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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 ACT OF 1934 
For the quarterly period ended June 30, 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 June 30, 2002Common stock, par value $1

1,222,905





Total Number of Pages 12





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FRAWLEY CORPORATION AND SUBSIDIARIES





INDEX





Page No.PART I:    FINANCIAL INFORMATIONItem 1:    Financial StatementsConsolidated Balance Sheets June 30, 2002 and December 31, 2001

3Consolidated Statements of Operations Three Months ended June 30, 2002 and 2001

4Consolidated Statements of Operations Six Months Ended June 30, 2002 and 2001

5Consolidated Statements of Cash Flows Six Months Ended June 30, 2002 and 2001

6Notes to Consolidated Financial Statements

7Item 2:    Managements Discussion and Analysis of Financial Condition and Results of Operations

8-9PART II:    OTHER INFORMATIONItem 1:    Legal Proceedings

10Item 5:    Other Information

10Item 6:    Exhibits and Reports on Form 8-K

11SIGNATURES

12




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ITEM I:    FINANCIAL STATEMENTS





FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS





June 30, 2002


December 31, 2001(Unaudited)ASSETSCurrent assetsCash

$
162,000


$
135,000Accounts receivable, net


6,000



Prepaid expenses and other deposits


69,000



66,000Current assets of discontinued operations


473,000



542,000Total current assets


710,000



743,000Real estate investments, net


1,291,000



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


2,000



416,000Total assets

$
2,003,000


$
2,435,000LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilitiesNotes payable to stockholders

$
2,638,000


$
2,416,000Accounts payable and accrued expenses


1,166,000



962,000Environmental reserve


78,000



209,000Current liabilities of discontinued operations


436,000



1,481,000Total current liabilities


4,318,000



5,068,000Long term liabilitiesEnvironmental reserve


1,424,000



1,424,000Total liabilities


5,742,000



6,492,000Stockholders 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


(21,378,000
)


(21,696,000
)(2,978,000
)


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


(761,000
)


(761,000
)Total stockholders deficit


(3,739,000
)


(4,057,000
)Total liabilities and stockholders deficit

$
2,003,000


$
2,435,000





See notes to consolidated financial statements.




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FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months Ended June
30,2002


2001(Unaudited)Revenues:Net revenues

$



$
690,000Costs and expenses:Cost of operations






446,000Selling, general and administrative expenses


67,000



283,000Interest expense


63,000



86,000Total costs and expenses


130,000



815,000Loss from continuing operations


(130,000
)


(125,000
)Loss from discontinued operations


(105,000
)


Net income/(loss)

$
(235,000
)

$
(125,000
)Loss per share from continuing operations

$
(0.11
)

$
(0.10
)Net loss per share, common

$
(0.19
)

$
(0.10
)Fully diluted

$
(0.19
)

$
(0.10
)Weighted average number of common shares outstanding


1,222,905



1,222,905





See notes to consolidated financial statements.




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FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS





Six Months Ended June
30,2002


2001(Unaudited)Revenues:Net operating revenues

$
10,000


$
1,415,000Costs and expenses:Cost of operations






875,000Selling, general and administrative expenses


120,000



595,000Interest expense


123,000



156,000Total cost and expenses


243,000



1,626,000Loss from continuing operations


(233,000
)


(211,000
)Income from discontinued operations


551,000



Net income/(loss)

$
318,000


$
(211,000
)Loss per share from continuing operations

$
(0.11
)

$
(0.17
)Net income/(loss) per share, common

$
0.26


$
(0.17
)Fully diluted

$
0.26


$
(0.17
)Weighted average number of common shares outstanding


1,222,905



1,222,905





See notes to consolidated financial statements.




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FRAWLEY CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS





Six Months Ended June
30,2002


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

$
318,000


$
(282,000
)Adjustments to reconcile net income/(loss) to net cash used in operating activities:Gain on sale of assets


(781,000
)


Depreciation






16,000Change in net assets of discontinued operations


70,000



Change in net liabilities of discontinued operations


151,000



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


(6,000
)


106,000Prepaid expenses and deposits


(3,000
)


(8,000
)Accounts payable and accrued expenses


71,000



147,000Unearned revenue






(55,000
)Total adjustments


(498,000
)


206,000Net cash used in operating activities


(180,000
)


(76,000
)CASH FLOWS FROM INVESTING ACTIVITIES:Real estate investments


(15,000
)


4,000CASH FLOWS FROM FINANCING ACTIVITIES:Short-term debt borrowings


222,000



95,000Net change in cash and cash equivalents


27,000



23,000Cash, beginning of period


135,000



54,000Cash, end of period

$
162,000


$
77,000





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




|NOTE 2: |  | The results of operations for the six months ended June 30, 2002 as compared to the results of 2001 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
|------- |  | -------------------------------------------------------------------------------------




Real Estate





For
the quarter ended June 30, 2002, the real estate operating loss was $95,000 compared to a loss in 2001 of $88,000. During the first six months of this year, real estate losses were $167,000 as compared to a loss of $181,000 for the same period in
2001. Real estate losses continue as the Company incurs carrying costs and costs of 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 a year, the Board of Directors of the Company has unanimously voted to sell or close this business in 2002. The Company is currently negotiating with a group of
non-related former patients who are interested in purchasing the Schick program. If these negotiations are not successful, the Company will seek another purchaser.





Effective February 1, 2002, the Company entered into a Settlement Agreement with a related party holding outstanding notes payable in the amount of $1,022,000, secured by
the hospital property in Seattle, Washington. Under the terms of the agreement, the Company sold the hospital land, building and related property and equipment to the related party for a purchase price in the amount of the principal of the notes
($1,022,000) and accrued interest ($174,000). Also effective February 1st, 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 June 30, 2002, the health care discontinued operations loss was approximately $105,000. For the six months ended June 30, 2002, the health care discontinued
operations net income was approximately $551,000. The net income reflects a gain from the Settlement Agreement 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. If the Company had not entered into the Settlement Agreement, the net loss for the hospital would have been $230,000 for the six months ended June 30, 2002 as compared to a loss of $17,000 for the same period
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




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Companys ability to continue as a going concern.





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.




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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 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 of the changes. 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 June 30, 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 second quarter of 2002, Michael Frawley, Chairman of the Board, loaned to Shadel Hospital Inc. DBA Schick Shadel Hospital of
Seattle $55,000 to meet short term operating cash flows. The loan was secured by the hospitals assets.





In
the second 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




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estate.





The following loans were made:





April 3rd, 2002

$  37,043.00June 14th, 2002

17,000.00June 21st, 2002

105,000.00





ITEM 6:    EXHIBITS AND REPORTS ON FORM 8-K





Exhibit
99.1Certification of CEO and CFO





No reports on form 8-K were filed during the quarter ended June 30, 2002.




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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 (Registrant)Date:    August 20, 2002



By:

/s/    MICHAEL P.
FRAWLEYMichael P. Frawley President (Authorized Officer and Chief
Financial Officer




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