(Mark
One)
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x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 For the quarterly period ended
September 30, 2006 |
OR
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o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE
ACT
OF 1934
For
the transition period from to
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Delaware
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95-2639686
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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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(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP
CODE)
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Common
stock, par value $1
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1,222,905
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(Class)
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Outstanding
at September 30,
2006
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PART
I:
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FINANCIAL
INFORMATION
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PAGE
NO.
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Item
1: Financial Statements
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Consolidated
Balance Sheets
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||
September
30, 2006 and December 31, 2005
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3
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Consolidated
Statements of Operations
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Three
Months ended September 30, 2006 and 2005
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4
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Consolidated
Statements of Operations
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Nine
Months Ended September 30, 2006 and 2005
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5
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Consolidated
Statements of Cash Flows
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Nine
Months Ended September 30, 2006 and 2005
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6
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Notes
to Consolidated Financial Statements
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7
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Item
2: Management's Discussion and Analysis
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of
Financial Condition and Results of Operations
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8
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PART
II:
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OTHER
INFORMATION
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Item
1: Legal Proceedings
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9-10
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Item
5: Other Information
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10
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Item
6: Exhibits and Reports on Form 8-K
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11
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SIGNATURES
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12
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SEPTEMBER
30,
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DECEMBER
31,
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||||||
2006
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2005
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||||||
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(Unaudited)
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||||||
ASSETS
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|||||||
CURRENT
ASSETS
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|||||||
Cash
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$
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2,000
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$
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7,000
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|||
Accounts
receivable, net
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4,000
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-
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|||||
Prepaid
expenses and other current assets
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-
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24,000
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|||||
TOTAL
CURRENT ASSETS
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6,000
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31,000
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|||||
Real
estate investments, net
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457,000
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812,000
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|||||
Investment
in partnership
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16,000
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16,000
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|||||
TOTAL
ASSETS
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$
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479,000
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$
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859,000
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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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2,084,000
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$
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2,338,000
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|||
Accounts
payable and accrued expenses
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179,000
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287,000
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|||||
Environmental
reserve
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78,000
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115,000
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|||||
Interest
payable to related parties
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1,788,000
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1,651,000
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|||||
Deposits
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378,000
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374,000
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|||||
TOTAL
CURRENT LIABILITIES
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4,507,000
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4,765,000
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|||||
LONG
TERM LIABILITIES
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|||||||
Environmental
reserve
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1,070,000
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1,220,000
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|||||
TOTAL
LIABILITIES
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5,577,000
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5,985,000
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|||||
STOCKHOLDERS’
DEFICIT:
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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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|||||||
Common
stock, par value $1 per share;
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|||||||
Authorized,
6,000,000 shares, issued
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|||||||
1,414,217
shares
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1,414,000
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1,414,000
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|||||
Capital
surplus
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17,209,000
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17,209,000
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|||||
Accumulated
deficit
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(22,960,000
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)
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(22,988,000
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)
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|||
(4,337,000
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)
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(4,365,000
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)
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||||
Less
common stock in treasury,
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|||||||
191,312
shares (at cost)
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(761,000
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)
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(761,000
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)
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TOTAL
STOCKHOLDERS’ DEFICIT
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(5,098,000
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)
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(5,126,000
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)
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$
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479,000
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$
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859,000
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|||
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Three
Months Ended
SEPTEMBER
30
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||||||
2006
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2005
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||||||
REVENUES:
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|||||||
Net
revenue
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$
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-
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$
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1,000
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COSTS
AND EXPENSES:
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|||||||
Selling,
general and administrative
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|||||||
expenses
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40,000
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52,000
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Interest
expense
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51,000
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57,000
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|||||
TOTAL
COSTS AND EXPENSES
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91,000
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109,000
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|||||
NET
LOSS
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$
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(
91,000
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)
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$
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(108,000
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)
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NET
LOSS PER SHARE, COMMON
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$
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(0.07
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)
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$
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(0.09
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)
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FULLY
DILUTED
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$
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(0.07
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)
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$
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(0.09
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)
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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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|||||
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Nine
Months Ended
September
30
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||||||
2006
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2005
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||||||
REVENUES:
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|||||||
Net
revenue
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$
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751,000
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$
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5,000
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COSTS
AND EXPENSES:
Cost
of real estate sold
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355,000
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-
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|||||
Selling,
general and administrative
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|||||||
expenses
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205,000
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162,000
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|||||
Interest
expense
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163,000
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166,000
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|||||
TOTAL
COSTS AND EXPENSES
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723,000
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328,000
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|||||
NET
INCOME/(LOSS)
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$
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28,000
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$
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(323,000
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)
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NET
INCOME/(LOSS) PER SHARE, COMMON
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$
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0.02
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$
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(0.26
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)
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FULLY
DILUTED
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$
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0.02
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$
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(0.26
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)
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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
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||||||
September
30,
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|||||||
2006
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2005
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||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
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|||||||
Net
income/(loss)
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$
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28,000
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$
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(323,000
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)
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Changes
in operating assets and liabilities:
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|||||||
Short
and long-term accounts
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|||||||
receivable,
net
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(4,000
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)
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(4,000
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)
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Prepaid
expenses and other current assets
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24,000
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29,000
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|||||
Accounts
payable and accrued expenses
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(4,000
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) |
151,000
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Real estate investments |
355,000
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-
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|||||
TOTAL
ADJUSTMENTS
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371,000
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176,000
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|||||
NET
CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES
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399,000
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(147,000
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)
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Short-term
debt borrowings from related
party
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115,000 | 145,000 | |||||
Repayment
of environmental reserve
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(150,000
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)
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-
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Repayment
of borrowings
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(369,000
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)
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-
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Capital
contributions
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-
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1,000
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|||||
NET
CASH(USED IN)/PROVIDED BY FINANCING
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|||||||
ACTIVITIES
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(404,000
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)
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146,000
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||||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
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(5,000
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)
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(1,000
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)
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CASH,
BEGINNING OF PERIOD
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7,000
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4,000
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|||||
CASH,
END OF PERIOD
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$
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2,000
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$
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3,000
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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, 2006, and the results
of
operations and changes in cash flows for the nine months then
ended.
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NOTE 2:
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The
results of operations for the nine months ended September 30, 2006
as
compared to the results of 2005 are not necessarily indicative
of results
to be expected for the full year.
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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.
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The
Company continues to incur legal expenses and has an obligation
in 2006 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 is not able to make the payments when they are currently
due.
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PART
II - OTHER INFORMATION
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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, 2006 the Company had
paid into
the PRP Group approximately $999,000, which includes the assignment
of a
$250,000 note receivable with recourse, and had a cash call contribution
payable of approximately $103,000. In addition, the Company has
accrued
short-term and long-term undiscounted liabilities of $78,000 and
$1,070,000 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.
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On
July 16, 2004, the Company entered in a settlement agreement note
of
$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 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. At this time, the Company is not able
to make
the December 31, 2006 note payment.
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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.
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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 as it is more likely than not that the Company
will have
to pay the claim. 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 by January 2007. In January
2006, the Company made its first payment in the amount of approximately
$12,000 and in March 2006, the Company made payments required for
the
entire year 2006, leaving a balance of approximately $45,000 due
in
January 2007. At this time, the Company is unable to make the January
2007
payment.
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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 that 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.
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During
the third quarter ended September 30, 2006 the Company borrowed
approximately $13,760 from the Frawley Family Trust. These loans
are
secured by Deeds of trust on the Company’s real estate property.
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In
the first quarter 2006, the Company sold one parcel of land to
an
unrelated third party. Proceeds from the sale were used to pay
secured
debt to related parties in the amount of $393,000, including interest
in
the amount of $24,000, as well as payments to Michael Frawley,
President,
in the amount of $7,000.
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Exhibit
32.1 - Certification of CEO and CFO
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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.
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FRAWLEY CORPORATION | ||
(REGISTRANT) | ||
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Date: November 10, 2006 | By: | /s/ Michael P. Frawley |
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MICHAEL
P. FRAWLEY, President
(Authorized
Officer and
Chief
Financial Officer)
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