<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 Q
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act Of 1934
For the Quarter Ended June 30, 1998
Commission File Number 0-4328
FIRST MUTUAL, INC.
(formerly MUTUAL ENTERPRISES, INC.)
DELAWARE 04-2434444
120 Boylston Street, Boston, MA 02116
Registrant's Telephone number including area code: (617) 426-4020
Securities registered pursuant to Section 12(g) of the Act:
Common stock $.10 par value per share
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
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10Q or any
amendments to this Form 10Q.
Yes X No ___
---
As of September 30, 1998 there were 3,479,567 shares of common stock of the
Company issued including 63,951 shares in the treasury of the Company.
On June 30, 1998, there was no available market price for the shares of common
stock of the registrant.
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Part I. Financial Information
Item I. Condensed Consolidated Financial Statements
First Mutual, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, September 30,
1997 1998
<S> <C> <C>
Current assets:
Cash 68,902 47,445
Accounts receivable 118,748 132,029
Prepaid expenses and other
current assets 57 16,183
-------- --------
Total current assets 187,707 195,657
Property and equipment:
Furniture, fixtures &
equipment 129,920 94,537
Leasehold improvements 31,660 31,660
-------- --------
Total property and equipment 161,580 126,197
Less accumulated depreciation (111,034) (111,034)
-------- --------
Net property and equipment 50,546 15,163
-------- --------
Total assets 238,253 210,820
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
2
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First Mutual, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' June 30, September 30,
EQUITY 1998 1997
<S> <C> <C>
Current liabilities:
Current portion of long-term debt 504,216 525,411
Demand loans from officer and affiliate 114,820 103,571
Accounts payable and
accrued expenses 358,582 359,111
---------- ----------
Total current liabilities 977,618 988,093
---------- ----------
Total liabilities 977,618 988,093
---------- ----------
Net capital deficiency:
Common stock, $.10 par value
per share authorized 4,000,000
shares issued 3,479,567 Outstanding
3,415,616 331,957 331,957
Additional paid-in capital 3,644,837 3,644,837
---------- ----------
Accumulated deficit (4,679,705) (4,717,613)
Treasury stock, 63,951 shares
of common stock at cost (36,454) (36,454)
---------- ----------
Total net capital deficiency (739,365) (777,273)
---------- ----------
Total liabilities and stockholders'
equity 238,253 210,820
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
3
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First Mutual, Inc.
Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine Months ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Health care services 832,183 581,352 2,907,233 2,275,906
--------- --------- --------- ---------
Total revenue 832,183 581,352 2,907,233 2,275,906
--------- --------- --------- ---------
Costs and expenses:
Cost of health care services 770,439 645,044 2,321,925 1,903,899
Selling, general and administrative 200,904 109,816 519,535 411,372
--------- --------- --------- ---------
Total costs: 971,343 754,860 2,841,460 2,315,271
Income from operations (139,160) (173,508) 65,773 (39,365)
Interest Income 0 15,350 0 15,350
Interest expense, net 0 (14,051) (27,865) (44,532)
--------- --------- --------- ---------
Net income (139,160) (172,209) 37,908 (68,547)
========= ========= ========= =========
Income per share (.04) (.05) .01 (.03)
Weighted average number
of shares 3,415,616 3,415,616 3,415,616 2,580,480
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
First Mutual, Inc.
Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 37,908 (68,547)
Items not affecting cash:
Depreciation 0 0
(Increase) decrease in accounts receivable 13,281 (10,403)
(Increase) decrease in prepaid and
other current assets 16,126 16,183
Increase (decrease) in accounts payable
and accrued expenses (529) 102,084
------- --------
Net cash provided by operating activities 66,786 39,317
------- --------
Cash Flows from investment activities:
Purchases of property and equipment (35,383) 0
------- --------
Net Cash provided (used) by investment
activities (35,383) 0
Cash flows from financing activity:
Payment on note payable (9,946) (249,039)
Issuance of common stock 0 240,936
------- --------
Net cash used for financing activities (9,946) (8,103)
------- --------
Net change in cash 21,457 31,214
Cash, beginning of period 47,445 45,802
------- --------
Cash, end of period 68,902 77,016
======= ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
FIRST MUTUAL, INC.
STATEMENT OF ACCUMULATED DEFICIT
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accumulated Deficit Beginning
of Period (4,717,613) (4,791,046)
Net Income 37,908 (68,547)
---------- ----------
Accumulated Deficit End of Period (4,679,705) (4,859,593)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
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FIRST MUTUAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared by
First Mutual, Inc. (the Company) pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principals for complete financial statements
and should be read in conjunction with the audited financial statements
included in the Company's Annual Report and Form 10-K for the fiscal year ended
September 30, 1997.
In the opinion of the management the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited financial statements, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of the interim periods presented. The operating results for the interim
periods presented are not necessarily indicative of the results expected for the
full fiscal year.
2. 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 income taxes due to
use of the net operating loss.
7
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
Consolidated revenues for the quarter ended June 30, 1998 were $832,183
resulting in net loss of $139,160. The loss for the quarter was due mainly to
the fact that Community Group, the company's major operating subsidiary, earns
the majority of its revenue on a ten month basis each year and recognizes very
little revenue in the months of May and June.
Liquidity and Capital Reserves:
Cash flows in the current fiscal year have been stable. In 1986-1987 the Company
experienced a severe cash shortage. Those shortages were met by:
1) Loans to the Registrant, aggregating $865,093, payable on demand with
interest at 2% over the rate charged the Registrant on The Bank of
Newport (the bank) loan to David P. Slater, President and Chief Executive
Officer of the Registrant and his wife Barbara W. Slater.
2) The Company has entered into a refinancing arrangement with the Bank for
an aggregate principal amount of $680,000 with interest at prime +2%
payable in 240 installments of principal and interest all due November
1998. The Company is currently seeking to refinance this loan. In
connection with this refinancing, David B. Slater, principal stockholder
and President and Chief Financial Officer of the registrant and his wife,
Barbara W. Slater were required by the bank to personally guarantee
$227,000 and to provide collateral to secure the aggregate principal amount
of the loan.
3) David B. Slater allowed the Registrant to defer payments of principal and
interest, salary and rents due to the Slaters.
As consideration for (i) personal loans in the aggregate amount of $865,093 made
by Mr. Slater and his wife, Barbara W. Slater (the "Slaters"), (ii) personal
guarantees and collateral provided by the Slaters in connection with the
refinancing, (iii) deferral of principal and interest on such personal loans and
(iv) deferral of rents due on facilities leased by the Company from Mr. Slater
and salary due, the Company has issued warrants to purchase a total of 2,569,358
shares of the Company's common stock, $.10 par value per share, to the Slaters
at an exercise price of $.10 per share.
On January 2, 1997, Mr. and Mrs. Slater exercised all of their outstanding
warrants, increasing their aggregate ownership in the Registrant to 86.83%. In
view of the above debt repayment requirements the Registrant has not generated
any surplus cash and/or liquidity.
In the future, management of the Registrant expects to reduce costs in Community
Group, expand into new and similar programs and negotiate future increases in
rates under state contracts.
8
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CASH FLOWS:
The Company operates on budgets with governmental agencies. Cash flows from
these contractual obligations allow for limited annual expansion of programs.
As of June 30, 1998, the balance owed by the Company to David and Barbara Slater
and an affiliate is $114,820. David and Barbara Slater have also guaranteed
$227,000 of an additional $680,000 bank loan to the Registrant which has a
principal balance of $506,943 at June 30 1998. The note is due and payable in
November 1998. If the Company fails to refinance the existing loan, the
Registrant would not have sufficient capital to remain in operation.
There are no unused sources of liquidity.
PART II. OTHER INFORMATION
See Part II of Form 10-K for the year ended September 30, 1997. No significant
changes have occurred since that report and no reports on Form 8-K were filed
during the quarter ended June 30,1998.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MUTUAL, INC.
(Formerly Mutual Enterprises, Incorporated)
(Registrant)
___________________
DATE: October 14, 1998 David B. Slater
Director and Principal
Executive Officer
___________________
DATE: October 14, 1998 Diane M. Fleming
Clerk and Director
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 68,902
<SECURITIES> 0
<RECEIVABLES> 118,748
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 187,707
<PP&E> 161,580
<DEPRECIATION> 111,034
<TOTAL-ASSETS> 238,253
<CURRENT-LIABILITIES> 977,618
<BONDS> 619,036
0
0
<COMMON> 331,957
<OTHER-SE> (1,071,322)
<TOTAL-LIABILITY-AND-EQUITY> 238,253
<SALES> 2,907,233
<TOTAL-REVENUES> 2,907,233
<CGS> 0
<TOTAL-COSTS> 2,321,925
<OTHER-EXPENSES> 519,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,865
<INCOME-PRETAX> 37,908
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,908
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
