has an obligation in
2007 to
contribute to the Chatham Brothers toxic waste cleanup lawsuit, as
well as
an obligation in 2007 for the Omega Chemical Superfund Site. At this
time,
the Company does not have the funds to satisfy these obligations
when they
become due.
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PART
II - OTHER INFORMATION
|
|
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 is 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, 1999, the PRP’s consent decree was
approved by the Court. As of September 30, 2007, the Company had
paid into
the PRP Group approximately $1,040,000, which includes the assignment
of a
$250,000 note receivable with recourse. In addition, the Company
has
accrued short-term and long-term undiscounted liabilities of $77,000
and
$1,120,000 respectively, to cover future costs under the remediation
plan.
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|
During
the past several years, the Company has requested a Hardship Withdrawal
Settlement with the PRP group due to the Company’s financial condition.
The PRP group has continually denied the Company’s request. In December
2003, the Company again formally requested a Hardship Withdrawal
Settlement with the PRP Group. The Company’s proposal was for payment of
$240,000 over four years in exchange for complete release from all
further
legal and financial responsibility related to the environmental
liability.
|
|
On
July 16, 2004, the Company entered in a settlement agreement with
the
Chatham Site PRP Group Trust for a $240,000 payment to be paid as
follows:
$100,000 on December 31, 2004, $50,000 on December 31, 2005, $50,000
on
December 31, 2006 and $40,000 on December 31, 2007. The Company will
not
be fully released from the environmental liability until the settlement
agreement note of $240,000 and the assigned note in the amount of
$250,000
are paid in full. In 2006, the PRP Group received a principal payment
related to the assigned note of $50,000 and interest accrued of $8,000,
compared to a $50,000 principal payment and $12,000 of accrued interest
in
2005. After the closing of the quarter ended September 30, 2007,
the PRP
reported receipt of the final payment of $50,000 in principal and
$4,000
in interest, due from the assigned note.
|
|
In
March 2006, the Company made a payment in the amount of $150,000
related
to the settlement agreement note representing the payments due on
December
31, 2004 and December 31, 2005. The Company did not make the scheduled
payment on December 31, 2006. The Company owes penalties on late
payments
totaling approximately $20,000 calculated at 10% of the face value
of the
note payments for the years 2004, 2005 and 2006. These penalties
are
recognized in interest expense and the liability is accrued as a
portion
of the current environmental reserve. At this time, the Company is
unable
to pay the remaining balance currently owed on the settlement note
in the
amount of approximately $110,000. The PRP group has been unwilling
to
extend the note. The Company is attempting to raise the cash through
either loans or a property sale.
|
|
If
Frawley Corporation complies with the terms of the notes, the Company
will
not be responsible for any additional payments to the Chatham Site
PRP
Group for the financing of the remediation action plan approved by
the
State of California in 1999. However, the PRP Group refused to indemnify
Frawley Corporation for any third party lawsuit related to the Chatham
Site Clean up Site that are not considered in the remediation action
plan
approved in 1999.
|
|
In
June 2004 the Corporation received a new environmental claim against
its
former Harley pen division in the amount of approximately $99,000.
The
claim has been made by the United States Environmental Toxic Agency
concerning the Company’s alleged responsibility for the Omega Chemical
Superfund Site. The Company has recorded the liability in the year
ended
December 31, 2004. During 2006, the Company agreed to pay the liability
in
installment payments through October 2007. The
Company made payments of approximately $52,000 during 2006 and
$12,000
during the first and second quarters of 2007, respectively. The Company
was unable to make the payment due on July 11, 2007. The Company
requested
a payment extension, which the EPA reviewed and granted an extension
of 18
months to pay the balance plus interest accrued by March
2009.
|
|
During
the third quarter ended September 30, 2007, the Company borrowed
approximately $39,000 from the Frawley Family Trust. These loans
are
secured by Deeds of trust on the Company’s real estate property.
|
|
FRAWLEY
CORPORATION
|
||
|
(REGISTRANT)
|
||
| |
|
|
| Date: November 9, 2007 | By: | /s/ Michael P. Frawley |
|
MICHAEL P. FRAWLEY, President |
||
| (Authorized Officer and Chief Financial Officer) | ||