<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549-1004
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, 1997
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 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.
___________
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
YES X NO____
---
On September 30, 1997 there were 3,479,567 shares of common stock of the
Registrant issued including 63,951 shares in the treasury of the Registrant.
On September 30, 1997 there was no available market price for the shares of
common stock of the Registrant.
1
<PAGE>
PART I
ITEM 1. BUSINESS
First Mutual, Inc. (Formerly Mutual Enterprises, Incorporated) ("Registrant")
was organized as a Delaware corporation in March, 1968 and conducts its
business through The Community Group, Inc., its wholly owned subsidiary and only
active and operating company.
(a) ABC MOBILE SYSTEMS, INC.
Through its now inactive wholly owned subsidiary ABC Mobile Systems, Inc. ("ABC
Mobile") the Registrant 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.
Because of competitive and economic reasons, including the closures of repair
facilities at a significant number of gas stations nationally and the
significant increase in specialty brake repair service alternatives for the
motoring public, the Registrant ceased selling new brake business franchises in
1986 and thereafter sold outright its existing franchises to its existing
franchise owners. As of September 30, 1997 no franchises of ABC Mobile remained
operational.
(b) COMMUNITY GROUP, INC.
The Community Group, Inc. ("Community Group"), the sole operating wholly-owned
subsidiary of the registrant, was organized as a Massachusetts corporation in
1972. Community Group provides habilitative and training services for
developmentally disabled adults through the operation of residential facilities
located in Wakefield, Lynn, Lowell, Melrose, Dracut and Weymouth and an 8,000
square foot Training Center in Wakefield, Massachusetts. Community Group 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 offered by Community Group
comprise arranging psychological consultation and testing, counseling, speech
therapy and tutoring. Other services include on-call relationships with local
physicians, neurologists, audiologists, ophthalmologists, psychiatrists and
physical therapists and other appropriate professionals.
The programs offered by the Community Group are required to meet the
requirements of and obtain the approval of the following agencies: Massachusetts
Department of Social Services, Massachusetts Department of Mental Retardation,
Massachusetts Office for Children, Massachusetts Department of Special
Education. Annual contracts executed by Community Group and each of these
approved agencies, constitute in excess of 90% of the revenues received
2
<PAGE>
by Community Group in fiscal year 1997. Contracts are executed as clients are
accepted by Community Group 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 aspects (building and furnishings), 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 by and between the above agencies and
Community Group, obligate Community Group to provide residential and employment
training services for clients. Contracts typically have a one year term with
four options to renew for successive one year periods. At the end of the five
year period the contracts come up for competitive bidding. All client contracts
of The Community Group which have been competitively re-bid have been renewed
with The Community Group. Revenues are received by Community Group on a per day
rate basis, payable bi-monthly.
Contracts representing 67% of Community Group's gross revenue are due to be
rebid in fiscal year 1999. Contracts representing 15% of Community Group's gross
revenue are due to be rebid in fiscal year 2000. Contracts representing the
remaining 18% of Community Group's gross revenue are due to be rebid in fiscal
year 2002.
If any of the above contracts with Community Group are terminated or fail to be
renewed or any health agency fails to renew any facility of The Community Group,
it could have a material adverse effect on the Registrant's business, financial
condition and results of operations.
(c) BWS INTERNATIONAL, LTD.
BWS Group, Inc., an inactive wholly-owned subsidiary of the Registrant, was
organized as a Massachusetts corporation on February 22, 1983 to enter into the
business of retailing luxury women's fashions. Through its now inactive wholly
owned subsidiaries, BWS International, Inc. (a Delaware corporation), BSDJ, Inc.
(a Texas corporation) and BSNJ, Inc. (a New Jersey corporation), the registrant
operated retail stores in Boston, Massachusetts, Dallas, Texas and Short Hills,
New Jersey featuring Yves Saint Laurent (YSL) clothing and accessories. Due to
poor sales, all stores were closed by 1991 and the companies remain inactive.
EMPLOYMENT
Registrant employed 101 persons on September 30, 1997, all of whom were employed
by the Community Group.
REVENUES:
3
<PAGE>
The Department of Mental Retardation in the Commonwealth of Massachusetts
accounted for in excess of 90% of the revenue received by Community Group in
1997 and 1996. In 1995 it accounted for 92%.
WORKING CAPITAL:
The registrant experienced a severe working capital shortage during the period
1986 through 1987 creating a negative net worth. Cash shortages were funded by
personal loans aggregating $865,093 from David B. Slater, President and Board
Chairman and its principal stockholder and his wife Barbara Slater and by bank
refinancing of $680,000 personally guaranteed and collateralized by David and
Barbara Slater as a condition of the refinancing.
Principally because of these additional debt service requirements, working
capital shortfalls continued. These shortfalls were funded by Mr. Slater
allowing the Registrant to defer principal and interest payments, his salary,
and rent due on facilities leased by the Registrant from him, so that the
Registrant could meet its other obligations See "Certain Transactions."
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 offered to all
interested parties for competitive bidding. The Community Group must therefore
compete in price, service, and quality on each of its contracts. Contracts
representing 67% percent of Community Group's revenue are due to be rebid in
fiscal year 1999; 15% are due to be rebid in fiscal 2000 and the remaining 18%
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, there can be no assurance that Community Group will continue to be
granted renewals of its existing health service contracts and/or will be able to
enter into additional health service contracts on terms favorable to Community
Group. Failure of Community Group to renew such contracts or enter into
additional contracts would have a material adverse effect on the business,
financial condition and results of operation of Community Group and the
Registrant.
2. ABC Mobile:
ABC Mobile is a defendant with other defendants in lawsuit in California, no
motions or correspondence has taken place in this litigation in more that five
years.
ITEM 2. PROPERTIES
The Community Group, leases a single family residence in Wakefield,
Massachusetts owned by David B. Slater and his wife, a two family residence in
Weymouth, Massachusetts owned 50% by David B. Slater and his wife and two
apartments in a four apartment residential property in Wakefield, Massachusetts
owned 75% by David B. Slater and his wife. David B. Slater is President and
Chief Executive Officer and principal stockholder of the Registrant. Rents being
paid by The Community Group on the foregoing properties which include the
requirement to
4
<PAGE>
pay real estate taxes, maintenance and insurance costs, which the Registrant
believes are at fair market value are as follows:
<TABLE>
<CAPTION>
Monthly Commencing Terminating
<S> <C> <C> <C>
1. 40 Avon Street, Wakefield $2,250 11/1/97 10/31/12
2. 6 A Columbia Road, Wakefield $1,000 1/1/98 12/31/13
3. 6 B Columbia Road, Wakefield $1,100 1/1/98 12/31/13
4. 1023/1025 Front Street, Weymouth $2,000 1/1/98 12/31/13
</TABLE>
The monthly rents for each of the above facilities increases each 36 months by
approximately 10%. The registrant believes that existing facilities are adequate
for its near term needs.
ITEM 3. LEGAL PROCEEDINGS
The Registrant's wholly owned subsidiary ABC Mobile Brake is a party in a
litigation in which no action has been taken in the last five years.
As of the date of this report the Registrant is aware of the following pending
legal proceedings to its inactive subsidiary, ABC Mobile Systems:
ABC Mobile is a defendant along with twenty (20) other defendants in an action
brought in the Superior Court of the State of California on November 22, 1985
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. The plaintiffs in the action allege that a cause of the decedent's
death was his exposure to asbestos, part of which exposure was allegedly
sustained while an employee of an automobile repair and service station which
installed asbestos brake linings on customers' cars and which station on one
singular occasion was a customer of an ABC Mobile Brake franchise owner. The
plaintiff seeks a sum in excess of $15,000, legal costs and damages. The
Registrant is not a party to this 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, 1997 there was no established trading market for shares of the
Registrant's common stock.
Stockholders:
- -------------
5
<PAGE>
The approximate number of record holders of common stock on September 30, 1997
was 670.
Dividends:
- ----------
No cash dividends have been declared by the Registrant during 1997 and 1996
fiscal years.
ITEM 6. SELECTED FINANCIAL DATA
Set forth in exhibit 1 are selected consolidated financial data derived from the
income statements of the Registrant for the periods ended September 30, 1997,
1996, 1995, 1994, and 1993 derived from the balance sheets for the Registrant
for the same periods. The selected consolidated financial data should be read in
conjunction with the Management's Discussion of Financial Condition and Results
of Operations and the financial statements and related notes included therein
and are qualified by reference to such financial statements and related notes.
<TABLE>
<CAPTION>
EXHIBIT 1
September 30,
-------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues $3,358,161 $3,181,963 $2,869,838 $3,116,933 $2,976,471
Operating Income or (Loss) 130,178 231,943 160,658 (90,950) 185,615
Other Income (Expense) (56,745) (76,562) (80,288) 285,463 (101,014)
Income (Loss) Before 73,433 155,381 80,370 194,513 84,601
Income (Loss) Per Share
Before Extraordinary Item .02 .18 .09 0.23 .10
Income (Loss) Per Share .02 .18 .09 0.23 .10
Balance Sheet Data
Cash and Temporary Investments $ 47,445 $ 45,802 $ 49,419 $ 73,908 $ (30,297)
Accounts Receivable Net of
Allowance for Doubtful Accounts 132,029 78,142 125,099 131,189 232,322
Current Assets 195,657 140,127 190,701 205,097 213,221
Current Liabilities 988,093 606,989 791,326 709,284 811,921
Working Capital (792,436) (466,862) (600,625) (504,187) (598,700)
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total Assets 210,820 141,584 190,701 222,305 236,007
Long Term Obligations 0 626,237 646,398 565,801 594,522
Equity (777,273) (1,091,642) (1,247,023) (1,052,780) (1,170,436)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview:
- ---------
100% of the Registrant's revenue is generated from its wholly owned subsidiary
Community Group, Inc. Community Group, Inc. operates as a provider of
habilitative and training services to developmentally disabled adults.
Currently there are 24 residential facilities and a training center in greater
Boston. Community Group, Inc. has 101 employees. The Community Group receives
its income substantially through governmental contracts for the care of
developmentally disabled adults.
Results of Operations:
- ----------------------
The Registrant operates on approved annual budgets substantially funded by
contracts with governmental agencies. As a result of previous losses the
Registrant has a negative net worth, limited liquidity, and no operational debt
facility. Working capital needs have been met by advances from David Slater,
President and Board Chairman.
First Mutual, Inc. for the fiscal year ended September 30, 1997, the
Registrant's consolidated revenues were $3,358,161 resulting in income from
operations of $130,178 and net income of $73,433 .
Community Group, Inc. had for fiscal year ended September 30, 1997 operating
income of $177,445 before interest expense of $13,570 resulting in net income
of $163,875.
During fiscal year ended September 30, 1997 Community Group continued
implementing a new supported living program for some of its clients. Under the
concept of supported living, clients lead a more independent, less supervised
lifestyle. Community Group during fiscal 1997 continued to expand by providing
additional supported living services.
The Registrant's expense structure is controlled through contracts with
governmental agencies. Budgets are predetermined and monitored. The Registrant
does no marketing. Any excess cash is invested in simple interest bearing bank
accounts. The Registrant has a debt of $525,411 with an interest rate of 9.5%
as of September 30, 1997. The Registrant does not conduct any financing
operations.
7
<PAGE>
LIQUIDITY AND CAPITAL RESERVES:
Cash flows in fiscal 1997 were stable. In 1986 - 1987 the Registrant
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 that bank's loan to
David B. Slater, President and Chief Executive Officer of the Registrant
and his wife, Barbara W. Slater.
2) Bank refinancing of $680,000. 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 and collaterize $227,000 (1/3/rd/) of this loan.
3) David B. Slater allowed the Registrant to defer payments of principal and
interest payments, salary and rents due the Slaters.
In return for their $865,093 loan to the Registrant and guarantee and
collateralization of its bank refinancing at that time, as well as for allowing
the Registrant to defer payments of principal and interest payments, rents due
of facilities leased by the registrant from Mr. Slater and salary due as
required by the cash flow of the registrant, the Registrant granted Warrants to
purchase a total of 2,569,358 shares of the Registrant's common stock to David
B. Slater and Barbara W. Slater at an exercise price of $.10 per share.
On January 2, 1997, Mr. and Mrs. Slater exercised all of the applicable
Warrants, increasing their aggregate ownership in the Registrant to 86.63%. 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 similar programs and negotiate future increases in rates
under state contracts.
ABC Mobile Systems and BWS Group, Inc. have ceased operations permanently.
CASH FLOWS:
The Registrant operates on budgets with governmental agencies. Cash flows from
these contractual obligations allow for limited annual expansion of programs.
As of September 30, 1997, the balance owed by the registrant to David and
Barbara Slater is $103,571. 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 $525,411 at September 30, 1997. The note is due and payable
06/15/98. If the Registrant fails to refinance, the Registrant does not have
sufficient capital to remain in operations.
There are no unused sources of liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
8
<PAGE>
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. No officer or Director is involved in any legal
proceeding.
DAVID B. SLATER, age 63. 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 37. Director since December 1987 and Corporate Secretary
Director of Administration of the Registrant since September 1987.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
(See exhibit 2)
EXHIBIT 2
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Name of Capacities in Salaries & Forms of Insurance Aggregate
Individual & which Directors Fees Remuneration Benefits Contingent
Identity of Group Remuneration Forms of
was Received Remuneration
DAVID B. President, Chief $185,000 $20,000 $4,793
SLATER Exec. Officer, 1,734,679 warrants
Chairman of the Exercised
Board
All Officers & $225,000 $4,793
Directors as a
Group
</TABLE>
* The Registrant maintains medical insurance for all employees. Registrant
provides a 401K retirement plan for all employees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(See exhibit 3)
EXHIBIT 3
Amount &
Title Name & Nature of Percent
of Address of Beneficial of
Class Beneficial Owner Ownership Class
- ------------- ----------------------- ------------ ---------
Common Stock David B. Slater/1/ 3,014,808 86.63%
410 South Street
Needham, MA 02192
Barbara W. Slater/2/ 3,014,808 27.18%
410 South Street
Needham, MA 02192
owned owned
--------- --------
Officers and Directors 3,014,808 86.63%
______________________
/1/ Includes 945,929 shares of common stock held by his wife, Barbara Slater.
Mr. Slater disclaims any beneficial ownership of common stock held by his wife.
/2/ Includes 2,068,879 shares of common stock held by her husband, David
B.Slater. Mrs. Slater disclaims any beneficial ownership of common stock held by
her husband
10
<PAGE>
as a Group (2 persons)
David B. Slater & Barbara Slater disclaim any beneficial ownership in the shares
of their children or any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following facilities leased to a subsidiary of the Registrant are owned by
David B. Slater and his wife:
Monthly Commencing Terminating
1. 40 Avon Street, Wakefield $2,250 11/1/97 10/31/12
2. 6 A Columbia Road, Wakefield $1,000 1/1/98 12/31/13
3. 6 B Columbia Road, Wakefield $1,100 1/1/98 12/31/13
4. 1023/1025 Front Street, Weymouth $2,000 1/1/98 12/31/13
The Registrant is of the opinion that the rentals are on terms comparable to
that obtained in the area for similar type facilities. Leasee also pays all real
estate taxes, insurance and maintenance costs on all rentals on properties 1 and
4.
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, 1997 and 1996
Statements of Income and Accumulated Deficit - years ended September 30, 1997,
1996 and 1995
Statements of Cash Flows years ended September 30, 1997 and 1996
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, 1997.
3. Exhibits.
(a) Copies of leases have been filed with the Registrant'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:
11
<PAGE>
ABC Mobile Systems (a California Corporation, dab ABC Mobile Brake); (Inactive)
The Community Group, Inc. (a Massachusetts Corporation, d.b.a. Community Group);
BWS International, Ltd. ( a Massachusetts Corporation, dba Saint Laurent Rive
Gauche); (Inactive)
Sizzleboard International, Inc. (a Massachusetts Corporation, inactive since
1975); (Inactive)
BSNJ, Inc. (a New Jersey Corporation, dba Saint Laurent Rive Gauche). (Inactive)
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 April 6, 1998
Director and
Principal Executive Officer
Diane M. Fleming April 6, 1998
Clerk and Director
December 31, 1997
To the Board of Directors
12
<PAGE>
First Mutual, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheet of First Mutual, Inc. as of
September 30, 1997 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. The
financial statements of First Mutual, Inc. as of September 30, 1996 and 1995,
were audited by other auditors whose report dated December 31, 1996, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally 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, 1997.1996 and 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Peter Arnold, CPA
December 12, 1997
First Mutual, Inc.
Balance Sheet
As of September 30, 1997 and 1996
ASSETS
13
<PAGE>
<TABLE>
<CAPTION>
September September
30, 1996 30, 1997
<S> <C> <C>
Current Assets:
Cash $47,445 $45,802
Accounts receivable 132,029 78,142
Prepaid expenses 16,183 16,183
Total Current Assets 195,657 140,127
Property and Equipment:
Furniture's, fixtures & equipment 94,537 78,303
Leasehold improvements 31,660 31,660
Total Property and Equipment 126,197 109,963
Less accumulated depreciation (111,034) (108,506)
Net Property and Equipment 15,163 1,457
Total Assets 210,820 141,584
</TABLE>
The accompanying notes are an integral part of these financial statements
First Mutual, Inc.
Balance Sheet
As of September 30, 1997 and 1996
LIABILITIES AND STOCKHOLDER EQUITY
September September
30, 1997 30, 1996
14
<PAGE>
<TABLE>
<S> <C> <C>
Liabilities:
Current portion of long-term debt $ 525,411 $ 27,000
Demand loans from officer, (note 5) 103,571 150,000
Accounts payable & accrued expenses 359,111 429,989
Total current liabilities 988,093 606,989
Demand loans from officer, (note 5) 0 104,446
Long-term debt net of current portion 0 521,791
Total liabilities 988,093 1,233,226
Net Capital Deficiency:
Common stock, $.10 par value as
of September 30, 1997: 4,000,000 shares
authorized, 3,479,567 issued,
3,415,616 outstanding; as of September
30, 1996: 2,000,000 shares authorized,
910,209 issued, 846,258 outstanding 331,957 91,021
Additional paid-in capital 3,644,837 3,644,837
Accumulated deficit (4,717,613) (4,791,046)
Treasury stock, 63,951 shares
of common stock at cost (36,454) (36,454)
Total stock holders' equity (777,273) (1,091,642)
Total liabilities and stockholders' equity 210,820 141,584
</TABLE>
The accompanying notes are an integral part of these financial statements
First Mutual, Inc.
Statement of Income
For the years ending September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
September September September
30,1997 30,1996 30,1995
<S> <C> <C> <C>
Revenue:
Health care services 3,358,161 3,181,963 $2,869,838
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total revenue 3,358,161 3,181,963 2,869,838
Costs and expenses:
Cost of health care services 3,045,716 2,753,092 2,610,731
General and administrative 182,267 196,928 98,449
Total costs & expenses 3,227,983 2,950,020 2,709,180
Income from operations 130,178 231,943 160,658
Other Income (Expenses):
Interest income 152,402 0 0
Interest expense (72,147) (76,562) (80,288)
Total other income (expense) (56,745) (76,562) (80,288)
Net income 73,433 155,381 80,370
Income per share (notes 1&6)
Income before extraordinary item $.02 $.18 $.09
Weighted average number of common share
outstanding (common stock equivalents are
anti-dilutive in both profit and loss years) 3,415,616 846,258 846,258
</TABLE>
The accompanying notes are an integral part of these financial statements
First Mutual, Inc.
Statement of Cash Flows
For the years ending September 30, 1997 and 1996
<TABLE>
<CAPTION>
September September
30, 1997 30, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Net income $ 73,433 $ 155,381
Items not affecting cash:
Depreciation 2,528 0
(Increase) in accounts receivable (53,887) 46,957
(Increase) decrease in prepaid and
other assets 1,457 0
Increase (decrease) in accounts payable &
accrued expenses (70,878) (184,337)
Decrease in demand loan
officer and affiliate (150,875) 0
Net cash flows from operations (198,222) 18,001
CASH FLOWS FROM INVESTMENTS:
Additions to other assets (17,691) (1,457)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (23,380) (20,161)
activities
Net change in cash 1,643 (3,617)
Cash, beginning of year 45,802 49,419
Cash, end of year 47,445 45,802
Cash paid during the year:
Interest 72,147 76,562
</TABLE>
The accompanying notes are an integral part of these financial statements
First Mutual, Inc.
Statement of Accumulated Deficit
For the years ending September 30, 1997 and 1996
<TABLE>
<CAPTION>
September September
30, 1997 30, 1996
<S> <C> <C>
Accumulated Deficit Beginning of Year $(4,791,046) $(4,946,427)
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
Net Income 73,433 155,381
Accumulated Deficit End of Year $(4,717,613) $(4,791,046)
</TABLE>
First Mutual, Inc.
Notes to Financial Statements
September 30, 1997
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 are $103,571 at September 30,
1997. 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 (Inactive)
BWS International, Ltd. (Inactive)
BWS Group, Inc. (inactive)
BSNJ, Inc. (Inactive)
Sizzleboard International, Inc. (inactive)
18
<PAGE>
BAD DEBTS
The company has no allowance for doubtful accounts at September 30, 1997, 1996,
and 1995.
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 operating losses attributable to
future years is $1,100,000 and expire through 2005. Available tax credits
approximate $9,344 and expire through 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
EARNINGS PER SHARE
Earnings per share of common stock is computed based on the weighted average
number of shares of common stock and common stock equivalents.
NOTE 2 OPERATING LEASES
The company leases facilities and vehicles under operating leases. Future
minimum lease payments under operating leases for the five year period
subsequent to September 30, 1997 are as follows:
September 30, 1998 $228,318
September 30, 1999 $ 86,820
September 30, 2000 $ 25,800
September 30, 2001 $ 25,800
September 30, 2002 $ 25,800
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NOTE 3 RELATED PARTY TRANSACTIONS
The company leases certain facilities including a single family residence in
Wakefield, Massachusetts, a two family residence in Weymouth Massachusetts, and
two apartments in a four family residence in Wakefield, Massachusetts from David
B. Slater and his wife Barbara W. Slater under annually renewable leases
cancelable by either party with 30 days written notice.
. 40 Avon Street, Wakefield, Massachusetts - single family home. This lease
is a 15 year lease beginning on November 1, 1997 and ending at midnight on
October 31, 2013. Rent which includes real estate taxes, maintenance and
insurance.
. 6 A Columbia Road, Wakefield ________ per month
. 6 B Columbia Road, Wakefield ________ per month
. 1023/1025 Front Street, Weymouth ______ per month
Advances from officer represent loans made by David Slater which bear interest
at a rate 2% higher than bank debt, 1/3rd of which is guaranteed personally by
Mr. Slater.
NOTE 4 DEBT
Long-term debt consist of the following:
An original amount of $680,000 with interest at Prime + 2% payable in 240
installments of principal and interest all due June 1998 secured by all business
assets and guaranteed by David Slater. The company is currently seeking to
refinance this loan.
Balance due for the years ended September 30,
1997 1996
$ 525,411 $548,791
Long-term debt maturing in the next five years is as follows:
September 30, 1997 $525,411
NOTE 5 COMMON STOCK WARRANTS
Between 1987 and 1989, the company granted a total of 2,569,358 10 year Warrants
to purchase shares of the Company's common stock. These warrants were issued to
Mr. and Mrs. David Slater in consideration of their loans to the company, their
personal guaranty and collateralization of the company's bank debt without which
the bank would not make said loan and for their allowing the company to accrue
when necessary otherwise due and payable principal and interest on their loans,
rents for facilities leased to the company and salary otherwise due.
On January 2, 1997, Mr. and Mrs. Slater exercised all the applicable warrants,
increasing their ownership in the company to 86.63 %.
20
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 47,445
<SECURITIES> 0
<RECEIVABLES> 132,029
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 195,657
<PP&E> 126,197
<DEPRECIATION> 111,034
<TOTAL-ASSETS> 210,820
<CURRENT-LIABILITIES> 988,093
<BONDS> 628,982
331,957
0
<COMMON> 0
<OTHER-SE> (1,072,776)
<TOTAL-LIABILITY-AND-EQUITY> 210,820
<SALES> 3,358,161
<TOTAL-REVENUES> 3,358,161
<CGS> 0
<TOTAL-COSTS> 3,227,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,745
<INCOME-PRETAX> 73,433
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,433
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,433
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