<PAGE>
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission file number 0-4328
FIRST MUTUAL, INC.
(formerly MUTUAL ENTERPRISES, INC.)
DELAWARE 04-2434444
120 Boylston Street, Boston, MA 02116
Registrants telephone number, including area code: (617) 426-4020
Securities registered pursuant to Section 12(g) of the Act
Common Stock $.10 par value
Indicate 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 ___ NO X
On September 30, 1996 there were 910,209 shares of common stock of the Company
issued including 63,951 shares in the treasury of the Company.
On September 30, 1996 there was no available market price for the common stock
shares of the Company.
1
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PART I
ITEM 1. BUSINESS
First Mutual, Inc. (Formerly Mutual Enterprises, Incorporated) ("Registrant" or
"Company") was organized under Delaware Law in March, 1968 and conducts its
business through its only active operating and wholly owned subsidiary.
(a) ABC MOBILE SYSTEMS, INC.
Through its wholly owned subsidiary ABC Mobile Systems, Inc., the Company
operated as a franchiser of a wholesale mobile automobile brake business,
offering complete automotive brake repair service and replacement parts sales to
customers at the customer's place of business. However, because of competitive
and economic reasons including among others the closures of repair facilities at
a significant number of gas stations nationally and the significant increase in
promotion speciality brake repair service alternatives of the motoring public,
the company ceased selling new franchises in 1986. As of September 30, 1996 no
franchises remain operational and the company is inactive.
(b) COMMUNITY GROUP, INC.
The Community Group, Inc. ("Community Group"), a wholly-owned subsidiary, was
organized under Massachusetts law in 1972, and provides habilitative and
training services for developmentally disabled adults through the operation of
residential facilities located in Wakefield, Lynn, Lowell, Melrose and Weymouth
and an 8,000 square foot Training Center in Wakefield, Massachusetts. The
Company seeks to develop within each client a sense of personal dignity,
awareness of and respect for human rights, the ability to adjust in social
situations with peers and others and to help each in attaining the highest
possible degree of independence. The support services currently available within
the program comprise psychological consultation and testing, counselling, speech
therapy and tutoring. Medical services include on-call relationships with local
physicians, neurologists, audiologists, ophthalmologists, psychiatrists and
physical therapists.
The program of the Community Group meets the requirements of and has the
approval of the following agencies: Mass. Department of Social Services, Mass.
Department of Mental Retardation, Mass. Office for Children, Mass. Department of
Special Education. Annual contracts with the approved agencies constituted 100%
of the revenues in fiscal year 1996. Contracts are generally issued as clients
are accepted by the Company and funding is made by the respective agency.
Facilities operated by Community Group must comply with the licensing
requirements of the Department of Social Services and Mental Retardation and
meet the requirements of municipal building codes, health codes and local fire
codes. In granting and renewing a facility's license, a health agency considers,
among other things, the physical buildings and equipment, the qualifications of
the administrative, direct care and other support staff, the quality of care,
training and service and the continuing compliance of such facility with the
laws and regulations applicable to its operations.
In general, the terms of the contracts for Community Group, Inc. are to provide
residential and employment training services for contracted clients. Contracts
run for one year with four options or renewal years before they come up for
competitive bidding. Revenues are received on a per day rate, payable bi-
monthly.
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Contracts representing 76% of Community Group's revenue are due to be rebid in
fiscal year 1999. 13% are due to be rebid in fiscal year 2000 and the remaining
11% are due to be rebid in fiscal year 2002.
If Community Group did not receive a renewal of any one of its contracts, it
would be difficult if not impossible for the company to survive, as its central
office and administrative overhead requirements which are allocated prorata
among all operations would not be able to be adequately reduced to absorb the
shortfall in revenues and cash flow which a non-renewal would cause.
(c) BWS INTERNATIONAL, LTD.
BWS Group, Inc. a wholly-owned subsidiary of the Company with no operations of
its own, was organized under Massachusetts law February 22, 1983 to enter into
the business of marketing goods and services in the luxury market of
discriminating buyers and in particular as a holding company through its wholly
owned subsidiaries, BWS International, Inc. ( a Delaware Corporation), BSDJ,
Inc. ( Texas Corporation) and BSNJ, Inc. ( a New Jersey Corporation) to operate
women's speciality clothing retail stores in Boston, MA, Dallas, TX, and Short
Hills, NJ. Due to poor sales all stores were closed between 1988 and March 1991
.The Dallas Corporation was dissolved in July, 1987 and the Boston and New
Jersey Corporations remain inactive.
Registrant employed 85 persons on September 30, 1996, all of whom were employed
by the Community Group, Inc.
WORKING CAPITAL:
The registrant has a working capital problem. Working capital shortfalls in the
past have been funded principally through loans from an officer/shareholder.
REVENUES:
The Department of Mental Retardation in the Commonwealth of Massachusetts
accounted for 100% and 92% of the revenue of the Health Care Service in 1996
and 1995 respectively. In 1994 it accounted for 92%.
COMPETITIVE CONDITION:
1. The Community Group, Inc.:
--------------------------
In accordance with governmental regulations, every five years, all health
service contracts including those of Community Group are newly offered to all
interested parties for competitive bidding. The Company must therefore compete
in price, service, and quality on each of its contracts. Contracts representing
76% percent of Community Group's revenue are due to be rebid in fiscal year
1999. 13% are due to be rebid in fiscal 2000 and the remaining 11% are due to be
rebid in fiscal 2002. Although since its inception in 1972, Community Group has
without interruption or exception been granted consecutive contracts, the loss
of any one contract would materially, negatively effect the existence and
viability of the company making it difficult if not impossible to survive, as
all central office overhead and costs are allocated among all its programs pro-
rata and would not be able to be adequately reduced.
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2. ABC Mobile Brake:
ABC Mobile Brake no longer sells franchises or is actively operational.
ITEM 2. PROPERTIES
The Company subleases executive offices of approximately 1,500 square feet at
120 Boylston Street, Boston, MA 02116. The office is subleased by Community
Group with no guaranty by the registrant. Rental payment is made by way of
office support and receptionist duties for a total of $25,500 per year.
In addition, a subsidiary of the Registrant, (Community Group), leases a
residence at 40 Avon Street, Wakefield, MA 01880 as a tenant at will at the
rental of $2,000 per month. The residence was purchased for use by Community
Group, Inc. in 1978 by David B. Slater, the chairman of the Registrant and his
wife at a time when Community Group was evicted from other residential
facilities because of actions by its developmentally disabled residents, and
was experiencing difficulty in securing other suitable facilities. The rental
being paid by Community Group is believed to be its fair market value and is
comparable to the rental being paid by Community Group for other leased
residences of lesser market value. The lease contains provision for payment by
the subsidiary of real estate taxes and insurance.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this report the Company is aware of the following legal
proceedings:
A suit against ABC Mobile Systems in the Superior Court of the State of
California filed November 22, 1985, wherein the said corporation is being sued
as one of approximately 20 defendants in an action by Edna Smith, et al., on
behalf of the surviving members of the family of Francis L. Smith for wrongful
death, strict liability, negligence, fraud and conspiracy alleging the plaintiff
died due to a fatal exposure to asbestos, part of which exposure was sustained
while an employee of an automobile service station which installed asbestos
brake linings on customers' cars, which linings were sold by ABC Mobile Systems
to its franchisee who on at least one occasion resold same to the service
station. The plaintiff seeks a sum in excess of $15,000, legal costs and
damages. The Company is unable to express an opinion as to the outcome of this
case but is not a party to the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
On September 30, 1996 there was no available market price for shares of the
common stock.
(b) No cash dividends have been declared by the Company during 1996 and 1995
fiscal years. The approximate number of holders of common stock on September 30,
1996 was 670.
4
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ITEM 6. SELECTED FINANCIAL DATA
Set forth in exhibit 1 are selected consolidated financial data derived from the
income statements of the Company for the periods ended September 30, 1996, 1995,
1994, 1993, and 1992 derived from the balance sheets for the Company for the
same periods. The selected consolidated financial data should be read in
conjunction with the financial statements included and are qualified by
reference to such financial statements and related notes.
EXHIBIT 1
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues $3,181,963 $2,869,838 $3,116,933 $2,976,471 $2,860,133
Operating Income or (Loss) 231,943 160,658 (90,950) 185,615 129,456
Other Income (Expense) (76,562) (80,288) 285,463 (101,014) (124,298)
Income (Loss) Before
Extraordinary Item 155,381 80,370 194,513 84,601 5,158
Income (Loss) Per Share
Before Extraordinary Item .18 .09 0.23 .10 .006
Net Income or (Loss) 155,381 80,370 194,513 84,601 5,158
Income (Loss) Per Share .18 .09 0.23 .10 .01
Balance Sheet Data
Cash and Temporary
Investments $45,802 $49,419 $73,908 $(30,297) $118,761
Accounts Receivable Net of
Allowance for Doubtful
Accounts 78,142 125,099 131,189 232,322 64,218
Current Assets 140,127 190,701 205,097 213,221 221,141
Current Liabilities 606,989 791,326 709,284 811,921 1,283,533
Working Capital (466,862) (600,625) (504,187) (598,700) (1,062,392)
Total Assets 141,584 190,701 222,305 236,007 295,291
Long Term Obligations 626,237 646,398 565,801 594,522 618,265
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In fiscal year ended September 30, 1996 consolidated revenues were $3,181,963
resulting in income from operations of $231,943 and net income of $155,381.
Community Group, Inc. for fiscal 1996 had operating income of $200,832 before
interest expense of $85,090 resulting in net income of $115,742. During fiscal
year 1996 Community Group continued implementing a new type of program called
supported living for some of its clients. Under the concept of supported living,
clients lead a more independent, less supervised lifestyle.
During fiscal 1994 the Company had other income of $291,491 resulting from a
final settlement with its franchisers and apparel vendors regarding litigation
initiated by First Mutual regarding unfair practices.
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Other income of $163,000 was also reported during fiscal 1994 from two limited
partnerships which since ceased operation, this income was a noncash forgiveness
of debt.
Cash flows in fiscal 1996 were relatively stable but in prior years the company
experienced an extremely large cash shortage. That shortage has been met by:
(1) Cash advances to the company and/or its subsidiaries due on demand but
presently being amortized on a ten year basis, by David B. Slater, Chairman of
the Company, and his wife Barbara W. Slater and,
(2) Restructured bank financing totalling $680,000, payable in 10 years with
monthly installments based on a twenty year amortization schedule. David and
Barbara Slater personally have guaranteed $227,000 of this loan.
In return for David and Barbara Slater's personal guarantee of $227,000 of the
Company's bank loan and their cash advances to the Company, the Company has
granted each of them a 10 year option on 450,000 shares of its authorized but
not issued shares, at $.10 per share. In addition, in return for forgiving
$243,743 of debt due from BSDJ, Inc. and BSNJ, Inc. the Company has granted
David and Barbara Slater each a ten year option on 304,679 shares of its
authorized, but not issued shares at $.10 per share. If all these options are
ever exercised for all 1,509,358 shares represented thereby, the total shares
owned by David Slater and his family will increase from the current 455,450
shares representing 53.8% of the currently outstanding shares of the Company to
a total of 1,964,808 shares representing 83.4% of what would then be the
outstanding shares of the Company. In view of the above debt repayment
requirements the Registrant will generate no surplus cash and/or liquidity.
In the future, management seeks to cut costs in Community Group, Inc., expand
into new similar programs and negotiate future increases in rates under state
contracts.
ABC Mobile Brake has essentially ceased operations.
BWS Group, Inc. has discontinued all retail operations permanently.
First Mutual, Inc. continues to seek business opportunities it can participate
in without capital requirement, utilizing its franchising, management and health
services expertise.
CASH FLOWS:
To cover cash flow needs in past years the Company was able to borrow adequate
funds from officers and stockholders.
In the past, cash flow for Community Group has always been negative from May
through July of any fiscal year. The Commonwealth of Massachusetts funds
programs by providing most funds in the first ten months of each fiscal year.
Thus, for two months, limited cash funding is received. As of September 30,
1996, the balance owed by the registrant to David and Barbara Slater and a
controlled company totaled $279,044. David and Barbara Slater have also
guaranteed $227,000 of an additional $680,000 bank loan to The Company.
There are no unused sources of liquidity. Loans from officers and stockholders
are demand notes with interest at 2% higher than bank debt.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements immediately after the Signature Page.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The terms of the directors are for the ensuing year and/or until successors have
been elected and qualified.
DAVID B. SLATER, age 62. Director since 1968. Chairman of the Board, President
and Chief Executive Officer of the Registrant; Executive Director of The
Community Group, Inc.
DIANE M. FLEMING, age 36. Director since December 1987 and Corporate Secretary
of the Registrant since September 1987. Assistant to the Executive Director of
The Community Group, Inc.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
(See exhibit 2)
EXHIBIT 2
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(A)
Name of Capacities in Salaries & Forms of Insurance Aggregate
Individual & which Directors Fees Remuneration Benefits Contingent
Identity of Group Renumeration Forms of
was Received Remuneration
DAVID B. President, Chief $149,000 $4,793
SLATER Exec. Officer,
Chairman of the
Board
All Officers & $192,303 $4,793
Directors as a
Group
</TABLE>
* The Company maintains medical insurance for all employees. An additional
benefit applicable to Mr. Slater included herein is Key man life insurance
costing $4,793 in fiscal 1996
Registrant provides a 401K retirement plan for all employees.
7
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(See exhibit 3)
<TABLE>
<CAPTION>
EXHIBIT 3
Amount &
Title Name & Nature of Percent
of Address of Beneficial of
Class Beneficial Owner Ownership Class
- ----- ---------------- ---------- -------
<S> <C> <C> <C>
Common Stock David B. Slater* 334,200 39.5%
410 South Street
Needham, MA 02192
Barbara W. Slater 121,250 14.3%
410 South Street
Needham, MA 02192
owned owned
---------- -------
Officers and 455,450 53.8%
DirectorS as a
Group (2 persons)
</TABLE>
There are no arrangements known to Registrant, including any pledge by any
person of securities of the Registrant or any of its subsidiaries, the operation
of which may at a subsequent date result in a change in control of the
Registrant.
* Does not include 121,250 shares of Common Stock owned by Barbara W. Slater and
children to which Mr. Slater disclaims any beneficial ownership. On December 24,
1987 the Company granted to David B. Slater and Barbara W. Slater a ten year
warrant to purchase 450,000 shares each of the Company's capital stock at $.10
per share in consideration for their personal guarantee of the last one third of
the Company's $680,000 loan from the Bank of Newport. In 1990 the Company
granted to David B. Slater and Barbara W. Slater a ten year warrant to purchase
304,679 shares each of the Company's capital stock at $.10 per share in
consideration for their forgiving $243,743 in loans they made to BSDJ, Inc. and
BSNJ, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following building which has been leased to a subsidiary of the Registrant
is owned by David B. Slater and his wife:
40 Avon Street, Wakefield, MA
The Registrant is of the opinion that the month to month rental arrangement of
$2,000 is fair and on terms comparable to that obtained in the area for similar
type facilities. Leasee also pays all Real Estate taxes, insurance and
maintenance costs.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. The following documents are filed as part of this 10-K report:
Balance Sheets - September 30, 1996 and 1995
Statements of Income and Accumulated Deficit - years ended September 30, 1996,
1995 and 1994
Statements of Cash Flows years ended September 30, 1996 and 1995
Notes to financial Statements -
All other schedules are omitted as the required information is inapplicable or
the required information is included in the financial statements or related
notes.
2. No reports were filed on Form 8-K during the fiscal year ended September
30, 1996.
3. Exhibits.
(a) Copies of leases have been filed with the Company's Report on Form 10K
for the prior fiscal year and pursuant to Rule 12b-32 are hereby incorporated by
reference.
(b) The Registrant's wholly owned subsidiaries as follows:
ABC Mobile Systems (a California Corporation, dba ABC Mobile Brake);
The Community Group, Inc. (a Massachusetts Corporation, dba Community Group);
BWS International, Ltd. ( a Massachusetts Corporation, dba Saint Laurent Rive
Gauche);
Sizzleboard International, Inc. (a Massachusetts Corporation, inactive since
1975);
BSNJ, Inc. (a New Jersey Corporation, dba Saint Laurent Rive Gauche).
9
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Pursuant to the requirements of Section 13 or 15 (d) 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.
FIRST MUTUAL, INC.
(Formerly Mutual Enterprises, Incorporated)
David B. Slater
Chairman and President
Pursuant to the requirement of the Securities Exchange Act of 1934 this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
DATE:
David B. Slater September 30, 1997
Director and
Principal Executive Officer
Diane M. Fleming September 30, 1997
Clerk and Director
10
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December 31, 1996
To the Board of Directors
First Mutual, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheet of First Mutual, Inc. as of
September 30, 1996 and 1995 and the related statements of income, accumulated
deficit, and cash flows for the years then ended. These financial statements
are the responsibility of the organization's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audit in accordnace with general accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Mutual, Inc. as of
September 30, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Parsons & Company
Andover, Massachusetts
11
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First Mutual, Inc.
Balance Sheet
As of September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
September September
30, 1996 30, 1995
<S> <C> <C>
Current Assets:
Cash $ 45,802 $ 49,419
Accounts receivable 78,142 125,099
Prepaid expenses 16,183 16,183
Total Current Assets 140,127 190,701
Property and Equipment:
Furnitures, fixtures & equipment 78,303 76,846
Leasehold improvements 31,660 31,660
Total Property and Equipment 109,963 108,506
Less accumulated depreciation (108,506) (108,506)
Net Property and Equipment 1,457 0
Total Assets 141,584 190,701
</TABLE>
The accompanying notes are an integral part of these financial statements
12
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First Mutual, Inc
Balance Sheet
As of September 30, 1996 and 1995
LIABILITIES AND STOCKHOLDER EQUITY
<TABLE>
<CAPTION>
September September
30, 1996 30, 1995
<S> <C> <C>
Liabilities:
Current portion of long-term debt $ 27,000 $ 27,000
Demand loans from officer, (note 5) 150,000 150,000
Accounts payable & accrued expenses 429,989 614,326
Total current liabilities 606,989 791,326
Demand loans from officer, (note 5) 104,446 104,902
Long-term debt net of current portion 521,791 541,496
Total liabilities 1,233,226 1,437,724
Net Capital Deficiency:
Common stock, $.10 par value per share 91,021 91,021
authorized 2,000,000 shares issued
910,209, outstanding 846,258
Additional paid-in capital 3,644,837 3,644,837
Accumulated deficit (4,791,046) (4,946,427)
Treasury stock, 63,951 shares
of common stock at cost (36,454) (36,454)
Total net capital deficiency (1,091,642) (1,247,023)
Total liabilities and stockholders' equity 141,584 190,701
</TABLE>
The accompanying notes are an integral part of these financial statements
13
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First Mutual, Inc
Statement of Income
For the years ending September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
September September September
30, 1996 30, 1995 30, 1994
<S> <C> <C> <C>
Revenue:
Health care services 3,181,963 $2,869,838 3,116,933
Total revenue 3,181,963 2,869,838 3,116,933
Costs and expenses:
Cost of health care services 2,753,092 2,610,731 2,912,589
General and administrative 196,928 98,449 295,294
Total costs & expenses 2,950,020 2,709,180 3,207,883
Income from operations 231,943 160,658 (90,950)
Other Income (Expenses):
Investment income 0 0 163,000
Litigation income 0 0 291,941
Excise tax 0 0 (41,855)
Interest expense (76,562) (80,288) (127,623)
Total other income (expense) (76,562) (80,288) 285,463
Net income 155,381 80,370 194,513
Income per share (notes 1&6)
Income before extraordinary item $.18 $.09 $.23
Weighted average number of common share
outstanding (common stock equivalents are
anti-dilutive in both profit and loss years) 846,258 846,258 846,258
</TABLE>
The accompanying notes are an integral part of these financial statements
14
<PAGE>
First Mutual, Inc
Statement of Cash Flows
For the years ending September 30, 1996 and 1995
<TABLE>
<CAPTION>
September September
30, 1996 30, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income $ 155,381 $ 80,370
Items not affecting cash:
Depreciation 0 0
(Increase) in accounts receivable 46,957 6,090
(Increase) decrease in prepaid and
other assets 0 1,025
Increase (decrease) in accrued payroll
and payroll taxes (184,337) 85,042
Net cash flows from operations 18,001 172,527
CASH FLOWS FROM INVESTMENTS:
Additions to other assets (1,457) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt activities (20,161) (197,016)
Net change in cash (3,617) (24,489)
Cash, beginning of year 49,419 73,908
Cash, end of year 45,802 49,419
Cash paid during the year:
Interest 76,562 80,288
</TABLE>
The accompanying notes are an integral part of these financial statements
15
<PAGE>
First Mutual, Inc.
Statement of Accumulated Deficit
For the years ending September 30, 1996 and 1995
<TABLE>
<CAPTION>
September September
30, 1996 30, 1995
<S> <C> <C>
Accumulated Deficit Beginning of Year $(4,946,427) $(5,026,797)
Net Income 155,381 80,370
Accumulated Deficit End of Year $(4,791,046) $(4,946,427)
</TABLE>
16
<PAGE>
First Mutual, Inc.
Notes to Financial Statements
September 30, 1995
NATURE OF BUSINESS AND STATUS OF OPERATIONS
First Mutual, Inc. formerly Mutual Enterprises Incorporated (Mutual), currently
has only one operating subsidiary, Community Group, Inc., which was organized in
Massachusetts in 1972 and provides rehabilitation and residential services for
mentally retarded adults. The company operates residence facilities and a
sheltered training center.
Substantially all of the Company's revenues arise from contractual services
provided to and negotiated with the Massachusetts Department of Mental
Retardation.
Losses in past years, due primarily to insufficient occupancy levels, had
contributed to a condition where current liabilities substantially exceed
current assets. The deficiency has been funded by personal advances and bank
loans partially personally guaranteed by David B. Slater. These advances
originally amounted to $928,000 and currently $254,446 at September 30, 1996.
Also see notes 4 and 5.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of First Mutual, Inc.
and its wholly-owned subsidiaries (the Company) which consist of the following
companies:
The Community Group, Inc.
ABC Mobile Systems
BWS International, Ltd. (terminated operations March 1991)
BWS Group, Inc. (inactive)
BSNJ, Inc. (terminated operations in 1989)
Sizzleboard International, Inc. (inactive)
BAD DEBTS
The company has no allowance for doubtful accounts at September 30, 1996, 1995,
and 1994.
DEPRECIATION
Property, plant and equipment are depreciated on the straight line basis over
their estimated useful lives. Leasehold improvements are amortized on the
straight line basis over the terms of their respective lives.
INCOME TAXES
The company and its subsidiaries file a consolidated Federal income tax return.
The benefits attributable to investment tax credits and net operating losses can
be applied to future years. No provision is made for current year income taxes
due to use of the net operating loss. Net
17
<PAGE>
operating losses attributable to future years is $1,100,000 and expire through
2005. Available tax credits approximate $9,344 and expire through 1999.
EARNINGS PER SHARE
Earnings per share of common stock is computed on the base of weighted average
number of shares of common stock and common stock equivalents. For purpose of
computing weighted average common stock and common stock equivalents
outstanding, the warrants discussed in note 8 are not included because the
effects would have been antidilutive.
NOTE 2 OPERATING LEASES
The company leases facilities and vehicles under operating leases. Future
minimum lease payments under operating leases for the three year period
subsequent to September 30, 1996 are as follows:
September 30, 1996 $42,000
September 30, 1997 $42,000
NOTE 3 RELATED PARTY TRANSACTIONS
The company leases a facility for its health service division from David Slater
under a month to month lease.
Advances from officer represent advances made by David Slater and bear interest
at a rate 2% higher than bank debt, which is guaranteed personally by Mr.
Slater.
NOTE 4 DEBT
Long-term debt consist of the following:
$680,000, Prime + 2, payable in 240 installments of principal and interest
through December 1997 secured by all business assets and guaranteed by David
Slater.
For the years ended September 30,
1996 1995
$ 548,791 $568,496
Long-term debt maturing in the next five years is as follows:
September 30, 1996 $ 27,000
September 30, 1997 $521,791
18
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NOTE 5 COMMON STOCK WARRANTS
The Company has granted 1,509,358 warrants, with seven years remaining in their
lives, to purchase shares of the Company's common stock. These warrants were
issued to Mr. & Mrs. David Slater for their assistance and personal guarantees
in obtaining financing for the Company and foregoing interest on advances they
made to the Company.
If Mr. & Mrs. Slater were to exercise all of the applicable warrants, their
ownership of the Company would increase to 83.4% of the Company.
19
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