U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended
December 31,
2007
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number 1-6436
FRAWLEY CORPORATION
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware
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95-2639686
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(STATE OR OTHER JURISDICTION OF
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(I.R.S.
EMPLOYER I.D. NO.)
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INCORPORATION OR ORGANIZATION)
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Agoura
Hills, California 91301
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP
CODE)
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(818)735-6640
(REGISTRANT'S
TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities
registered pursuant to Section 12 (b) of the Act: None
Securities
registered pursuant to Section 12 (g) of the Act: None
Title of each
class
Common Stock, par value
$1.00 per share
Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 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 ¨
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. x
The
Company’s stock was de-listed by the Pacific Stock Exchange Incorporated on
December 1, 1992. Therefore, no current market value exists for the
stock as of May 10, 2008.
Number of
shares of Common Stock outstanding as of May 10, 2008: 1,222,900
shares.
Documents
incorporated by reference – portions of the Information Statement to be filed
with the Securities and Exchange Commission in connection with the Annual
Election of Directors are incorporated by reference into Part III
hereof.
Total
number of pages, including cover page and exhibits 31
PART
I
Item 1.
Business
Frawley
Corporation is currently engaged in real estate development.
The
Health Services division was terminated in 2002 with the sale of the assets and
operations on February 1, 2002 and October 1, 2002, respectively.
Frawley
Corporation is a Delaware Corporation organized in 1969. References
to the Company include references to Frawley Corporation and its
Subsidiaries.
Real
Estate
The
Company's real estate consists of approximately 36 acres of largely undeveloped
land in the Santa Monica Mountains, northwest of Los Angeles. The
properties owned by the Company represent an aggregate investment of
approximately $457,000 as of the end of 2007, and are subject to mortgage debt
held by various stockholders, including the Chief Executive Officer and related
family members, aggregating approximately $2,547,000. The Company continues to
invest resources in real estate and it will continue its efforts to sell the
land. (See Item 6, Management's Discussion and Analysis of Financial
Condition and Results of Operations).
Employees
Frawley
Corporation and its Subsidiaries employ 1 person. Due to the
Company’s severe financial condition, the Company reduced its staff to Michael
Frawley, President, and one part time assistant since the third quarter of
2004.
Item
2. Properties
Frawley
Corporation and its Subsidiaries operate out of office space from a related
party at no charge. (For a description of investment properties, see
Item 1. Business - Real Estate).
Item 3. Legal
Proceedings
The
Company was 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 Harley
Pen Company, which was previously owned by the Company.
2
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 are referred to as Potentially Responsible Parties
(PRPs) for the purpose of negotiating with the DTSC and for undertaking
remediation of the site.
In
January 1998, the final remediation plan was approved by the State and in
January of 1999, the PRPs consented to the plan and related allocation of
costs. The consent decree was approved by the Court.
As of
December 31, 2006 the Company had paid into the PRP Group over $1,040,000, which
included the assignment of a $250,000 note receivable with
recourse. In addition, the Company had accrued short-term and
long-term undiscounted liabilities of $77,000 and $1,120,000 respectively, to
cover future costs under the remediation plan.
During
the past several years, the Company had requested a Hardship Withdrawal
Settlement with the PRP group due to the Company’s financial
condition. The PRP group had 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 into a
settlement agreement note in the amount of $240,000 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 would 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 were paid in
full. During 2007 the PRP Group received the final payment due under
the assigned note receivable.
In March
2006, the Company made a payment in the amount of $150,000 related to the
settlement agreement note representing the payments due. The Company
was unable to make the December 31, 2006 $50,000 payment. As a result
of the late payments, the Company owed penalties totaling approximately $20,000
for the years 2004, 2005 and 2006. These late payment penalties and the 2006 and
2007 principal payments totaling approximately $110,000 were due and payable by
December 31, 2007.
In
December 2007, the Company paid to the PRP Group $112,000 to cover the payment
of $50,000 that was due December 31, 2006, and $40,000 due December 31, 2007
plus additional penalties and interest totaling $22,000 on the settlement note.
The Company received acknowledgement from the PRP group that the note has been
paid in full. As a result of this payment and pursuant to the settlement
agreement, the Company is not responsible for any additional liability related
to this site, other than any new claims from third
parties. Therefore, the Company removed the remaining liability from
its books as of December 31, 2007 and recognized a gain on the extinguishment of
this debt in the amount of $1,107,000.
3
Pursuant
to the settlement agreement, the PRP Group did not indemnify Frawley Corporation
for any third party lawsuit related to the Cleanup Site that was 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 recorded the liability in the
year ended December 31, 2004. In December 2005, the Company received
a demand for payment from the EPA and negotiated a payment plan which required
the total liability, plus interest to be paid in full by January
2007. During 2006, the Company made payments of approximately
$52,000, leaving a balance of approximately $47,000 due in January
2007. The Company was unable to make the January 2007
payment. The Company reached a new agreement with the EPA, and made
its first payment under the new agreement on January 11, 2007. The
remaining payments were due in April, July and October 2007. The Company was
unable to make the payment due in July 2007. The Company requested a
payment extension. The EPA reviewed the request and extended the term 18 months
to pay the balance plus interest accrued on March 2009.
Item
4. Submission of Matters to a Vote of Security
Holders
Not
Applicable.
4
PART
II
Item 5. Market
for Registrant's Common Stock and Related Stockholders
Matters
The
Company's stock was delisted by the Pacific Stock Exchange on December 1, 1992.
There is currently no public trading for the stock.
The
approximate number of holders of record for Frawley Corporation's Common Stock
as of December 31, 2007 was 505.
No
dividends have been paid in the periods shown above.
Item 6. Selected
Financial Statement Data
Recent
Accounting Pronouncements
See
Recent Accounting Pronouncement section of Note 1 to our consolidated financial
statements for a summary of new accounting standards.
Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overall
Summary
The net
income was $577,000 in 2007 as compared to a net loss of $86,000 in 2006 (see
following discussion of real estate). This was as a result of the
Company’s ability to complete the terms of the settlement agreement related to
the environmental reserve. The Company recorded income from
extinguishment of debt in the amount of $1,107,000 in 2007 (see Legal
Proceedings). However, the Company’s operating cash flow is still
negative.
Interest
expense for 2007 was $254,000 compared to $227,000 (net of $8,000 of interest
income) for 2006. Selling, general and administrative expenses were
$278,000 for 2007 compared to $169,000 for 2006.
Real
Estate
The real
estate operating loss before interest expense was $188,000 in 2007 as compared
to $216,000 in 2006.
In
February 2004, the Company received notice from Los Angeles County that the
county intends to severely restrict grading permits and may require conditional
use permits for grading on the Company’s property. In addition, the County of
Los Angeles announced its intention to restrict the building of residences on
three of the Company’s six parcels of land because of new ridgeline building
ordinances. Prior to the ordinance deadline, the Company received
grandfathering status on three of its six parcels. Because the
grandfathering clause is conditional, it is unclear whether or not the Company
will be able to take advantage of this grandfathering status until the Company
completes the permit process. The above regulations potentially
require multi-year processing to reach the point that a parcel can be sold to a
third party.
5
If an
agreement cannot be reached with Los Angeles County, these new regulations may
force the Company to liquidate its real estate, make settlements with its
lenders and close down its real estate development business. As of
the report date, no decision has been made by management regarding liquidation,
nor can they determine the potential financial impact to the
Company. Accordingly, the December 31, 2007 financial statements do
not reflect any adjustments that might result from these new and more stringent
regulations.
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.
Real
Estate and Corporate overhead continue to produce losses that the Company is
having difficulty absorbing. The required investments in real estate
are currently funded from loans or contributions from related
parties.
The
Company has borrowed additional funds from Frawley family members as needed, to
meet real estate investments and working capital needs. During 2007, the Company
borrowed $249,000 from related parties compared to $169,000 during 2006. Also,
the Company borrowed $160,000 from an unrelated third party which were used to
pay the Chatham Site PRP group, operating expenses and to meet the terms of the
loan. As of December 31, 2007, the total notes due were
$2,547,000. The related party notes bear interest at 10%, are secured
by the Company’s real estate investments and became due on various dates ranging
from 2001 through 2007. The Company has defaulted on substantially all of the
related party notes under their terms. As of the date of this report,
no action has been taken on the delinquent amounts.
Prior to
2005, the Company received funds from the family members as an advance on
property that they intend to purchase. The specified property has not been
identified and balances for the deposits for real estate were $374,000 at
December 31, 2007 and 2006, respectively.
Management
intends to raise additional capital by selling real estate. The
limited resources available to the Company will be directed at selling real
estate.
6
The
following measurements indicate the trends in the Company's liquidity from
continuing operations:
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December
31,
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2007
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2006
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||||||
| $ | (4,948,000 | ) | $ | (4,565,000 | ) | |||
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Current
ratio
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(.01
to 1
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) |
(.01
to 1
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) | ||||
Item 8. Financial
Statements and Supplementary Data
See the
consolidated financial statements and the notes thereto which begin on page
F1.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
7
PART
III
Item 10. Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act.
The
following table sets forth the names and certain other information pertaining to
the persons elected as directors.
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Year
First
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|||||||
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Name
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Age
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Principal
Occupation
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Became
Director
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Michael
P. Frawley
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54
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Chairman
of the Board and
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1991
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President
of the Company
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Chief
Executive Officer, Treasurer
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25
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Director
and Secretary
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2007
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of
the Company
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The
Company’s Board of Directors has no committees. During 2007, the
Board of Directors held four meetings in which all of the directors
attended. Michael P. Frawley and Sheila Callahan received no separate
compensation for acting as directors.
All
directors are elected annually and serve until the next annual meeting of
stockholders or until the election and qualification of their
successors.
All
executive officers serve at the discretion of our Board of
Directors. The term of office of each executive officer is until his
or her respective successor is chosen and qualified, or until his or her death,
resignation or removal. Officers are customarily elected by the Board
at a meeting held after the annual election of directors.
On
February 9, 2007, Mr. Michael Frawley and Sheila Callahan were elected by
Written Consent from the Shareholders holding over 54% of the Common stock
outstanding.
Biographical
information for Executive officers and directors
Mr.
Michael P. Frawley has been employed by the Company since 1972. He
became Vice President of Advertising in 1986, Vice President of the Company in
1991 and Treasurer in 1996. He became President of the Company in
1998 after the passing of his father Patrick J. Frawley, Jr.
Michael
Frawley appointed Sheila Callahan to the Board of Directors on February 9,
2007. On February 9, 2007, Michael Frawley and Sheila Callahan were
confirmed as members of the board of Directors by written consent by the
majority of the stockholders.
Code of Ethics
The
Company has adopted a Code of Ethics and Conduct, which applies to all of its
directors, officers and employees. A copy of the Code of Ethics and
Conduct may be obtained, without charge, upon written request addressed to the
following address, c/o Chief Executive Officer, Frawley Corporation, 5737 Kanan
Road PMB 188, Agoura Hills, CA 91301.
8
Item 11. Executive
Compensation
Summary
Compensation Table
The
following table sets forth information for the three most recently completed
fiscal years concerning the compensation of (i) the Chief Executive Officer and
(ii) all other executive officers of the Company who earned over $100,000 in
salary and bonus in the fiscal year ended December 31, 2007 (together the “Named
Executive Officers”).
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Name
and
Principal
Position
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Year
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Annual Compensation
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||||
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Michael
P. Frawley
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2007
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$ | - | |||
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Chief
Executive Officer
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2006
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$ | - | |||
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2005
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$ | 1,080 | ||||
Option
Grants in Last Fiscal Year
None of
the Named Executive Officers received stock option grants in fiscal
2007.
Option Exercises in Last Fiscal Year and
Fiscal Year End Option Value
None of
the Named Executive Officers exercised stock options in fiscal
2007.
Director
Compensation
Our
directors do not currently receive any compensation for service on the Board of
Directors.
Employment Agreements and
Change-in-Control Arrangements
None.
9
Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
following table sets forth certain information regarding beneficial ownership of
the Company’s common stock as of December 31, 2007, by (i) each person or entity
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company’s common stock, (ii) each of the directors, (iii) each of
the Named Executive Officers, and (iv) all directors and executive officers as a
group.
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Title of
Class
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Name and Address of Beneficial
Owners
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Amount and Nature of Percent of
Beneficial Ownership (1)
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||||||||
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Common
Stock
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Dr.
P. Joseph Frawley (2) 436 N. Ontare St. Santa Barbara,
California
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161,401 | 13.2 | % | ||||||
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Common
Stock
|
Michael
P. Frawley 5737 Kanan Rd. PMB 188 Agoura Hills,
California
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133,683 | 10.9 | % | ||||||
|
Common Stock
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Mary
Louise Frawley 16161 Ventura Blvd., #347 Encino,
California
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140,353 | 11.5 | % | ||||||
|
Common
Stock
|
Eileen
Frawley Callahan 10910 Wellworth Ave., #102 Los Angeles,
California
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99,747 | 8.2 | % | ||||||
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Common
Stock
|
Dudley
Callahan 1824 E. Gardenia Phoenix, Arizona
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0 | 0 | % | ||||||
|
Common
Stock
|
Sheila
Callahan 436 N. Ontare Rd. Santa Barbara California
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0 | 0 | % | ||||||
|
Common
Stock
|
Joan
Frawley Desmond 7106 44th
Street Chevy Chase, Maryland
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105,976 | 8.7 | % | ||||||
|
Common
Stock
|
All
Directors and Executive Offices as group (2 Persons)
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133,683 | 10.9 | % | ||||||
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(1)
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Except
as indicated otherwise in the following notes, shares shown as
beneficially owned are those as to which the named persons possess sole
voting and investment power. Dr. P. Joseph Frawley, Mary Louise
Frawley, Eileen Frawley Callahan, Joan Frawley Desmond and Michael P.
Frawley each possess an interest in common stock of the Company that is
currently held in the estate or trust of their deceased father, Patrick
Frawley, Jr. These shares have not been transferred to such
individuals as of the date of this filing. If and when such
shares are transferred to such individuals, they will each hold an
additional number of shares of common stock as follows: Dr. P. Joseph
Frawley (2432 shares), Mary Louise Frawley (2433 shares), Eileen Frawley
Callahan (2433 shares), Joan Frawley Desmond (2433 shares) and Michael P.
Frawley (2432 shares). Each such individual disclaims
beneficial ownership of the shares held by Patrick Frawley,
Jr.
|
|
(2)
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Dr.
P. Joseph Frawley’s holdings include 22,456 shares he holds as custodian
for his children, as to which he disclaims beneficial
ownership.
|
Equity
Compensation Plan Information
The
Company does not have any equity compensation plans.
Item 13. Certain
Relationships and Related Transactions
In 2007
and prior years, the Company has borrowed a total of $2,387,000 from its
stockholders to meet real estate investment and working capital
needs. The notes are secured by real estate
investments. Interest expense to related parties totaled $210,000 and
$215,000 during 2007 and 2006, respectively.
10
PART
IV
Item
14. Financial Statements, Exhibits and Reports on Form
8-K
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(a)
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1.
List of Financial Statements:
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Page Numbers
|
|
Independent
Auditors' Report
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F1
|
|
|
Financial
Statements for the Years Ended December 31, 2006 and 2007
|
||
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Consolidated
Balance Sheets
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F2-F3
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Consolidated
Statements of Operations
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F4
|
|
|
Consolidated
Statement of Stockholders' Deficit
|
F5
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|
|
Consolidated
Statements of Cash Flows
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F6
|
|
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Notes
to Consolidated Financial Statements
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F7-F11
|
|
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2.
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List
of Exhibits:
|
|
|
3.1
|
Registrant's
certificate of incorporation is incorporated herein by this reference to
(A) Exhibit Item (3.1) to Registrant's Registration Statement No. 2-36536
on form S-1, (B) the name change amendment to said certificate of
incorporation under Section 1-02 of the Merger Agreement which is Exhibit
A to the definitive proxy material for Registrant's June 16, 1977 annual
meeting of stockholders, filed under Regulation 14A, and (C) the amendment
to certificate of incorporation which is Exhibit A to the definitive proxy
material for Registrant's June 25, 1987 Annual Meeting of Stockholders,
filed under Regulation 14A.
|
|
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3.2
|
Registrant's
bylaws, as amended to date are incorporated herein by reference to Exhibit
Item (3) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1980.
|
|
|
21.1
|
List
of Subsidiaries is incorporated herein by reference to Exhibit Item (10)
to Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
|
|
|
31.1
|
Sarbanes-Oxley
Act section 302 Certification
|
|
|
31.2
|
Exhibit
302.1
|
11
|
(b)
|
Reports
on Form 8-K:
|
During
2007, no 8K reports were filed.
Other
Events and Required FD Disclosure
On March
1, 2005 the Company filed with the SEC amended forms 10K for 2003 and
2002.
These
reports on Form 10-KSB/A (“Amendment No.1”) are being filed to disclose items 9
through 12 previously omitted from Part III of the Annual Report on Form 10-KSB,
filed by the Frawley Corporation, a Delaware corporation (“the Company”)on March
18, 2004 and May 23, 2003 in compliance with General Instructions E.3 to Form
10-KSB. Although the Company previously reported its related party
transactions that occurred during the fiscal year ended December 31, 2003, and
2002 in the financial statements of the Company’s 10-KSB filed on March 18, 2004
and May 23, 2003, the reports did not contain certain information pertaining to
the Company’s Officers, directors and stockholders controlling more than five
percent of the Company’s outstanding stock. This Amendment No. 1 is
being filed to disclose such information. In addition, pursuant to
the rules of the Securities and Exchange Commission (the “SEC”), we are
including with this Amendment No. 1 certain currently dated
certifications.
Item 15. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s filings under the
Securities Act of 1934 is recorded, processed, summarized and reported within
the periods specified in the rules and forms of the Securities and Exchange
Commission. Such information is accumulated and communicated to the
Company’s management, including its principal financial officer, as appropriate,
to allow timely decisions regarding disclosure. The Company’s
management, including the principal executive officer and principal accounting
officer, recognized that any set of controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.
Within 90
days prior to the filing date of this annual report 10-K, the Company carried
out an evaluation, under the supervision and with the participation of the
Company’s management, including the Company’s principal executive officer and
principal financial officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures. Based on such
evaluation, the Company’s principal executive officer and principal financial
officer identified a deficiency relating to incomplete disclosures in this
annual report as originally filed. These updated disclosures related
to Management’s report on internal control over financial
reporting. Although management had performed a review of its internal
control over financial reporting as of December 31, 2007, the required
disclosures were erroneously left out of the original filing of this annual
report. As a result, Management has concluded that the disclosure controls and
procedures are ineffective as of December 31, 2007. Management is currently in
the process of revising its internal control over financial reporting to help
prevent similar omissions in future filings.
12
Changes
in Internal Controls
There
have been no significant changes in the Company’s internal controls or in any
other factors that could significantly affect the internal controls subsequent
to the date of their evaluation in connection with the preparation of this
annual report on Form 10-K. We have also evaluated our internal
controls for financial reporting, and there have been no significant changes in
our internal controls or in other factors that could significantly affect those
controls subsequent to the date of their last evaluation.
Limitations
on the Effectiveness of Controls
Our
management, which primarily includes our CEO, does not expect that our
disclosure controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management or
board override of the control.
The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
CEO
and CFO Certifications
Appearing
immediately following the Signatures section of this report there are
Certifications of the CEO and the CFO. The Certifications are required in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certifications). This Item of this report, which you are currently reading is
the information concerning the Evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.
13
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). The Company’s internal control over financial reporting is a process
designed to provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and the preparation
of the financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Our
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could
have a material effect on the financial statements.
Because
of its inherent limitations, internal controls over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how
well designed, have inherent limitations, including the possibility of human
error and the circumvention of overriding controls. Accordingly, even effective
internal control over financial reporting can provide only reasonable assurance
with respect to financial statement preparation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007 and concluded that internal control over
financial reporting was not effective. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment, as of December 31,
2007, management
has identified the following deficiencies for the Company, that only when
aggregated, may possibly be viewed as a material weakness:
|
|
a)
|
A
required disclosure was erroneously omitted from the originally filed Form
10-KSB. Our internal review process was not adequate
enough to recognize this omission.
|
|
|
b)
|
We
did not maintain proper segregation of duties for the preparation of our
financial statements. As of December 31, 2007, the
majority of the preparation of financial statements was carried out by one
person. Additionally, the Company currently only has one
officer having oversight on all
transactions.
|
14
The
Company is currently engaged in the review, documentation and remediation of its
disclosure controls and procedures. However, the Company presently
does not have sufficient financial resources to hire additional personnel or
consultants. Once the Company does, then our Board of Directors will
establish the following remediation measures:
|
|
a)
|
We will hire additional personnel and outside consultants to
perform various layers of reviews of our
disclosures.
|
|
|
b)
|
We will hire additional personnel to assist with the preparation of
the Company’s financial statements which will allow for proper segregation
of duties, as well as additional manpower for proper
documentation.
|
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
15
SIGNATURES
In
accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Frawley Corporation
|
|
|
(Registrant)
|
|
|
By:
|
/s/Michael P Frawley
|
|
Michael
P. Frawley, CEO and Chairman of the
Board
|
|
|
Date
|
July 2,
2009
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
By:
|
/s/ Michael P Frawley
|
|
Michael
P. Frawley, CEO and Chairman of the Board
|
|
|
(Principal
Executive, Financial and Accounting Officer)
|
|
|
July 2, 2009
|
|
|
(Date)
|
|
|
By:
|
/s/Sheila Callahan
|
|
Sheila
Callahan, Vice President and Secretary
|
|
|
July 2, 2009
|
|
|
(Date)
|
16
INDEPENDENT AUDITORS’
REPORT
Board of
Directors and Stockholders
Frawley
Corporation
Agoura
Hills, California
We have
audited the accompanying consolidated balance sheets of Frawley Corporation and
subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Frawley Corporation and
subsidiaries as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The 2007
and 2006 consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations,
difficulties in generating sufficient cash flow to meet its obligations and
negative working capital raise substantial doubt about its ability to continue
as a going concern. The Company has relied upon financing from related parties
and sales of assets to continue its operations and is seeking sources of
long-term financing as it reorganizes its business. Management's plans
concerning these matters are also described in Note 2. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Woodland
Hills, California
May 30,
2008
- F1
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 and 2006
ASSETS
|
2007
|
2006
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
(Note 1)
|
$ | 14,000 | $ | 7,000 | ||||
|
Prepaid
expenses and other current assets
|
22,000 | 21,000 | ||||||
|
Total
current assets
|
36,000 | 28,000 | ||||||
|
Real
estate investments (Notes 1, 2, 3 and 5)
|
457,000 | 457,000 | ||||||
|
Investment
in partnership
|
16,000 | 16,000 | ||||||
|
TOTAL
ASSETS
|
$ | 509,000 | $ | 501,000 | ||||
See
independent auditors’ report and notes to consolidated financial
statements.
- F2
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 and 2006
LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
2007
|
2006
|
|||||||
|
Current
liabilities:
|
||||||||
|
Notes
payable to related parties (Notes 3 and 5)
|
$ | 2,387,000 | $ | 2,138,000 | ||||
|
Interest
payable to related parties
|
2,050,000 | 1,840,000 | ||||||
|
Deposits
|
374,000 | 374,000 | ||||||
|
Accounts
payable and accrued expenses
|
173,000 | 164,000 | ||||||
|
Environmental
reserve (Note 6)
|
- | 77,000 | ||||||
|
Total
current liabilities
|
4,984,000 | 4,593,000 | ||||||
|
Long
term liabilities:
|
||||||||
|
Long
term note payable (Note 5)
|
160,000 | - | ||||||
|
Environmental
reserve(Note 6)
|
- | 1,120,000 | ||||||
|
Total
long term liabilities
|
160,000 | 1,120,000 | ||||||
|
Total
liabilities
|
5,144,000 | 5,713,000 | ||||||
|
Commitments
and contingencies (Notes 5 and 6)
|
||||||||
|
Stockholders’
deficit:
|
||||||||
|
Preferred
stock, $1.00 par value, 1,000,000 shares authorized, no shares
issued
|
- | - | ||||||
|
Common
stock, $1.00 par value, 6,000,000 shares authorized, 1,414,212 shares
issued
|
1,414,000 | 1,414,000 | ||||||
|
Capital
surplus
|
17,209,000 | 17,209,000 | ||||||
|
Accumulated
deficit
|
(22,497,000 | ) | (23,074,000 | ) | ||||
| (3,874,000 | ) | (4,451,000 | ) | |||||
|
Less
common stock in treasury, 191,312 shares (at cost)
|
(761,000 | ) | (761,000 | ) | ||||
|
Total
stockholders’ deficit
|
(4,635,000 | ) | (5,212,000 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$ | 509,000 | $ | 501,000 | ||||
See
independent auditors’ report and notes to consolidated financial
statements.
- F3
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2007
|
2006
|
|||||||
|
REVENUES
|
||||||||
|
Sale
of real estate
|
$ | - | $ | 749,000 | ||||
|
Other
income
|
2,000 | 2,000 | ||||||
|
TOTAL
REVENUE
|
2,000 | 751,000 | ||||||
|
COSTS
AND EXPENSES
|
||||||||
|
Cost
of real estate sold
|
- | 441,000 | ||||||
|
Selling,
general and administrative expenses
|
278,000 | 169,000 | ||||||
|
Interest
expense, net of interest income (Notes 3 and 6)
|
254,000 | 227,000 | ||||||
|
TOTAL
COSTS AND EXPENSES
|
532,000 | 837,000 | ||||||
|
OPERATING
LOSS
|
(530,000 | ) | - | |||||
|
Gain
on extinguishment of debt (Note 6)
|
1,107,000 | (86,000 | ) | |||||
|
NET
INCOME /(LOSS)
|
$ | 577,000 | $ | ( 86,000 | ) | |||
|
NET
INCOME/(LOSS) PER SHARE, COMMON
|
$ | 0.47 | $ | (0.07 | ) | |||
|
FULLY
DILUTED
|
$ | 0.47 | $ | (0.07 | ) | |||
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
1,222,900 | 1,222,900 | ||||||
See
independent auditors’ report and notes to consolidated financial
statements.
- F4
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
Common
Stock
|
Capital
|
Accumulated
|
Treasury
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Surplus
|
Deficit
|
Stock
|
Total
|
|||||||||||||||||||
|
December
31, 2005
|
1,414,212 | $ | 1,414,000 | $ | 17,209,000 | $ | (22,988,000 | ) | $ | (761,000 | ) | $ | (5,126,000 | ) | ||||||||||
|
Net
loss, 2006
|
- | - | - | (86,000 | ) | - | (86,000 | ) | ||||||||||||||||
|
December
31, 2006
|
1,414,212 | 1,414,000 | 17,209,000 | (23,074,000 | ) | (761,000 | ) | (5,212,000 | ) | |||||||||||||||
|
Net
income, 2007
|
- | - | - | 577,000 | - | 577,000 | ||||||||||||||||||
|
December
31, 2007
|
1,414,212 | $ | 1,414,000 | $ | 17,209,000 | $ | (22,497,000 | ) | $ | (761,000 | ) | $ | (4,635,000 | ) | ||||||||||
See
independent auditors’ report and notes to consolidated financial
statements.
- F5
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
2007
|
2006
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income/(loss)
|
$ | 577,000 | $ | (86,000 | ) | |||
|
Adjustments
to reconcile net income/(loss) to net cash provided by/(used in) operating
activities:
|
||||||||
|
Environmental
reserve
|
(1,107,000 | ) | - | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Prepaid
expenses and other current assets
|
(1,000 | ) | 3,000 | |||||
|
Real
estate investments
|
- | 441,000 | ||||||
|
Accounts
payable and accrued liabilities
|
9,000 | (123,000 | ) | |||||
|
Interest
payable
|
210,000 | 189,000 | ||||||
|
Environmental
reserve
|
(90,000 | ) | (138,000 | ) | ||||
|
TOTAL
ADJUSTMENTS
|
(979,000 | ) | 372,000 | |||||
|
NET
CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES
|
(402,000 | ) | 286,000 | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Improvements to real estate
|
- | (86,000 | ) | |||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Long-term borrowings
|
160,000 | - | ||||||
|
Short-term debt borrowings from related party
|
249,000 | 169,000 | ||||||
|
Repayment of borrowings
|
- | (369,000 | ) | |||||
|
NET
CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES
|
409,000 | (200,000 | ) | |||||
|
NET
CHANGE IN CASH
|
7,000 | - | ||||||
|
CASH,
BEGINNING OF YEAR
|
7,000 | 7,000 | ||||||
|
CASH,
END OF YEAR
|
$ | 14,000 | $ | 7,000 | ||||
See
independent auditors’ report and notes to consolidated financial
statements.
- F6
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of
Consolidation - The accompanying consolidated financial statements
include Frawley Corporation (the “Company”) and its subsidiaries: Schick Shadel
Hospital, Inc. and Sun Sail Development Company (Sun Sail). In addition, Sun
Sail is the sole member of Sunny Hill L.L.C. (Sunny Hill), which was formed in
2003. All significant intercompany profits, transactions and balances have been
eliminated.
Net Income/Loss per Common
Share - Net income/loss per common share is computed by dividing net
income/loss by the weighted average number of common shares outstanding during
the year.
Income Taxes - The
Company adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," effective January 1, 1993.
Accordingly, the Company uses the liability method of accounting for income
taxes. Under the liability method, deferred taxes are determined based on
temporary differences between financial reporting and income tax basis of assets
and liabilities at the balance sheet
date
multiplied by the applicable tax rates.
Cash and Cash
Equivalents - The Company considers highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Concentration of Credit
Risk - Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consisted primarily
of cash.
Use of Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial
Instruments - The carrying amounts of the Company's financial instruments
(cash, other assets, and accounts payable and accrued expenses) approximate fair
value because of the short maturity of these items. The carrying amount of the
notes payable approximate fair value based on current rates for similar debt of
the same remaining maturity.
Impairment of Long-Lived
Assets – The Company evaluates a property for potential impairment
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. There was no impairment charge recognized during the
years ended December 31, 2007 and 2006.
Sales of Real Estate
– The Company recognizes gains/losses from sales of real estate at the time of
sale using the full accrual method, provided that various criteria related to
the terms of the transactions and any subsequent involvement by the Company with
the properties sold are met. If the criteria are not met, the Company defers the
revenue and recognizes it when the criteria are met or using the installment or
cost recovery methods as appropriate under the circumstances.
- F7
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
Recent Accounting
Pronouncements – In July 2006, the FASB issued FASB Interpretation No.48
(“FIN 48”), Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No.
109, which clarifies the accounting for uncertainty in tax positions. FIN
48 requires that the Company recognize the impact of a tax position in the
Company’s financial statements if that position is more likely than not to be
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. The adoption of FIN 48 did not
have a material impact on the Company’s consolidated financial
statements.
|
2.
|
OPERATING
RESULTS AND MANAGEMENT PLANS
|
The
Company's net income for 2007 was $577,000 as compared to net loss for 2006 of
$86,000. Working capital continues to be negative.
Management’s
plans for 2008 will include the continued efforts to sell its real estate
holdings and minimize additional investments that require
borrowing.
The
Company's real estate investment consists of approximately 36 acres of largely
undeveloped land in the Santa Monica Mountains, northwest of Los Angeles. The
Company is continuing to pursue various options with respect to selling a
significant portion of its real estate.
During
the year ended December 31, 2006, the Company sold one parcel of land to an
unrelated third party for $749,000 and recorded a gain of approximately
$308,000. Proceeds from the sale were used to pay off secured debt, including
accrued interest, provide funds to complete improvements required by the sale,
make payments on past due amounts related to the Chatham site, make partial
payments related to the Omega site, pay past due property taxes, pay other
creditors and to provide operating cash. The Company did not sell any parcels of
land during the year ended December 31, 2007.
|
3.
|
RELATED
PARTY TRANSACTIONS
|
The
Company has borrowed additional funds from the Chief Executive Officer and his
family members as needed, to meet real estate investment and working capital
needs. During 2007 and 2006, the Company borrowed an additional $249,000 and
$169,000, respectively, from the related parties. As of December 31, 2007 and
2006, the balances due were $2,387,000 and $2,138,000, respectively (see Note
5). The notes bear interest at 10%, are secured by the Company’s real estate
investments and became due on various dates ranging from 2001 through 2008. The
Company has defaulted on substantially all of the notes under their individual
terms. As of the date of this report, no action has been taken on the delinquent
amounts.
- F8
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
4.
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
2007
|
2006
|
|||||||
|
Cash
paid during the year for:
|
||||||||
|
Income
taxes
|
$ | 4,000 | $ | 6,000 | ||||
|
Interest
|
$ | 22,000 | $ | 24,000 | ||||
|
5.
|
DEBT
|
Short-term
debt at December 31, 2007 consists of $2,387,000 of notes payable to
stockholders and other related parties (see Note 3), which were due on various
dates from 2001 through 2008, bear interest at 10% per annum, and are secured by
the real estate investments of the Company. The Company has defaulted on
substantially all of the notes under their individual terms. As of the date of
this report, no action has been taken on the delinquent amounts.
Long-term
debt at December 31, 2007 consists of a $160,000 note payable to an
unrelated party, in which the entire principle is due on December 31, 2009,
bears interest at 14% per annum, and is secured by one parcel of land. The note
requires monthly payments of interest only.
Long-term
debt at December 31, 2006 consisted of the environmental reserve amount of
$1,120,000 (see Note 6).
|
6.
|
LITIGATION
|
The
Company was 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 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
had 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 December 31, 2006, the
Company had paid over $1,040,000, which included the assignment of a $250,000
note receivable with recourse, into the PRP group. In addition, the Company
carried accrued short-term and long-term liabilities of $77,000 and $1,120,000,
respectively.
- F9
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
During
the past several years, the Company had requested a Hardship Withdrawal
Settlement with the PRP Group due to the Company’s financial condition. The PRP
group had 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 a 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 into 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 was not going to 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 were paid in full. During 2007, the
assigned note was paid in full. 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. As of December 31, 2006, the
Company owed late payment penalties totaling approximately $20,000 for the years
2004, 2005 and 2006. These penalties were recognized as interest expense for the
year ended December 31, 2006 and the liability was accrued as a portion of the
environmental reserve included in current liabilities.
In
December 2007, the Company made a final payment in the amount of $112,000, of which $90,000 represented payment
towards the accrued liability and $22,000 represented payment of
additional interest for late payments. As a result of this payment and pursuant
to the settlement agreement, the Company is not responsible for any additional
liability related to this site, other than any new claims. Therefore, the
Company removed the remaining liability from its books as of December 31, 2007
and recognized a gain on the extinguishment of this debt in the amount of $1,107,000.
Complying
with the terms of the note relieves Frawley Corporation from any liability
related to the Chatham Site action approved by the State of California in 1999.
However, the PRP Group did not indemnify Frawley Corporation for any third party
lawsuits related to the Chatham site clean up or for any new claims by the State
of California involving the Chatham 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. During 2006, the
Company agreed to pay the liability in installment payments through January 2007
and has made payments of approximately $52,000 during 2006 and of approximately
$26,000 during
2007. In September 2007, the Company was granted a postponement of
the additional payments due until March 2009. The balance of
approximately $21,000 is included in current liabilities.
- F10
-
FRAWLEY
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
|
7.
|
INCOME
TAXES
|
The
Company does not carry a provision for income taxes due to tax losses in 2007
and 2006, other than provisions for minimum state income taxes that are included
in selling, general and administrative expenses.
Deferred
tax assets and liabilities for federal income tax purposes at December 31, 2007
and 2006 consist of the following:
|
2007
|
2006
|
|||||||
|
Net
operating loss carryforwards
|
$ | 3,121,000 | $ | 4,714,000 | ||||
|
Gain
on sale of real estate
|
- | (105,000 | ) | |||||
|
Bad
debt/land reserves
|
211,000 | 211,000 | ||||||
|
Toxic
waste accrual
|
- | 407,000 | ||||||
|
Other
reserves
|
701,000 | 630,000 | ||||||
| 4,033,000 | 5,857,000 | |||||||
|
Less
valuation allowance
|
(4,033,000 | ) | (5,857,000 | ) | ||||
| $ | - | $ | - | |||||
The
Company has net operating loss carryforwards aggregating approximately
$9,179,000 for federal income tax purposes, which expire in various years
through 2022.
- F11
-