##### Table of Contents

---




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, 2002








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 incorporation)

(I.R.S. Emp I.D. No.)





5737 Kanan Rd. PMB 188, Agoura Hills, California

91301(Address of principal executive offices)

(Zip Code)





(818) 735-6640


(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 March 31, 2002Common stock, par value $1

1,222,905








---



---

##### Table of Contents

FRAWLEY CORPORATION AND SUBSIDIARIES





INDEX





Page No.PART I:    FINANCIAL INFORMATIONItem 1:    Financial StatementsConsolidated Balance Sheets March 31, 2002 and December 31, 2001

3Consolidated Statements of Operations Three Months Ended March 31, 2002 and 2001

4Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001

5Notes to Consolidated Financial Statements

6Item 2:    
Managements Discussion and Analysis of Financial Condition and Results of Operations

7-8PART II:    OTHER INFORMATIONItem 1:    
Legal Proceedings

9Item 5:    
Other Information

9Item 6:    
Exhibits and Reports on Form 8-K

10SIGNATURES

11




2




---

##### Table of Contents

ITEM I:    FINANCIAL STATEMENTS





FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS





March 31, 2002


December 31, 2001(Unaudited)ASSETSCURRENT ASSETSCash

$
208,000


$
135,000Accounts receivable, net


7,000



Prepaid expenses and other deposits


36,000



66,000Current assets of discontinued operations


531,000



542,000TOTAL CURRENT ASSETS


782,000



743,000Real estate investments, net


1,290,000



1,276,000Non-current assets of discontinued |operations






416,000TOTAL ASSETS

$
2,072,000


$
2,435,000LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESNotes payable to stockholders

$
2,479,000


$
2,416,000Accounts payable and accrued expenses


1,142,000



962,000Environmental reserve


78,000



209,000Current liabilities of discontinuedoperations


453,000



1,481,000TOTAL CURRENT LIABILITIES


4,152,000



5,068,000LONG TERM LIABILITIESEnvironmental reserve


1,424,000



1,424,000STOCKHOLDERS DEFICIT: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



1,414,000Capital surplus


16,986,000



16,986,000Accumulated deficit


(21,143,000
)


(21,696,000
)(2,743,000
)


(3,296,000
)Less common stock in treasury, 191,312 shares (at cost)


(761,000
)


(761,000
)TOTAL STOCKHOLDERS DEFICIT


(3,504,000
)


(4,057,000
)TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT

$
2,072,000


$
2,435,000





See notes to consolidated financial statements




3




---

##### Table of Contents




FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended March
31,2002


2001|REVENUES:Net operating revenues

$
10,000


$
665,000COSTS AND EXPENSES:Cost of operations






492,000Selling, general and administrative expenses


53,000



246,000Interest expense


60,000



84,000TOTAL COSTS AND EXPENSES


113,000



822,000LOSS FROM CONTINUING OPERATIONS


(103,000
)


(157,000
)INCOME FROM DISCONTINUED OPERATIONS


656,000



NET INCOME/(LOSS)

$
553,000


$
(157,000
)LOSS PER SHARE FROM CONTINUING OPERATIONS, COMMON:

$
(.08
)

$
(.13
)NET INCOME/(LOSS) PER SHARE, COMMON

$
.45


$
(.13
)FULLY DILUTED

$
.45


$
(.13
)Weighted average number of common shares outstanding


1,222,905



1,222,905








See notes to consolidated financial
statements




4




---

##### Table of Contents




FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months Ended March 31,2002


2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss)

$
553,000


$
(157,000
)Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:Gain on sale of assets


(781,000
)


Depreciation






8,000Change in net assets of discontinued operations


12,000



Change in net liabilities of discontinued operations


168,000



Changes in operating assets and liabilities:Shortand long-term accounts receivable, net


(7,000
)


(32,000
)Prepaid expenses and deposits


30,000



24,000Accounts payable and accrued expenses


49,000



68,000Unearned revenue






63,000TOTAL ADJUSTMENTS


(529,000
)


131,000NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES


24,000



(26,000
)CASH FLOW FROM INVESTING ACTIVITIES:Real estate investments


(14,000
)


CASH FLOWS FROM FINANCING ACTIVITIES:Short-term debt borrowings


63,000



26,000NET CHANGE IN CASH AND CASH EQUIVALENTS


73,000



CASH, BEGINNING OF PERIOD


135,000



54,000CASH, END OF PERIOD

$
208,000


$
54,000








See notes to consolidated financial
statements




5




---

##### Table of Contents




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, 2002, the results of operations and changes in cash flows for the three months then ended.





NOTE 2:





The results of operations for the three months ended March 31, 2002 and 2001 are
not necessarily indicative of results to be expected for the full year.




6




---

##### Table of Contents




Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations





Real Estate





The real estate operating loss during the quarter ended March 31, 2002 was
approximately $73,000 as compared to a loss of $93,000 for the same period in 2001. Real estate losses continue as the Company incurs carrying costs and improvements required to sell the property.





Specialized Health Services





Due to the Hospitals continued losses and its inability to pay interest on its secured $1,022,000 loan on the hospital property for more than one year, the Board of Directors of the Company
unanimously voted in December 2001 to sell or close this business within the first six months of 2002.





The
Company currently is seeking an investor to fund marketing and expansion of the health care services or a purchaser for this subsidiary. No assurance can be made that an investor or purchaser will be found.





Effective February 1, 2002 the Company entered into a Settlement Agreement with a related party who held outstanding notes payable in the
amount of $1,022,000, secured by the hospital property in Seattle, Washington. Under terms of the agreement, the Company sold the hospitals land, building, and property and equipment to the related party for a purchase price in the amount of
the principal of the notes and accrued interest of $174,000. Also effective February 1 st , 2002, the
Company entered into a lease agreement with the related party whereby the company is permitted to lease the hospital facility for 36 months, with an option to repurchase the property from the related party at an amount equal to the original
principal indebtedness plus accumulated interest and attorneys fees.





During the quarter ended March 31,
2002, the health care discontinued operations net income was approximately $656,000. The net income reflects a gain of $781,000, which resulted from the reduction of debt in the amount of $1,022,000 and accrued interest of $174,000 less the net book
value of assets sold for $415,000. Operating loss for the Hospital for the three months ended March 31, 2002 was $125,000 compared to a loss of $32,000 in 2001. These results are not necessarily an indication of the future quarters operating
results.





Liquidity and Capital Resources





The Companys recurring losses from continuing operations led to its decision to discontinue the hospital operations. Difficulties in generating cash flow sufficient
to meet its obligations raise substantial doubt about the Companys ability to continue as a going concern.




7




---

##### Table of Contents




Real Estate and Corporate overhead continue to produce losses that the operating
business is unable to absorb. The required investments in real estate are currently funded by loans.





The Company
continues to incur legal expenses and has an obligation in 2002 to contribute to the Chatham Brothers toxic waste cleanup lawsuit.





Servicing outstanding debt continues to be a significant burden on the Companys operations.




8




---

##### Table of Contents




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, which were notified and
which are referred to as 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 March 31, 2002, the Company had paid over $570,000 into the PRP group and had a cash call contribution payable of $131,000. In addition, the Company 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 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 but 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





Related Party Transactions





In the first quarter of 2002, Frances Swanson, Trustee of the Frawley Family Trust loaned the Corporation funds to meet
short-term operating expenses. The loans were secured by the Companys real estate.





The following loans were
made:





February 1st 2002

$
13,705.32February 19th 2002


10,000.00February 21st 2002


19,000.00March 22nd 2002


20,879.61




9




---

##### Table of Contents




Item 6:Exhibits and Reports on Form 8-K





Exhibit 7Financial Data
Schedule





On February 13, 2002, the Company filed an 8K report.




10




---

##### Table of Contents




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)By:

/s/    MICHAEL P. FRAWLEYMichael P. Frawley (Authorized
Officer and CEO and Chairman of the Board)





Date: July 19, 2002




11