<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT AND FORM 10-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED
DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-11656
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1807533
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
TWO NATIONWIDE PLAZA, SUITE 760
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NO.: (614) 221-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share American Stock Exchange
Common Stock Purchase Warrants Same as above
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 X No
--- ---
On February 28, 1997, the aggregate market value of the voting stock
of The Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $5,097,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,236,020 shares of Common Stock of the Registrant and 414,538
Common Stock Purchase Warrants outstanding.
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
amendment to this Form 10-K X
---
DOCUMENTS INCORPORATED BY REFERENCE:
See Part IV, Item 14(a)3
<PAGE> 2
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 *
PART I
ITEM 1. BUSINESS
The Company's business is in the health care industry. It is
engaged in the ownership and operation of three nursing homes
(one specializing in the care of persons with Alzheimer's and
related syndromes), the operation of three retail pharmacies
and a Medicare-certified home health care agency which is
ceasing most of its operations in the second quarter of 1997.
It is the general partner in charge of administration and
operation of an outpatient diagnostic and radiology center
owned by a limited partnership; this diagnostic center, which
serves the medical community generally, provides state of the
art diagnostic imaging techniques, including magnetic
resonance imaging (MRI), CT Scans, Ultrasound, X-ray, Bone
Densitometry, Mammography, and 3-D imaging. A second center,
featuring an open field magnetic resonance, has been opened in
1997 by a limited liability company formed by a subsidiary and
an unrelated third party. The Company's primary activities are
carried on in the state of Ohio, principally in Columbus.
As used herein, "Company", unless the context otherwise
requires, includes the subsidiaries of the Company, among
which is The Wendt-Bristol Company ("W-B"), and other
affiliates of the Company. W-B and its predecessors have been
in the health care industry since 1903.
NURSING HOMES. The Company owns and operates two nursing homes
in Columbus, Ohio (147 beds and 75 beds) and leases the
premises and operates one nursing home in Springfield, Ohio
(100 beds). All nursing homes provide skilled care, one
specializing in the care of persons with Alzheimer's and
related syndromes.
The Alzheimer Patient Care Center, located in Columbus, Ohio,
opened in October, 1994. It is a 75-bed skilled long-term
facility that also contains a geriatric day care center and a
physician office for geriatric assessment. The Medicaid
reimbursement program of the State of Ohio is applicable to
costs incurred by some of the persons receiving care in the
facility. Approximately 32% (as of March, 1997) are private
pay patients. In April 1993, the Company obtained mortgage
financing (insured by the U.S. Department of Housing and Urban
Development) in the amount of approximately $3,200,000 subject
to periodic draws to cover 90% of the cost of construction of
the facility; closing on the permanent long-term mortgage
occurred in the second quarter of 1995.
---------------------------------
* Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an
exhibit to this Form 10-K or otherwise filed with the
Securities and Exchange Commission. Each such statement is
qualified in its entirety by such reference.
I-1
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
MEDICAL AND RELATED SERVICES. During February 1987, W-B formed
Wendt-Bristol Diagnostics Company, "Diagnostics", as a
subsidiary for the purpose of establishing an outpatient
medical diagnostic imaging center. The center was financed
through the formation of a limited partnership, Wendt-Bristol
Diagnostics Company L.P. (the "Partnership"), of which
Diagnostics is the general partner and currently receives 50%
of the profits in addition to management fees. The center
opened in April 1988 in Columbus, Ohio. The center specializes
in state of the art diagnostic imaging techniques, including
magnetic resonance imaging (MRI), CT Scans, Ultrasound, X-ray,
Mammography, Bone Densitometry and 3-D imaging. In the fourth
quarter of 1996 the Center opened a remodeled suite to
accommodate a new angiography/fluoroscopy unit.
Physicians in the Telequest Network provide radiology services
to the partnership via telecommunications technology.
Telequest is a consortium of six leading academic radiology
centers in the United States. Telequest represents this
country's first nationwide sub-specialty radiology network and
is dedicated to implementing products and services that
enhance the overall quality and efficiency of the radiology
services.
The consortium consists of the following institutions:
Bowman Gray School of Medicine
Brigham & Womens Hospital - Boston
Emory University Hospital - Atlanta
University of California, San Francisco
University of Pennsylvania Medical Center
University of Washington, Seattle
In addition, Diagnostics, through one of its subsidiaries,
constructed the Alzheimer's and related syndromes facility
referred to above. Diagnostics was engaged in a public
offering of its common shares which commenced in October 1993.
On or about May 15, 1994, sales efforts related to the common
shares ceased pending the approval of The National Association
of Securities Dealers ("NASD") as it related to the
participation of a NASD member firm. As a result of this delay
and the need for an amended filing with the Securities and
Exchange Commission, the offering was terminated. Prior to the
termination, 162,530 common shares had been sold; half of such
shares were newly issued and the other half were sold by
Wendt-Bristol as selling shareholder. See Notes 2 and 3 of
Notes to Consolidated Financial Statements.
The Company has also been engaged in the business of providing
Medicare-certified home health care services through its
wholly-owned subsidiary, Wendt-Bristol Home Health Care
Company, which was incorporated in May 1985 and has attained
JCAHO (Joint Commission on Accreditation of Healthcare
Organizations) certification. Wendt-Bristol Home Health Care
Company employs or contracts with nurses and nurses aides,
social workers and therapists of all kinds to provide home
health care services in the greater Franklin County, Ohio area
and, in 1994, in the Springfield, Ohio area. During second
quarter of 1997, the Company is ceasing a significant portion
of this business. The Company also provides a physical therapy
clinic in its Springfield facility serving residents and
outpatients.
In August 1985, 1275 Olentangy River Road Limited Partnership
was formed. W-B has been the sole general partner of this
partnership which owned and operated a medical office building
in Columbus, Ohio until it was sold (see Note 1B of Notes to
Consolidated Financial Statements).
I-2
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
PHARMACIES. The Company operates three retail pharmacies. Two
of the pharmacies are located in Columbus and one in Canal
Winchester. The pharmacies sell pharmaceuticals and medical
supplies and equipment, health and beauty aids and other
sundries. It also sells and rents durable medical equipment
and provides enteral therapy services.
EMPLOYEES: LABOR RELATIONS. The Company has approximately 400
employees at February 28, 1997. Non-professional employees of
one of its nursing homes located in Columbus, Ohio, have been
covered by a collective bargaining agreement through February,
1997 which is currently being re-negotiated. The Company
considers its relations with its employees and the union to be
good.
PATENTS AND TRADEMARKS. The Company owns registered
trademarks, including "the Best of Health!", which are
utilized in connection with the marketing of Company services
and products.
INDUSTRY SEGMENTS. The operations of the Company and its
subsidiaries fall within two industry segments: Nursing homes;
and Medical services and other. Additional information about
each of the industry segments, for the respective periods
indicated, follows:
Financial information by industry segments for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues/sales to unaffiliated
customers:
Nursing homes $13,147,964 $12,604,828 $ 9,791,822
Medical services and other 8,193,238 8,251,370 9,695,240
Operating income or (loss):
Nursing homes 865,837 857,040 851,359
Medical services and other (79,340) 508,625 (146,093)
Identifiable assets:
Nursing homes 13,311,345 12,353,302 11,860,805
Medical services and other 10,606,760 10,454,023 14,647,236
Depreciation expense:
Nursing homes 354,152 365,780 259,175
Medical services and other 610,563 536,912 883,419
Capital expenditures:
Nursing homes 184,143 178,880 2,614,683
Medical services and other 1,236,352 968,133 200,925
</TABLE>
REGULATION OF THE HEALTH CARE INDUSTRY. The Company must
comply with extensive federal, state and local government
regulations applicable to the health care industry and the
pharmacy business.
I-3
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
Nursing homes and home health care businesses are subject to
federal and state government regulation, including the
necessity of obtaining and maintaining a license,
certification for participating in the Medicare and/or
Medicaid programs, and/or registration. There are also
licensing requirements for nurses and other professional staff
of the nursing home and/or home health care agency. The
operations and activities of nursing homes and home health
agencies are also affected by the Medicare/Medicaid conditions
of participation and other relevant federal and local laws.
Activities of nursing homes and home health care agencies
which are regulated, include, but are not limited to, release
of medical records, patient confidentiality rights and the
dispensing of drugs. In addition, there are federal and state
requirements as to patient rights. Failure to abide by the
Federal and State laws governing the operations of nursing
homes and home health agencies including the requirement
governing the foregoing areas, lead to termination of
licensure and/or decertification and loss of reimbursement,
private enforcement rights by the patient, and other
sanctions.
The State of Ohio currently licenses nursing homes which are
privately owned and operated. A private owner cannot operate a
nursing home without a license. In addition to licensure
requirements, in the case of long-term care facilities and
home health agencies, the Ohio Department of Health, the Ohio
Department of Human Services, and the United States Department
of Health and Human Services are the principal regulatory
agencies to whose jurisdiction the Company is subject.
The Company remains in good standing with all requisite
agencies.
REQUIREMENT OF OBTAINING A CERTIFICATE OF NEED. Under the
current Certificate of Need ("CON") law, there is a moratorium
on the approval of new nursing home beds until June 30, 1997.
The establishment of new nursing home beds (after June 30,
1997) and the relocation of nursing home beds requires a CON.
An extension of the moratorium until June 30, 1999 is being
considered under pending state legislation.
New health care facilities, including diagnostic centers,
located in metropolitan statistical areas are required to be
licensed beginning March 31, 1996, but do not have to obtain a
CON. Diagnostic centers located in rural areas still require a
CON until May 1, 1997. In addition to the foregoing, there is
a separate requirement to file a notice of intent with the
Director of Health and the local health care agency 60 days
prior to "the establishment of a new health care facility."
The acquisition of an existing health care facility that does
not involve a change in the number of beds, by service, or the
number or type of health services does not require a CON or
the filing of a notice of intent.
CON review is required until May 1, 1997 for the purchase of
medical equipment costing $2 million or more. The cost of
purchasing medical equipment is the sum of (1) the greater of
its fair market value or the cost of its lease or purchase and
(2) the cost of installation and any other activities
essential to the acquisition of the equipment and its
placement into service.
The acquisition of an MRI does not require a CON and is not
reviewable (unless the cost is $2 million or more), but does
require filing a notice of intent with the Director of Health
and the local health care agency 60 days prior to the
purchase.
I-4
<PAGE> 6
ITEM 1. BUSINESS (CONTINUED)
New construction or renovation of a nursing home costing $2
million or more requires a CON. A CON is not required for
other capital expenditures involving home health agencies or
nursing homes. Capital expenditures of $2 million or more on
behalf of a health care facility in connection with the
provision of a health service do require filing a notice of
intent with the Director of Health and the local health agency
60 days prior to obligating the capital expenditure.
Therefore, the Company's business operations and plans must
comply with the foregoing laws. There can be no guarantee that
such laws will not be expanded in the future.
PHARMACIES. There are substantial federal laws and regulations
which impact the pharmacy business. Federal laws include the
Federal Food, Drug and Cosmetic Act, the Federal Trade
Commission Act, the Consumer Product Safety Act, the Poison
Prevention Packaging Act, and the Hazardous Substances Act.
States generally require that pharmacies and pharmacists be
licensed or registered by applicable state agencies. In
addition, there are state laws and regulations issued pursuant
thereto governing aspects of retail pharmacy operations,
including (i) who may write and dispense prescriptions, (ii)
how prescriptions must be filled, (iii) how prescription drugs
and controlled substances must be stored and safeguarded, (iv)
when generic drugs may be substituted, and (v) the uses for
which certain drugs may be prescribed. These laws are
generally designed to insure the identity, strength, quality
and purity and to regulate the packaging, labeling and
dispensing of drugs. Regulations are issued by an
administrative body in each state, typically a pharmacy board.
These agencies are empowered to impose sanctions, including
license or registration revocations for noncompliance. In
addition, each pharmacy and pharmacist is bound by standards
of professional practice. The Company has not experienced, nor
does it expect to experience, any difficulties in compliance
with regulations promulgated by these agencies.
LEGISLATION. The Company also may be affected, directly or
indirectly, by legislation affecting medical cost
reimbursements. In recent years, Congress has enacted
legislation aimed at controlling the cost to certain patients
of medical products and services through the regulation of the
primary federal and state reimbursement programs: Medicare, a
federal program for certain elderly or disabled patients and
certain patients suffering from end stage renal disease, and
Medicaid, a jointly sponsored federal and state program which
focuses on assisting certain qualified recipients.
Legislative proposals to regulate or control health care costs
and to institute a national health insurance program have been
made from time to time and are currently receiving further
consideration. Because these proposals vary, their potential
effect on the health care industry also vary. If, in the
future, legislation or regulations were to be adopted that
would significantly reduce governmental reimbursement rates or
rates charged to private-pay patients, such legislation or
regulations could have a material adverse effect on the
Company. Because a significant portion of all nursing home
revenues on an industry-wide basis are derived from the
federal and state governments, the Company and the industry as
a whole will continue to be affected by changes in government
programs and regulations.
MANUFACTURE OF MEDICAL EQUIPMENT. Until October 1991, the
Company was also engaged in the business of manufacturing
durable medical equipment and furniture through its Healthcare
Division located in Passaic, New Jersey.
On October 1, 1991, the Company sold all of the assets (other
than the real estate and plant thereon) of its Healthcare
Division to a wholly-owned subsidiary of Graham-Field Health
Products, Inc., pursuant to an Agreement dated August 31,
1991, between the Company and Graham-Field, Inc., as amended
on October 1, 1991.
I-5
<PAGE> 7
ITEM 1. BUSINESS (CONTINUED)
To permit the disposition of the Healthcare Division, the New
Jersey Department of Environmental Protection and Energy (the
"Department") issued its Administrative Consent Order and the
Company posted $150,000 in favor of the Department to be used,
if necessary, to reimburse clean-up expenditures.
The Department had determined that the Passaic, New Jersey,
real estate of the Company did not completely comply with
applicable New Jersey laws and regulations pertaining to the
environment. The contamination in question had resulted
primarily from underground tanks, long abandoned by prior
owners of the site, and the contents thereof. All of such
tanks have been removed by the Company. In part the
contamination was also attributable to the method, initiated
by prior operators, of disposal of solvents.
In March 1992 the Company submitted to the Department a
proposed clean-up plan formulated by the Company's special
counsel and its environmental engineering firm (collectively
the "environmental engineering firm"). The Department in April
1993 accepted a part of the Company's proposed plan and
proposed its own plan in lieu of that part of the Company's
plan that was not acceptable. The Company's environmental
engineering firm recommended against acceptance of the
Department's proposals.
In May 1993 the Company submitted an amended plan. In January
1994 the Department accepted a part of the Company's amended
plan and proposed its own plan in lieu of that part of the
Company's amended plan that was not acceptable.
The Company's environmental engineering firm concluded that
the additional work that the Department was requiring was both
unwarranted and burdensome. In February 1994 the Department
agreed to conduct a more detailed analysis of the
aforementioned amended plan submitted by the Company and in
December 1995 granted a conditional approval of the plan with
a two-year monitoring period. The remaining estimated cost to
complete the plan is approximately $100,000.
The Company has incurred total costs of $1,023,000 related to
environmental matters in New Jersey, of which $344,000 was
spent in the five fiscal (calendar) years ended December 31,
1996. For further information, see Note 12A of Notes to
Consolidated Financial Statements.
PRIVATE SALE OF STOCK. Reference is hereby made to Note 2 of
Notes to Consolidated Financial Statements.
SECURITIZATION OF ACCOUNTS RECEIVABLE. Reference is hereby
made to Note 5 of Notes to Consolidated Financial Statements
herein.
ITEM 2. PROPERTIES
The Company leases approximately 7,600 square feet of space in
a downtown Columbus, Ohio, office building which serves as the
Company's and W-B's general offices.
Three pharmacies operated by W-B are located in leased
premises in Ohio: two in Columbus (4,000 square feet and 3,300
square feet) and one in Canal Winchester (4,000 square feet).
In addition, a warehouse (3,200 square feet) is leased in
Columbus, Ohio to store records and durable medical equipment
used at the pharmacies.
The facilities of the Wendt-Bristol Diagnostics Company L.P.
consist of an 8,000 square foot two-story building in
Columbus, Ohio, which serves as its general offices and
diagnostic and radiology center; such owned facilities are
subject to mortgage indebtedness in the amount of $702,000 at
March 1, 1997.
I-6
<PAGE> 8
ITEM 2. PROPERTIES (CONTINUED)
The nursing homes of the Company consist of one owned 147-bed
home in Columbus, Ohio, subject to mortgage indebtedness in
the amount of $2,928,000, one owned 75-bed Alzheimer's and
related syndromes center subject to mortgage indebtedness of
$3,166,000 (each indebtedness at March 1, 1997) and one leased
100-bed home in Springfield, Ohio. The lease expires in July,
2015. Reference is hereby made to Item 3. I. herein. In
November, 1994 the Company acquired approximately 2 acres of
land adjacent to the Alzheimer's center for approximately
$144,000. The property is subject to mortgage indebtedness in
the amount of $29,000 at March 1, 1997.
The present aggregate annual rentals of all leases referred to
are approximately $494,000 and their terms have expiration
dates ranging through July 2015.
The Company believes that the facilities described or referred
to above are adequate and sufficient for its present needs and
requirements. It should also be noted that, in 1997, the
Company is pursuing the acquisition/lease of facilities to
accommodate the operations of additional radiological and
diagnostic ventures formed with unrelated third parties.
The Company owns land and a plant located in Passaic, N.J.,
which were formerly used by its Healthcare Division
(manufacturer of durable medical equipment), which was sold on
October 1, 1991. This property was leased to the purchaser at
the time of the transaction. See Item 1. Business.
ITEM 3. LEGAL PROCEEDINGS
I. ETHAN ALLEN CARE CENTER, INC.
American Health Care Centers, Inc. ("AHCC") had filed a
complaint for Declaratory Judgment action against Ethan
Allen Care Center, Inc. ("EACC") on June 26, 1995 in the
Court of Common Pleas, Clark County, Ohio (Case No.
95-CV-0326). EACC is a subsidiary of W-B. AHCC is the
landlord under a lease with EACC for its nursing home
facility doing business as Bristol House of Springfield.
AHCC seeks a Declaration that EACC is in default of the
lease and seeks the right to repurchase the license for
the nursing home. AHCC's Motion for Summary Judgment was
denied by the court. EACC is presently current on its rent
obligation but is disputing the calculation of late rent
charges imposed under the lease.
Although not directly subject to the aforementioned
complaint, the Company has filed a complaint seeking
payment of a receivable related to a Share Transfer
Agreement with AHCC. Such amounts became due in February
1996, one year after final settlement of certain State of
Ohio Medicaid receivables, as provided in the Agreement.
II. INSURANCE COMMISSIONER OF THE COMMONWEALTH OF
PENNSYLVANIA, AS THE STATUTORY LIQUIDATOR FOR CORPORATE
LIFE INSURANCE COMPANY (UNAFFILIATED THIRD PARTY)
On March 19, 1997, the Insurance Commissioner of the
Commonwealth of Pennsylvania, as the Statutory Liquidator
of Corporate Life Insurance Company dismissed with
prejudice an action it commenced against the Company in
the Commonwealth Court of Pennsylvania (Case No.
509-MD-1995).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, no matters were submitted
to a vote of security holders.
I-7
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The high and low trade prices for the Company's Common
Stock and Common Stock Purchase Warrants as reported by
the American Stock Exchange for the periods indicated are
as follows:
<TABLE>
<CAPTION>
AMEX SYMBOL WMD WMD.WS
YEAR COMMON STOCK WARRANTS
---- ------------ --------
1996 HIGH LOW HIGH LOW
---- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 3/4 7/16 1/16 1/16
2nd Quarter 1 1/2 1/2 1 1/8
3rd Quarter 1 3/4 5/8 1 7/16 7/16
4th Quarter 1 3/4 1 1/8 1 1/4 1
1995
----
1st Quarter 1/2 5/16 1/2 1/16
2nd Quarter 3/4 7/16 No Trades
3rd Quarter 11/16 7/16 1/4 1/4
4th Quarter 9/16 3/8 1/8 1/64
</TABLE>
In conjunction with the issuance of Bonds, the Company issued
33 Series No. 1 Warrants exercisable into a total of 300,000
shares of the common stock of the Company for two dollars
($2.00) per share. The Warrants were issued pursuant to
Regulation S of the Securities Act of 1933 and there is no
established public trading market for these Warrants.
(b) Approximate Number of Equity Security Holders
The number of holders of record for each class of equity
securities of the Company as of March 31, 1997 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF HOLDERS
TITLE OF CLASS OF RECORD (1)
-------------- -----------------
<S> <C>
Common Stock, par value $.01
per share ("Common Stock") 1,092
Common Stock Purchase Warrants 198
Series No. 1 Warrants 1
</TABLE>
(1) The number of stockholders of record includes shares
held in "nominee" or "street" name.
(c) Dividends
No cash dividends have been declared or paid by the
Company.
PRIVATE SALE OF STOCK
Reference is hereby made to Note 2 of Notes to Consolidated
Financial Statements.
II-1
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net sales $ 2,816 $ 2,709 $ 3,694 $ 3,686 $ 4,450
Service income 18,525 18,147 15,793 15,802 16,124
----------- ----------- ----------- ----------- -----------
21,341 20,856 19,487 19,488 20,574
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 2,072 1,920 2,554 2,630 3,033
Selling, general and administrative expenses, net 17,518 16,668 15,085 14,930 16,205
----------- ----------- ----------- ----------- -----------
19,590 18,588 17,639 17,560 19,238
----------- ----------- ----------- ----------- -----------
Operating income before depreciation 1,751 2,268 1,848 1,928 1,336
----------- ----------- ----------- ----------- -----------
Depreciation 965 902 1,143 1,142 1,070
----------- ----------- ----------- ----------- -----------
Operating income 786 1,366 705 786 266
----------- ----------- ----------- ----------- -----------
Other income (expense):
Minority interest in earnings of
consolidated subsidiary and limited
partnerships, net (76) (172) (53) (31) (26)
Interest expense (1,104) (1,050) (1,390) (1,210) (1,123)
Gain on sale of stock of subsidiaries - - 135 355 997
Gain (loss) on sale of assets - - 726 71 (40)
Other, net 109 21 136 38 178
----------- ----------- ----------- ----------- -----------
(1,071) (1,201) (446) (777) (14)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (285) 165 259 9 252
(Provision) benefit for income taxes 39 52 (55) (247) (18)
----------- ----------- ----------- ----------- -----------
Net income (Loss) (246) 217 204 (238) 234
=========== =========== =========== =========== ===========
Per share data:
Income (loss) $ (0.04) $ 0.04 $ 0.03 $ (0.03) $ 0.04
=========== =========== =========== =========== ===========
Weighted average shares 5,825,686 6,131,770 8,153,382 7,889,512 5,786,643
BALANCE SHEET DATA (AT YEAR END)
Working capital (deficiency) $ (1,770) $ (5,340) $ (4,236) $ (2,145) $ (2,005)
Total assets 23,918 22,807 26,508 23,920 24,576
Long-term debt and lease obligations, net of
current portion 12,081 7,881 7,965 9,249 9,816
Shareholders' equity 4,742 4,543 7,200 6,964 6,248
</TABLE>
II-2
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
-----------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
OPERATIONS (In thousands, except per share data)
----------
<S> <C> <C> <C>
Revenues:
Net sales $ 2,816 $ 2,709 $ 3,694
Service income 18,525 18,147 15,793
---------- --------- ---------
Total revenues $ 21,341 $ 20,856 $ 19,487
========== ========= =========
Operating income $ 786 $ 1,366 $ 705
Percent of revenues 3.7 6.5 3.6
Net income (loss) $ (246) $ 217 $ 204
Percent of revenues (1.2) 1.0 1.0
Per common share $ (.04) $ .04 $ .03
</TABLE>
NOTE: Reference should be made to the Notes to Consolidated
Financial Statements herein.
FINANCIAL CONDITION
-------------------
Management believes that the 1996 net loss was incurred
primarily as a result of short-term declines in census and
Medicaid rates attributable to level of care required of its
skilled nursing facilities in addition to certain financing
and other significant non-continuing costs. Management is
further encouraged by the recognition that certain significant
costs incurred in 1996 will no longer continue and the Company
has positioned itself for profits in 1997 and thereafter. As a
result of late 1996 and early 1997 Stock and Bond issuance's,
the Company is now able to reduce its costs of borrowing and
achieve cost savings through an improved availability of funds
for operations, while also enhancing the expansion of
profitable operations through selective ventures with
non-related third parties. Clearly the cost savings and the
expansion of profitable operations expected in 1997 are
forward-looking statements that are subject to competitive and
market influences that cannot be accurately predicted.
Working capital increased approximately $3,570,000 during the
year ended December 31, 1996. Current assets increased
$206,000 while current liabilities decreased $3,364,000 at
December 31, 1996 as compared to December 31, 1995. The
increase in current assets was due mostly from increases in
cash ($855,000) offset by a decrease in trade receivables
($664,000). The increase in cash was primarily due to proceeds
of a long-term subordinated convertible bond issued just prior
to year-end (see Note 8) while the decrease in trade
receivables was caused by the sale of receivables related to
the securitization program entered into in May 1996 and
subsequently terminated through repayment in March 1997 (see
Note 5). Current liabilities decreased approximately
$3,364,000, due mostly from declines in current portion of
long-term debt ($2,010,000), taxes other than federal income
taxes ($589,000), accrued expenses other ($605,000), and stock
purchase agreement payable ($300,000) partially offset by an
increase in securitization program advances. The decrease in
current portion of long-term debt was due mostly from the
refinancing of a balloon mortgage ($1,640,000) that was
classified as currently due at December 31, 1995 and from the
refinancing of equipment at several subsidiaries. The increase
in securitization program advances arose as a result of the
Company entering into a new receivable financing program (see
Note 5) which, in conjunction with the treasury stock sale and
equipment refinancing, allowed the Company to significantly
reduce the amount of current liabilities.
II-3
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the year in a much stronger liquidity
position due to several significant events that occurred in
1996. In March, the Company, through several of its
subsidiaries, refinanced most of its equipment at the nursing
homes and diagnostic center. Of the total amount refinanced of
$1,700,000, approximately $1,023,000 was used to pay off
existing debt while the balance was used for working capital
needs.
In April, 1996 the Company refinanced the mortgage relating to
the New Jersey property leased by the purchaser of its former
manufacturing division. The original mortgage balance of
approximately $1,640,000 was classified as current on the
December 31, 1995 balance sheet. Terms of the new five-year
$1,700,000 mortgage include amortization on a ten year basis
and a five-year renewal option.
In May 1996, certain subsidiaries of the Company entered into
a three-year financing arrangement with a finance company to
sell, with limited recourse, its health care trade accounts
receivable. Terms of the agreement included a commitment of up
to $1,500,000 against eligible receivables and the proceeds
from the sale of these receivables were used for working
capital needs (see Note 5).
In October 1996, the Company entered into a private sale of
500,000 shares of the Company's common stock, held in
treasury. The Regulation S transaction with a foreign investor
provided the Company with $500,000 of working capital,
utilized partially toward a payment on the stock purchase
agreement payable (see Note 2).
In December 1996, the Company issued a $1,000,000 Convertible
Subordinated Bond due December 30, 2001. The Bond was issued
to a European investor and was issued in the name of a Swiss
bank, pursuant to Regulation S of the Securities Act of 1933.
The Bond provides for interest only quarterly payments
commencing March 31, 1997 at a rate of 5.5% per annum. Subject
to certain minimums, the Bond holder may convert, from time to
time, the principal of the Bond to Common Stock of the Company
at $2.00 per share (subject to antidilution provisions).
Proceeds will be used for working capital needs and expansion
of the Company's Diagnostic and Radiology ventures.
See Note 15B concerning the February 1997 issuance of a series
of bonds and warrants pursuant to Regulation S of the
Securities Act of 1933.
The Company and its subsidiaries, limited partnership and
newly-formed (1997) limited liability companies, have
committed to certain equipment upgrades or acquisitions that
will be financed either through the current equipment
financing relationship or vendor programs.
Management further believes the present resources available
and anticipated through profitable operations will meet
anticipated requirements for financing the growth of the
business. There are no further material commitments for
capital expenditures.
II-4
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1996-1995
--------------------------------
Consolidated revenues from operations for the year ended
December 31, 1996 increased approximately $485,000 or 2.3%
over 1995. Net sales increased approximately $107,000 or 4.0%
as compared to the previous year. Service revenues increased
approximately $378,000 or 2.1%, due mostly from revenue
increases at the Alzheimer's Center partially offset by a
decline in Home Health Care.
Cost of sales increased approximately $151,000 or 7.9% for the
year as compared to 1995. Gross margin for the year ended
December 31, 1996 was 26.4% as compared to 29.1% for the
comparable period in 1995. The decline is attributable to
pricing pressures in the competitive retail pharmacy market.
Selling, general and administrative expenses increased
approximately $851,000 or 5.1% for the year ended December 31,
1996 as compared to 1995. The increase is primarily
attributable to certain patient care costs, i.e. labor,
remaining level during periods of diminished census as well as
competitiveness in the out-patient services market. A further
increase resulted from the $376,000 reduction to 1995 expenses
as a result of the reversal of a reserve on the life insurance
premiums receivable.
Operating income decreased approximately $579,000 or 42.4% for
the year ended December 31, 1996 as compared to the same
period in 1995. The decrease is mostly attributable to the
increase in selling, general and administrative expenses.
Interest expense increased approximately $54,000 or 5.1% as
compared to 1995, primarily from the higher debt balances due
to the equipment refinancing and borrowings from the
securitization program.
Inflation has not had a significant effect on the net sales
and revenues of the Company. While inflation has caused some
increases in costs, there have been corresponding increases in
selling prices and service fees, neither of which have been
significant.
1995-1994
---------
Consolidated revenues from operations for the year ended
December 31, 1995 increased approximately $1,369,000 or 7.0%
over 1994. Net sales declined approximately $985,000 as
compared to the previous year, due mostly to the disposition
of the liquor operations effective as of January 1, 1995 (see
Note 11B). Service revenues increased approximately $2,354,000
or 14.9% over the same period in 1994. The increase is
primarily attributable to the newly-opened Alzheimer's Center
($2,650,000) offset by a decline in volume in Home Health
Care.
Cost of sales decreased approximately $634,000 for the year as
compared to 1994, primarily from the disposition of the liquor
operations. Gross margin for the year ended December 31, 1995
was 29.1% as compared to 30.9% for the comparable period in
1994.
Selling, general and administrative expenses increased
approximately $1,583,000 for the year ended December 31, 1995
as compared to 1994, primarily attributable to costs
associated to the Alzheimer's Center partially offset by the
disposition of the liquor operations.
Operating income increased approximately $660,000 or 93.6% for
the year ended December 31, 1995 as compared to the same
period in 1994. The increase is mostly attributable to
increases at the Diagnostics Center and the Alzheimer's
Center.
II-5
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Interest expense decreased approximately $340,000 as compared
to 1994, primarily from reduced borrowings related to the
termination of the securitization program.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the list of financial statement schedules included in Part
IV, Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
II-6
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
The Wendt-Bristol Health Services Corporation
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of The
Wendt-Bristol Health Services Corporation and Subsidiaries for the years ended
December 31, 1996 and 1995, and the related consolidated statements of income,
cash flows and changes in stockholders' equity for each of the three years in
the period ended December 31, 1996. These financial statements and schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Wendt-Bristol Health Services Corporation and Subsidiaries at December 31, 1996
and 1995 and the consolidated results of their operations, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
index to Item 14 relating to Wendt-Bristol Health Services Corporation and
Subsidiaries are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
The supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements of Wendt-Bristol
Health Services Corporation and Subsidiaries taken as a whole.
/s/ HAUSSER & TAYLOR
Columbus, Ohio
April 11, 1997
II-7
<PAGE> 16
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
--------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 890,670 $ 35,825
------------ ------------
Restricted cash (Note 4) 381,025 310,912
------------ ------------
Receivables (Note 5):
Trade, net of allowance for doubtful accounts of
$190,000 in 1996 and $340,000 in 1995 2,014,403 2,678,551
Notes receivable - current 120,613 49,920
Miscellaneous 890,655 858,032
------------ ------------
3,025,671 3,586,503
Inventories 482,930 489,042
Prepaid expenses and other current assets 250,947 402,824
------------ ------------
Total current assets 5,031,243 4,825,106
------------ ------------
PROPERTY, PLANT AND EQUIPMENT (NOTES 6 AND 7) 20,880,293 19,531,862
Less accumulated depreciation and amortization (6,135,704) (5,243,057)
------------ ------------
14,744,589 14,288,805
------------ ------------
INVESTMENTS AND OTHER ASSETS
Notes and other receivables, net of current portion 359,007 395,912
Notes receivable from officers and related parties (Notes 11B and 11C) 993,580 863,509
Life insurance premiums receivable (Note 11D) 865,299 758,795
Excess of cost over assets of businesses and subsidiaries
acquired, less accumulated amortization 621,629 637,729
Deferred charges 956,795 776,622
Other assets 345,963 260,847
------------ ------------
4,142,273 3,693,414
------------ ------------
Total assets $ 23,918,105 $ 22,807,325
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-8
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
--------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - officer (Note 11E) $ 55,000 $ -
Securitization program advances (Note 5) 392,287 -
Accounts payable 2,729,021 2,836,474
Accrued expenses and other liabilities:
Salaries and wages 482,134 451,718
Workers' compensation 380,502 540,669
Taxes, other than federal income taxes 726,106 1,315,508
Interest 118,640 87,520
Stock purchase agreement payable (Note 2) 325,000 625,000
Other 841,643 1,446,965
Long-term obligations classified as current (Notes 7 and 15) 750,758 2,760,789
Federal income taxes payable (Note 9) - 100,000
------------ ------------
Total current liabilities 6,801,091 10,164,643
------------ ------------
LONG-TERM OBLIGATIONS LESS AMOUNTS
CLASSIFIED AS CURRENT (NOTES 7 AND 15) 12,080,856 7,880,566
------------ ------------
Total liabilities 18,881,947 18,045,209
------------ ------------
MINORITY INTERESTS 294,128 219,541
------------ ------------
CONTINGENCIES AND COMMITMENTS (NOTES 5, 7, 8 AND 12)
STOCKHOLDERS' EQUITY (NOTES 2 AND 10)
Common stock, $.01 par, authorized 12,000,000 shares;
issued 8,243,480 shares in 1996 and 1995 82,435 82,435
Capital in excess of par 10,238,750 10,274,974
Retained earnings (deficit) (3,119,096) (2,872,818)
------------ ------------
7,202,089 7,484,591
Treasury stock, at cost, 2,007,460 shares in 1996 and
2,523,722 shares in 1995 (2,460,059) (2,942,016)
------------ ------------
4,742,030 4,542,575
------------ ------------
Total liabilities and stockholders' equity $ 23,918,105 $ 22,807,325
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-9
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net sales $ 2,816,386 $ 2,708,955 $ 3,693,912
Service income 18,524,816 18,147,243 15,793,150
------------ ------------ ------------
21,341,202 20,856,198 19,487,062
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 2,071,596 1,920,118 2,554,002
Selling, general and administrative expenses 17,518,394 16,667,723 15,085,200
------------ ------------ ------------
19,589,990 18,587,841 17,639,202
------------ ------------ ------------
OPERATING INCOME BEFORE
DEPRECIATION 1,751,212 2,268,357 1,847,860
------------ ------------ ------------
DEPRECIATION 964,715 902,692 1,142,594
------------ ------------ ------------
OPERATING INCOME 786,497 1,365,665 705,266
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Minority interests in earnings, net of tax (76,860) (171,701) (52,856)
Interest expense, net (Notes 5 and 7) (1,104,278) (1,050,226) (1,389,997)
Gain on sale of stock of subsidiaries (Notes 2 and 3) - - 135,101
Gain on sale of assets - - 726,273
Other, net 109,254 21,008 135,671
------------ ------------ ------------
(1,071,884) (1,200,919) (445,808)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (285,387) 164,746 259,458
INCOME TAX BENEFIT (EXPENSE) (NOTE 9) 39,109 51,979 (55,340)
------------ ------------ ------------
NET INCOME (LOSS) $ (246,278) $ 216,725 $ 204,118
============ ============ ============
INCOME (LOSS) PER COMMON SHARE
(NOTE 1) $ (0.04) $ 0.04 $ 0.03
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,825,686 6,131,770 8,153,382
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-10
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED TREASURY
STOCK EXCESS OF PAR EARNINGS STOCK TOTAL
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 82,407 $ 10,311,509 $ (3,293,661) $ (136,536) $ 6,963,719
Shares contributed to Retirement Plan
(8,448 shares) 13,066 13,066
Shares exchanged (45,000) for shares (10,000)
of Diagnostic Company 18,644 18,644
Net income 204,118 204,118
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 82,407 10,311,509 (3,089,543) (104,826) 7,199,547
Shares contributed to Retirement Plan
(21,764 shares) (40,257) 50,157 9,900
Warrants exercised for common stock 28 3,722 3,750
Treasury stock acquired (2,500,000 shares)
(Note 2 ) (2,887,347) (2,887,347)
Net income 216,725 216,725
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 82,435 10,274,974 (2,872,818) (2,942,016) 4,542,575
Shares contributed to Retirement Plan
(16,262 shares) (10,224) 18,957 8,733
Sale of treasury shares (500,000 shares) (Note 10) (26,000) 463,000 437,000
Net loss (246,278) (246,278)
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 $ 82,435 $ 10,238,750 $ (3,119,096) $ (2,460,059) $ 4,742,030
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-11
<PAGE> 20
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (246,278) $ 216,725 $ 204,118
----------- ----------- -----------
Adjustments required to reconcile net income
(loss) to net cash provided by operating
activities:
Amortization, depreciation and other, net 985,200 920,606 1,156,801
Provision for losses on notes and accounts
receivable 110,620 105,528 111,647
Gain on sale of assets - - (726,273)
Life insurance premium reserve - (376,000) -
Costs associated with acquisition of minority
interest in limited partnership - 151,950 -
Gain on sale of stock of subsidiary - - (135,101)
Minority interest in earnings of consolidated
subsidiaries 76,860 171,701 52,856
Changes in assets and liabilities:
Receivables:
Sale (purchase) of receivables 970,550 (1,354,048) -
Other changes (534,300) 314,009 (435,478)
Inventories 6,112 (29,350) 47,269
Prepaid expenses and other current assets 160,611 130,423 (182,615)
Accounts payable (107,453) 3,693 1,137,403
Accrued expenses and other liabilities (1,656,355) 716,346 229,816
Federal income taxes payable (100,000) (220,000) 100,000
Deferred charges and other (236,455) 23,607 (231,790)
----------- ----------- -----------
Total adjustments (324,610) 558,465 1,124,535
----------- ----------- -----------
Net cash provided by (used in) operations (570,888) 775,190 1,328,653
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of minority interest from limited
partners - (250,000) -
Collection of miscellaneous receivable - 1,700,000 -
Proceeds from sale of property, plant and
equipment and investments - - 275,000
Decrease (increase) in notes receivable (33,788) 278,962 67,087
Disbursements to related parties and
former affiliates, net (232,575) (184,390) (96,622)
Utilization of (deposit to) restricted cash (70,113) 243,654 72,484
Capital expenditures (544,866) (504,321) (771,549)
----------- ----------- -----------
Net cash provided by (used in) investing
activities (881,342) 1,283,905 (453,600)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-12
<PAGE> 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Distributions to limited partners, net - (143,842) (238,878)
Purchase of common stock of subsidiary (8,000) (2,000) -
Proceeds from sale of treasury stock 500,000 - -
Proceeds from stock offering - - 128,655
Proceeds from officer obligation 360,000 - -
Principal payments of officer obligation (305,000) - -
Proceeds from warrants exercised - 3,750 -
Principal payments on long-term obligations (875,659) (1,589,240) (940,052)
Proceeds from borrowing on long-term obligations 2,243,447 4,520 93,944
Net advances from (payments to)
securitization program 392,287 (478,500) (46,500)
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,307,075 (2,205,312) (1,002,831)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 854,845 (146,217) (127,778)
CASH - BEGINNING OF PERIOD 35,825 182,042 309,820
----------- ----------- -----------
CASH - END OF PERIOD $ 890,670 $ 35,825 $ 182,042
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net of amount capitalized (1994) and
interest and income $ 1,039,873 $ 1,060,226 $ 1,360,602
Income taxes $ 141,688 $ 252,593 $ 25,656
Supplemental Disclosures of Noncash
Investing and Financing Activity (Note 16)
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-13
<PAGE> 22
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
A. PRINCIPLES OF CONSOLIDATION
---------------------------
The primary business of The Wendt-Bristol Health Services
Corporation and its Subsidiaries (the "Company") is to provide
health care services. Through subsidiaries and a limited
partnership, The Wendt-Bristol Company ("W-B"), itself a
subsidiary, operates three nursing homes, a home health care
delivery service, and a diagnostics center featuring
fixed-site magnetic resonance imaging ("MRI"), CT Scan,
Sonography and other modalities. Additionally, the Company
operates retail pharmacy locations in Ohio and is the landlord
of a non-related manufacturing building (see Note 12A).
The consolidated financial statements include the accounts of
all companies of which The Wendt-Bristol Health Services
Corporation or a wholly-owned subsidiary has majority
ownership or management control. All material intercompany
transactions have been eliminated in consolidation.
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, PARTNERSHIP
----------------------------------------------------------
INTERESTS OR OWNERSHIP INTERESTS
--------------------------------
During December, 1996 the Wendt-Bristol Diagnostics Company
("Diagnostics") formed Wendt-Bristol Crosswoods, Ltd.
Diagnostics acquired a 50% interest through a capital
contribution of $325,000 in January 1997. The new entity
closed, in January 1997, on the acquisition of operating
assets, including an open field magnetic resonance imaging
device. Operations of the diagnostics center began in January
1997 and will expand to include helical CT and additional
modalities in 1997.
During 1997, Diagnostics acquired a 22.5% interest in
Wendt-Bristol at Park Oncology Center, Ltd., a venture that
was formed to own and operate a radiation therapy center.
Operations are anticipated to begin third quarter 1997. These
ownership interests will be accounted for utilizing the equity
method of accounting.
During second quarter 1997, the Company ceased to operate a
significant portion of their home health care delivery
services. Loss from operations approximated $124,000 for the
year ended December 31, 1996 which is included in the
Consolidated Statements of Operations.
During March 1995, the Company acquired 345,000 common shares
in a subsidiary of the Company, Diagnostics, for approximately
$744,000 (see Note 2). The purchase of these additional common
shares has increased the Company's ownership to approximately
83%. The acquisition cost exceeded the underlying equity in
net assets ("goodwill") by $148,103. See Note 1H for further
discussion with respect to amortization.
During 1994, the Company sold 17,400 common shares of its
holdings in Diagnostics resulting in a gain of $46,744.
Further, the Company has expensed previously deferred
operating costs due to the termination of the offering, see
Note 3, and recognized a gain for the increase in their share
of the equity of Diagnostics as a result of the dilution of
the minority shareholders. Dilution has occurred due to
shares being sold at values in excess of book value. The
combined amounts total $135,101 and are included in the
Consolidated Statements of Operations in the caption "Gain on
sale of stock of subsidiaries".
II-14
<PAGE> 23
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, PARTNERSHIP
----------------------------------------------------------
INTERESTS OR OWNERSHIP INTERESTS (CONTINUED)
--------------------------------------------
During 1994, the Company, as general partner of a limited
partnership, sold the assets of a partnership which owned a
rental medical office building. In 1995, the Company purchased
the limited partnership interests for cash of $250,000. The
purchase price in excess of the limited partnership's book
basis approximating $151,000 has been expensed in the
Consolidated Statement of Operations and included in the
caption "Other, net".
C. STATEMENT OF CASH FLOWS
-----------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash. No such
investments were purchased during 1996, 1995 or 1994.
D. CONCENTRATIONS OF CREDIT RISK
-----------------------------
Credit risk associated with cash balances in excess of
federally-insured amounts is minimized by using several
accounts at major financial institutions.
E. ACCOUNTS RECEIVABLE
-------------------
In May, 1996 the Company and certain of its subsidiaries
entered into a financing arrangement involving the sale of
their trade accounts receivable thereby replacing a previous
arrangement which terminated in 1995 through an action filed
by the Company. This financing arrangement terminated through
payment in March, 1997 (see Notes 5 and 15).
The agreement provided for the Company's sale of its health
care trade accounts receivable, subject to various terms and
conditions, with limited recourse, with the Company continuing
to service the accounts. A sale was recorded when the health
care accounts receivable were transferred to the purchaser,
net of contractual allowances. Such sales are not included in
the Consolidated Statement of Operations and no gain or loss
arises in the transaction.
Certain receivables from the Company's medical services
segment are due from third party payors, including Medicare,
Medicaid and commercial insurance carriers, under contractual
arrangements by which payment may be at a discount from billed
charges, as is customary within the health care industry. The
Company estimates and records allowances for such discounts to
billed charges to recognize revenues based on amounts expected
to be recovered.
A significant portion of the income earned by the nursing
homes is related to services provided to Medicaid patients.
The income reported for the nursing homes is based on cost
reports filed with the State of Ohio and such reports are
subject to audit and adjustment by Medicaid auditors.
F. INVENTORIES
-----------
Inventories are stated at the lower of cost or market,
determined on the first-in, first-out basis. Inventories at
December 31, 1996 and 1995 were $482,930 and $489,042,
respectively. These inventories consist of retail
pharmaceuticals, durable medical equipment and supplies.
II-15
<PAGE> 24
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
G. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are stated at cost. Depreciation
for financial reporting purposes is computed using principally
the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over
the primary lease term or the life of the related improvement,
whichever period is shorter. Expenditures for major renewals
and betterments that extend the useful lives of property,
plant and equipment are capitalized. Expenditures for
maintenance and repairs are charged to operations as incurred.
H. EXCESS OF COST OVER ASSETS OF BUSINESSES AND SUBSIDIARIES
---------------------------------------------------------
ACQUIRED
--------
Costs of acquired businesses in excess of the value of net
assets (i.e., goodwill) are amortized over periods ranging
from 20 to 40 years, except for goodwill associated with the
manufacturing real estate, which is being amortized over the
estimated remaining life of the building. Amortization expense
for the years ended December 31, 1996, 1995, and 1994,
amounted to approximately $20,485, $17,900, and $14,200,
respectively. Accumulated amortization at December 31, 1996,
1995 and 1994, was $163,000, $141,200, and $123,000,
respectively. Goodwill consists of an amount applicable to the
manufacturing real estate, purchase of a 50% interest of
Health America, Inc. and the purchase of common shares of
Diagnostics Company (see Note 1B).
The Company periodically evaluates the recoverability of
intangibles resulting from business acquisitions and measures
the amount of impairment, if any, by assessing current and
future levels of income and cash flows as well as other
factors, such as business trends and prospects and market and
economic conditions. There were no such impairment adjustments
at December 31, 1996, 1995 and 1994.
I. DEFERRED CHARGES
----------------
The Company has included in deferred charges costs that are
being amortized over future periods of up to 40 years related
to mortgage financing. They are predominantly costs associated
with financing, costs incurred for staff training and other
pre-opening items prior to admittance of patients at the new
Alzheimer's facility and a rent adjustment to properly
recognize rental income on the leased manufacturing facility.
J. ESTIMATES
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
K. INCOME (LOSS) PER SHARE
-----------------------
Per share amounts were computed using the weighted average
number of shares outstanding during each period. The common
stock equivalents (stock options and warrants) outstanding
would be anti-dilutive for all years presented.
II-16
<PAGE> 25
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
L. INCOME TAXES
------------
The Company utilizes the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 9).
M. FAIR VALUE
----------
On January 1, 1995, the Company adopted SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments", which
requires the disclosure of the fair market value of all
financial instruments for which it deems practicable to
estimate fair value (See Note 17).
N. STOCK BASED COMPENSATION
------------------------
The Company utilizes the provisions of Accounting Principles
Board ("APB") No. 25, "Accounting for Stock Issued to
Employees" which utilizes the intrinsic value based method.
The Financial Accounting Standards Board ("FASB") Statement
No. 123, "Accounting for Stock-Based Compensation", which
utilizes a fair value based method is effective for the
Company's year beginning January 1, 1996. The FASB requires
disclosure for new employee stock options of the impact to the
financial statements of utilizing the intrinsic value versus
the fair value based method (see Note 10).
O. RECLASSIFICATIONS
-----------------
Certain Balance Sheet amounts have been reclassified in the
1995 financial statements to be in conformity with 1996.
NOTE 2. PRIVATE COMMON STOCK TRANSACTIONS
On February 27, 1995, the Company, pursuant to a certain Stock
Exchange Agreement (the "Agreement") by and between the
Company and the Insurance Commissioner of the Commonwealth of
Pennsylvania, as Statutory Liquidator (the "Statutory
Liquidator") for Corporate Life Insurance Company ("CLIC") and
successor to CLIC, agreed to sell to the Statutory Liquidator
thirty thousand (30,000) preferred shares (par value $100 per
share or a total of $3,000,000) owned by the Company in Life
Holdings, Inc., in exchange for two million (2,000,000) shares
of the Company's common stock and three hundred thousand
(300,000) shares of common stock of Wendt-Bristol Diagnostics
Company ("Diagnostics"), a majority-owned consolidated
subsidiary of the Company, owned by CLIC. The closing of the
transaction contemplated by the Agreement occurred on March 2,
1995. The value assigned to (i) the Company's 2,000,000 common
shares of $2,481,091 ($1.24 per share) and (ii) the
Diagnostics 300,000 common shares of $518,909 ($1.73 per
share) equal $3,000,000. The Company's common shares have been
included in Treasury Stock on the accompanying balance sheet
for 1996 and 1995; while Diagnostic's common shares are
recorded as an additional investment in a consolidated
subsidiary, which is eliminated in consolidation except for
goodwill.
In addition, as part of the transaction contemplated by the
Agreement, the Company or its designee agreed to purchase from
the Statutory Liquidator, within ninety (90) days, subject to
extension, five hundred thousand (500,000) additional shares
of common stock of the Company for a price of $.80 per share,
and forty-five thousand (45,000) additional shares of common
stock of Diagnostics for a price of $5.00 per share.
II-17
<PAGE> 26
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. PRIVATE COMMON STOCK TRANSACTIONS (CONTINUED)
In total this additional obligation of $625,000 has been
included in the December 31,1995 Balance Sheet caption in
"Stock Purchase Agreement Payable" with resulting increases in
Treasury Stock of the Company of $400,000 (see Note 10 for
sale of treasury stock) and $225,000 recorded as a further
increase in the investment in a consolidated subsidiary which
is eliminated in consolidation except for goodwill. The amount
payable at December 31, 1996 of $325,000 along with additional
costs was subsequently paid in its entirety during the first
quarter of 1997.
Upon the March 2, 1995 closing and acquisition of the
additional 500,000 common shares of Company and 45,000 common
shares of Diagnostics, the Company has reacquired all shares
previously issued and/or sold in transactions with CLIC. These
transactions included:
(i) During 1992, the sale and issuance by the Company to
CLIC of 3,000,000 common shares of the Company for
$3,000,000 and sale by the Company to CLIC of 250,000
(which was increased to 300,000 shares upon issuance
of a stock dividend to all holders) common shares of
Diagnostics for $1,000,000 such shares being paid for
by delivery by CLIC to the Company of 1,000,000
shares (of the aforementioned 3,000,000 shares) of
common stock of the Company.
(ii) During 1993, $1,000,000 of subordinated debt was
liquidated by issuing 500,000 shares of common stock
of the Company at $2.00 per share to CLIC that was
the holder of such debt.
(iii) The purchase, by CLIC, of an additional 45,000
shares of Diagnostics common stock during its public
offering. See Note 3.
NOTE 3. SALE OF STOCK OF SUBSIDIARIES
WENDT-BRISTOL DIAGNOSTICS COMPANY ("DIAGNOSTICS")
-------------------------------------------------
In September 1993, Diagnostics updated certain information and
filed a second Preliminary Regulation A Offering Circular with
the Securities and Exchange Commission ("SEC") for the sale of
up to 807,900 shares of common stock of which 553,950 shares
were being sold by Diagnostics and the balance sold by a
wholly-owned subsidiary of the Company.
As of December 31, 1994 gains of approximately $46,700 had
been recorded as a result of the sale of 17,400 of Diagnostics
by Wendt-Bristol Company through a public offering. During
1994, the offering was terminated and related offering costs
were charged against gain on sale of stock of subsidiary (see
Item 1. Business). No shares were sold in 1996 or 1995.
At December 31, 1996, 1995 and 1994, the Company owns, through
its wholly owned subsidiary, approximately 83%, 83%, and 54%,
respectively, after retroactively adjusting for the effects of
a 20% stock dividend in shares of the common stock of
Diagnostics to all its stockholders, except Wendt-Bristol
Company, which waived its right to receive the stock dividend.
See Notes 1B and 2 concerning Wendt-Bristol Company's
acquisition of approximately 29% additional shares of
Diagnostics in 1995.
II-18
<PAGE> 27
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RESTRICTED CASH
The Company has restricted cash of $381,025 and $310,912 at
December 31, 1996 and 1995, respectively. The amounts in a
bank trust account were $171,654 and $163,962 at December 31,
1996 and 1995, respectively. These restricted assets were set
aside to satisfy the New Jersey Department of Environmental
Protection and Energy in connection with the reimbursement of
clean-up expenses at the leased manufacturing facility located
in Passaic, New Jersey. (See Item 1. Business and Note 12A.)
The remainder of the restricted cash represents amounts placed
in escrow for "replacement" reserves at the mortgage agent for
the Department of Housing and Urban Development ("HUD") for
HUD insured financed skilled nursing facilities.
NOTE 5. RECEIVABLES
The following schedule states current receivables by specific
groups as indicated at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Receivables:
Trade (net of allowance for doubtful
accounts) - (a) $ 2,014,403 $ 2,678,551
------------ -----------
Notes receivable - current:
Related parties (d) 67,822 -
Others 52,791 49,920
------------ -----------
Total 120,613 49,920
------------ -----------
Miscellaneous receivables:
Securitization program reserves (c) 232,131 -
Medicaid settlements - 73,666
Medicare settlements 215,561 289,232
Others - (b) 442,963 495,134
------------ -----------
Total 890,655 858,032
------------ -----------
Total current receivables $ 3,025,671 $ 3,586,503
============ ===========
</TABLE>
(a) During February, 1993, the Company and certain of its
subsidiaries entered into a three-year financing
arrangement to sell, with limited recourse, its
health care trade accounts receivable. This agreement
terminated in 1995. See additional discussion in Note
1E. Cash proceeds from the sale of these receivables
amounted to approximately $7,932,000 in 1995.
Accounts receivable balances at December 31, 1995
have been reinstated on the balance sheet as the
financing arrangement had terminated.
During May, 1996, the Company and certain of its
subsidiaries entered into an agreement with a finance
company to secure additional working capital funds to
replace the accounts receivable securitization
program that terminated in 1995. This agreement was
terminated amicably through a pay-off in March, 1997.
Trade receivables at December 31, 1996 are shown net
of receivables purchased by the finance company.
Total cash proceeds from the sale of these
receivables amounted to approximately $5,478,000 in
1996. Uncollected sold receivable balances
approximated $736,000 at December 31, 1996. Program
fees and costs are included in "interest expense,
net" and "selling, general and administrative"
approximating 16% and 20% for the years ended
December 31, 1996 and 1995, respectively, in the
Consolidated Statement of Operations. Such sales are
not included in the Consolidated Statement of
Operations and no gain or loss arise from these
transactions.
II-19
<PAGE> 28
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RECEIVABLES (CONTINUED)
Additionally, the purchaser advanced funds that were
in excess of purchased receivables of which $392,287
was outstanding at December 31, 1996 and subsequently
paid.
(b) The balance consists mostly (approximately $367,000
and $340,000 in 1996 and 1995, respectively) of a
receivable due from the former owner of two of the
nursing homes regarding adjustments to the final
purchase price of the transaction. See Note 12B.
(c) In connection with the securitization program above,
the third party purchasing the receivables held
reserves as additional collateral for the receivables
purchased from the Company. These cash reserves were
released in full upon termination of the
securitization program.
(d) The balance consists of the current portion of notes
receivable for the sale of assets to a related party.
See Note 12C.
(e) Total interest income for the years ended December
31, 1996, 1995 and 1994, amounted to $193,352,
$133,719, and $53,323, respectively, and is netted
against interest expense in the accompanying
Consolidated Statements of Operations.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995
and the estimated useful lives used in computing depreciation
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------ USEFUL LIVES
1996 1995 (IN YEARS)
---- ---- ----------
<S> <C> <C> <C>
Land and improvements $ 1,666,105 $ 1,615,349 30
Buildings and improvements 11,941,568 11,606,280 3-40
Machinery and equipment 7,272,620 6,310,233 3-14
-------------- --------------
20,880,293 19,531,862
Accumulated depreciation
and amortization (6,135,704) (5,243,057)
-------------- --------------
$ 14,744,589 $ 14,288,805
============== ==============
</TABLE>
Included in machinery and equipment and buildings and
improvements are $746,000 and $167,000, respectively of assets
not placed in service at December 31, 1996. These assets are
anticipated to be placed in service second quarter 1997.
Included in property, plant and equipment at December 31, 1996
and 1995 are land, buildings and improvements of $4,453,608
and $4,427,021 with accumulated depreciation and amortization
of $1,061,488 and $948,851, respectively, leased to the
purchaser of its former manufacturing division (see Note 12A).
Depreciation and amortization expense for the years ended
December 31, 1996, 1995 and 1994 was $964,715, $902,692, and
$1,142,594, respectively.
II-20
<PAGE> 29
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS
At December 31, 1996 and 1995, long-term obligations are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
5.5% subordinated convertible bond,
interest only payable in quarterly
installments, principal due December, 2001 $1,000,000 $ -
8.875% mortgage, payable in monthly
installments including interest through
December, 2034 3,166,432 3,176,074
9% mortgage, payable in monthly installments
including interest through June, 2027 2,931,243 2,948,694
8.25% mortgage, payable in monthly
installments including interest through
February 2002, refinanced April, 1996 - 431,674
9.41% mortgage, payable in monthly
installments including interest through
April, 2016 704,172 -
11.26% mortgage, payable in monthly installments plus
interest through September 1995, with any remaining balance
due October 1, 1995, extended to April 1, 1996 at
10%, refinanced April, 1996 - 1,639,556
Variable rate mortgage - interest at 11.25% at December 31,
1996, payable in monthly installments including interest
through April, 2001, with any remaining balance due
May 1, 2001 1,646,649 -
Variable rate mortgage - interest at 10.5% at
December 31, 1996 and 1995, payable in
monthly installments through December, 1997 34,992 69,996
7.9% to 13% notes payable in monthly
installments including interest, through
February, 2004, collateralized by equipment,
a portion refinanced in March, 1996 3,195,597 2,162,653
Advances due under accounts receivable securitization program
of which $157,509 is due on a 9% note payable in monthly
installments April through June, 1996 - 174,445
</TABLE>
II-21
<PAGE> 30
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
12% notes payable in monthly installments
including interest, subsequently paid in
March, 1997 (see Note 15) 128,578 -
Capitalized lease obligations (see Note 8) 23,951 38,263
----------- -----------
12,831,614 10,641,355
Less:
Current installments 750,758 2,760,789
----------- -----------
Long-term portion $12,080,856 $ 7,880,566
=========== ===========
</TABLE>
SUBORDINATED CONVERTIBLE BOND
-----------------------------
Beginning February 2, 1997 through December 30, 2001, the
subordinated convertible bond may be converted in units of not
less than $100,000 into fully paid shares of the Company's
common stock at a conversion ratio of $2.00 of principle for
one share of common stock for the beneficial ownership of a
non United States person, pursuant to Regulation S of the
Securities Act of 1933.
OTHER
-----
Aggregate future principal maturities of long-term debt and
capital lease obligations are as follows: 1997 - $750,758,
1998- $861,947, 1999 - $803,562, 2000 - $856,373, 2001 -
$1,558,360, and thereafter - $8,000,614.
All land and real estate is collateralized by the mortgages
payable.
The Company incurred interest expense, exclusive of
capitalized construction interest of $162,730 in 1994, in the
amount of $1,297,630, $1,183,945 and $1,443,320, in 1996, 1995
and 1994, respectively.
COMMITMENTS
-----------
The Company is obtaining an upgrade of its magnetic resonance
imaging ("MRI") in the second quarter 1997. The cost of such
upgrade, approximating $400,000, is to be financed.
See Commitments and Contingencies Note 12D for debt guarantees
made by the Company for entities which the Company has equity
ownership interests.
NOTE 8. LEASE COMMITMENTS
With the exception of the medical diagnostic center which is
owned by a limited partnership, and the two Columbus, Ohio
nursing homes, the Company leases all of the locations used in
its businesses under leases expiring on dates ranging through
July 2015.
II-22
<PAGE> 31
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. LEASE COMMITMENTS (CONTINUED)
As of December 31, 1996, minimum annual rental commitments
under noncancelable leases amount to:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------ ------
<S> <C> <C>
1997 $ 457,078 $ 9,530
1998 342,516 9,530
1999 319,141 8,736
2000 311,409 -
2001 300,308 -
Thereafter 4,145,225 -
------------- --------
$ 5,875,677 27,796
=============
Less amounts representing
interest (3,845)
--------
$ 23,951
========
</TABLE>
In addition, the Company remains contingently liable for
certain leases on locations that have been sold. These
contingent leases include payments aggregating $267,000 over
the next five years.
Rental expense included in the Consolidated Statements of
Operations for the years ended December 31, 1996, 1995 and
1994, was approximately $569,000, $564,000 and $656,000,
respectively, net of annual sublease income of $1,740, $20,180
and $18,100, respectively. Amortization of assets recorded
under capital leases is included in depreciation expense.
NOTE 9. INCOME TAXES
The Company utilizes the provisions of SFAS No. 109 which
requires the use of the liability method of accounting for
deferred income taxes. As a result, the Company has recognized
a deferred tax liability, a deferred tax asset and a valuation
allowance against the deferred tax assets. The components of
these consolidated deferred tax items at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets:
<S> <C> <C>
Net operating loss carryforwards $ 1,874,000 $ 1,846,800
Investment tax credit carryforwards 28,400 28,400
Bad debt allowance 47,600 101,000
Other 3,000 24,000
------------- ------------
1,953,000 2,000,200
Less: valuation allowance 200,000 300,000
------------- ------------
1,753,000 1,700,200
------------- ------------
</TABLE>
II-23
<PAGE> 32
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Depreciation and amortization 604,500 572,000
Costs capitalized in connection
with acquisitions 884,600 908,000
Other 10,200 50,800
----------- ------------
1,499,300 1,530,800
----------- ------------
Net deferred tax asset $ 253,700 $ 169,400
=========== ============
</TABLE>
These deferred tax assets and liabilities have been offset for
balance sheet presentation except for the "net deferred tax
asset" which is included in the balance sheet caption "Other
Assets". Management has recognized a deferred tax benefit of
$84,300 in 1996 and $74,540 in 1995 by a reduction in the
valuation allowance for the expected utilization of net
operating losses during the carryforward period. Management
has considered the provisions of SFAS No. 109 that allows for
utilization of tax planning strategies associated with real
estate. These strategies, if necessary, could consider a
possible sale and leaseback of such real estate to preclude
the expiration of net operating losses without realization of
a tax benefit. Realization of the deferred tax asset is
dependent on generating sufficient taxable income including
use of management's tax planning strategies prior to the
expiration of the loss carryforwards. Although realization is
not assured, management believes it is more likely than not
that a significant amount of the deferred tax asset will be
realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if
either the current estimates of future taxable income are
reduced or management would be unable to effect an expected
sale and leaseback of real estate. Both of these conditions
are currently necessary for consideration in the evaluation of
the realizability of the deferred tax assets and estimated
valuation allowance.
Consolidated net operating losses available for tax purposes
at December 31, 1996 are approximately $5,511,000, expiring
$102,000 in 2003, $1,744,000 in 2004, $274,000 in 2005,
$2,672,000 in 2006, $336,000 in 2008 and $383,000 in 2009.
Included in such net operating losses are approximately
$782,000 of pre-acquisition net operating loss carryforwards
acquired in the acquisition of a wholly-owned subsidiary in
1990, which can only be used to offset taxable income
generated by that subsidiary. Investment tax credits available
for tax purposes at December 31, 1996 are approximately
$28,400 expiring at various dates from 1997 to 2000. In 1996
and 1995 as a result of consolidated taxable income the
Company was able to utilize net operating losses of $27,000
and $193,000, respectively, all of which was pre-operating
losses of the acquired subsidiary. There was no taxable income
in 1994.
As discussed in Note 3, the Company had previously sold a
portion of its interest in Diagnostics and, as a result,
Diagnostics began to file its income tax returns on a separate
company basis. During 1994, Diagnostics generated taxable
income and, as a result, incurred current tax expense in the
amount of $112,500. Diagnostics has no significant temporary
differences that give rise to deferred tax assets or
liabilities at December 31, 1996, 1995 and 1994.
II-24
<PAGE> 33
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
During 1995, see Note 3, the Company acquired additional
common shares in Diagnostics, thereby allowing for its
inclusion in the consolidated tax return of the Company.
For the years ended December 31, 1996, 1995 and 1994 a
reconciliation of the statutory rate and effective rate for
the provision for income taxes consists of the following based
on amounts that do not include minority interests:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 PERCENTAGE
----------------- ----------
<S> <C>
Federal statutory rate (34.0)
Minority interests 13.6
State and local income taxes, net of federal
tax benefit 6.3
Tax effect of permanent differences 44.0
Valuation allowance (49.1)
---------
Effective rate (19.2)
=========
</TABLE>
<TABLE>
<CAPTION>
NOT INCLUDING
DIAGNOSTICS DIAGNOSTICS
(PERCENTAGE) (PERCENTAGE)
------------ ------------
DECEMBER 31, 1995
-----------------
<S> <C> <C>
Federal statutory rate 34.0 34.0
Minority interests (8.1) (8.2)
State and local income taxes, net of federal
tax benefit 1.3 1.1
Tax effect of permanent differences (26.0) 2.0
Valuation allowance (43.6) -
----- -----
Effective rate (42.4) 28.9
===== =====
DECEMBER 31, 1994
-----------------
Federal statutory rate 34.0 34.0
Minority interests (39.5) -
State and local income taxes, net of federal
tax benefit 11.3 2.7
Tax effect of permanent differences 15.4 0.6
Tax credits and other 9.3 (0.7)
Valuation allowance (56.4) -
----- -----
Effective rate (25.9) 36.6
===== =====
</TABLE>
II-25
<PAGE> 34
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The expense (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal:
Consolidated
Current expense $ - $ - $ -
Deferred benefit (84,300) - -
Without Diagnostics
Current expense - - -
Deferred benefit - (74,540) (94,860)
Diagnostics
Current expense - - 100,000
State:
Consolidated
Current expense 45,191 - -
Without Diagnostics
Current expense - 7,006 37,700
Diagnostics
Current expense - 15,555 12,500
--------- --------- ---------
Total tax expense (benefit) $ (39,109) $ (51,979) $ 55,340
========= ========= =========
</TABLE>
The principal differences between the income or loss reported
for financial reporting purposes and the income or loss
reported for federal income tax purposes results from (i)
accelerated depreciation methods being utilized for tax
purposes, (ii) inventory capitalization methods required for
tax purposes, (iii) reserving for doubtful accounts receivable
and certain other reserves, and (iv) costs capitalized in
connection with certain acquisitions for financial reporting
purposes and not for tax purposes.
NOTE 10. STOCKHOLDERS' EQUITY
COMMON STOCK
------------
See Note 2 for reacquisition of 2,500,000 shares of Common
Stock into treasury in 1995.
In October 1996, the Company sold at $1.00 per share 500,000
shares of common stock held in treasury, pursuant to
Regulation S of the Securities Act of 1933. The total cost of
such shares sold totaled $463,000.
II-26
<PAGE> 35
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
--------
A. At December 31, 1996, there were 414,538 warrants
outstanding. Each warrant, as a result of a November
1990 amendment, is exercisable for two and three
quarters (2-3/4) shares of The Wendt-Bristol Health
Services Corporation common stock. The Company has
reserved 1,139,980 shares for such issue. The
exercise price of $3.75 per warrant is the equivalent
of $1.36 per share. Other terms of the warrants
remain the same as when originally issued in 1986,
including the anti-dilution provisions, except that
the expiration date had been extended to May 1, 1997,
and the redemption feature has been removed. The
Board of Directors is currently considering a further
extension of the expiration date.
Also, as a result of the November 1990 amendment,
upon exercise of existing warrants, in addition to
the common shares to be received upon such exercise,
each warrant holder will receive, upon registration
under the Securities Act of 1933, a newly-created
Series II warrant which expires in May 1998, which
enables the warrant holder upon exercise of the
Series II warrant to purchase 2 shares of common
stock at $3.00 per share.
B. In conjunction with the issuance, pursuant to
Regulation S of the Securities Act of 1933, of Series
No. 1 bonds issued on February 14, 1997 (see Note
15B), the Company issued thirty-three (33) Series No.
1 warrants exercisable into a total of 300,000 shares
of the common stock of the Company for $2.00 per
share for the beneficial ownership of non U.S.
persons.
STOCK OPTIONS
-------------
The Company has previously adopted a qualified employee
incentive stock option plan (the "Plan"). The Plan provides
for 250,000 common shares to be made available for options
granted to eligible officers, directors and employees. The
options may be granted for a term not to exceed ten years
(five years with respect to a 10% shareholder) and are not
transferable or assignable. The exercise price of all options
must be at least equal to the fair market value of the common
stock at the date of grant, or 110% of such fair market value
with respect to any optionee who is a 10% shareholder of the
Company.
During 1991, the Board of Directors granted options for 30,000
shares to outside directors at a price of $.75 per share.
Subsequent to the grant, options for 10,000 of these shares
were terminated due to the resignation of one of the Directors
and subsequently re-issued in 1992 to the remaining two
outside Directors with an exercise price of $1.375. The $.75
per share options expired in 1996 and one outside Director has
5,000 of the options at $1.375. Beginning in 1992, 1,000
options were granted annually to each outside Director upon
his anniversary month as an outside Director. As of December
31, 1996, 6,000 such options were issued. In June, 1993 the
Board of Directors granted 80,000 options to purchase shares
at a price of $1.25 to certain officers and key employees.
Subsequent to the grant, options to purchase 17,000 shares
were terminated in 1995 due to the death of one of the outside
Directors. Upon election of a replacement Director, options to
purchase 10,000 shares at a price of $.375 were granted to the
new outside Director with an expiration date of February 1,
2000.
In May, 1996 the Board granted options totaling 130,000 shares
to certain officers and key employees. Such options are
exercisable at a price of $.875 per share and expire on May
23, 2001.
II-27
<PAGE> 36
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
No options were exercised in 1996, 1995 or 1994. There were
231,000 stock options outstanding at December 31, 1996 at
prices ranging from $.375 to $1.375 per share. At December 31,
1996 and 1995, options available for grant were 19,000 and
141,000, respectively.
In 1997, 5,000 options were exercised at $.875 per share for
total proceeds of $4,375. Additionally, 10,000 options with
exercise prices of $.875 to $1.25 were terminated as the
employees are no longer employed by the Company.
The Company utilizes the intrinsic value method under APB No.
25 to account for employee stock options. If the Company had
utilized the fair value based method under FASB No. 123, the
impact would not be significant to the financial statements.
NOTE 11. RELATED PARTY TRANSACTIONS
A. PARTNERSHIP OWNERSHIP
---------------------
Certain officers and directors own, in the aggregate, less
than 6% of the outstanding limited partnership interests of a
limited partnership of which a subsidiary of the Company is
the managing general partner.
B. SALE OF ASSETS TO A RELATED PARTY
---------------------------------
Effective January 1, 1995, the Company sold the operating
assets of a subsidiary's retail liquor store and two lounges
in Florida to MHK Corp., a company owned by certain of its
officers and directors. The purchase price was equivalent to
the net book value of the net assets, with no gain or loss
recognized, totaling $574,949, as adjusted for certain 1995
transactions.
The purchase price is evidenced by a promissory note bearing
interest at 9%. The note accrued interest from the effective
date of the sale through June 30, 1996 at which time the total
accrued interest of $77,618 was added to the original sale
price for a total amended principal sum of $652,567. The note
is payable in monthly installments of $8,266 including
interest, from July 1, 1996 through June 1, 2006 with the
balance fully amortized.
This sale has been finalized before government approval for
transfer of the liquor licenses has been obtained. If such
transfer is not approved by the government, then the Company
shall be required to repurchase these assets or provide
similar benefits to MHK Corp. Management and MHK believe it is
more likely than not that the transfer of the licenses will be
achieved.
At December 31, 1995, MHK Corp. had a balance outstanding for
previous advances, without interest totaling $146,944. At
April 15, 1996, the Company combined all advances to MHK Corp.
into a promissory note totaling $156,868 earning interest of
9% which accrues from July 1, 1996 until paid. The note will
be payable in monthly installments, including interest, of
$1,987 from July 1, 1996 through June 1, 2006 with the balance
fully amortized.
The notes receivable due from MHK Corp. are collateralized by
the assets of the two lounges and the retail liquor store. The
Company has received additional collateral in the form of a
security interest on real estate in Ohio, an assignment of the
lease and rents associated to that property as well as the
leasehold interest in a Florida property leased by MHK Corp.
and subleased to a third party, and a pledge of the common
stock of MHK Corp.
II-28
<PAGE> 37
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
B. SALE OF ASSETS TO A RELATED PARTY (Continued)
---------------------------------
Management's current estimate of the business activities of
these Florida operations combined with the rental operations
is that they will earn sufficient cash flow to amortize the
notes. No further advances or support is expected by the
Company. If the notes are not being amortized, an allowance
for non collectibility will be considered absent other
remedies not considered at this time.
C. NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES
--------------------------------------------------
At December 31, 1996 and 1995, the notes receivable amounts
due from MHK Corp. approximate $732,000 and $774,000,
respectively. Interest income totaling $76,668 and $61,668 for
the year ended December 31, 1996 and 1995, respectively is
included in "interest expense, net". Refer to Note 11B for the
related party transactions and applicable collateral for 1995
activity.
At December 31, 1996 and 1995, the President and CEO of the
Company had outstanding Advances totaling approximately
$243,000 and $205,000, respectively. The President/CEO has
granted a security interest in certain collateral to enhance
the realization of the indebtedness, which is evidenced by a
non-interest bearing promissory note. A representation has
been made that the amount will not further increase and the
existing balance will be reduced by approximately $30,000
during 1997 and $25,000 in years subsequent thereto.
In addition, pursuant to a ten year lease entered into in
1985, the Company leased a warehouse facility from two of the
officers and directors of MHK Corp. Effective May 1, 1992, a
renewal option was exercised on the lease, extending its term
to 2005. In January 1996, the officers sold a portion of the
property and terminated the lease with the Company. The
remaining parcel is pledged as additional collateral toward a
note due the Company from the sale of the liquor operations
(see Note 11B).
D. LIFE INSURANCE PREMIUMS RECEIVABLE
----------------------------------
The balance sheet includes $865,299 and $758,795 at December
31, 1996 and 1995 respectively, under the caption "Life
insurance premiums receivable". The Company, pursuant to
agreements, has purchased life insurance on the lives of
certain officers and key employees on a "split-dollar" basis.
The program is designed so that payments the Company makes on
behalf of each officer are collateralized by assignments of
the related life insurance policies (i.e., the accumulated
policy cash value, the policy death benefit, or a combination
thereof). The life insurance premiums receivables are
noninterest-bearing. The insured parties own the policies and,
with the consent of the Company, are permitted to borrow from
the cash surrender values of the policies. Under the
"split-dollar" agreements, the Company advances the premium
payments and upon the death of the insured would receive the
return of such advances from the death benefits or from cash
value (without termination of the policy) at such other times
(i.e. termination of employment) prior to the death of the
insured.
II-29
<PAGE> 38
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
D. LIFE INSURANCE PREMIUMS RECEIVABLE (CONTINUED)
----------------------------------------------
During 1995, the Company restored a $376,000 reserve that had
been recorded in 1991 to reduce life insurance premiums
receivable. Management believes the reserve is no longer
necessary due to the improvement in operations and increased
cash values over the last four years. By Amendment No. 1 to
the "split dollar" agreement, the applicable officers of the
Company recognize the premiums receivable not collateralized
by the policy cash surrender values of $282,000 at December
31, 1996, are their personal responsibility if not collected
through the respective policies as long as the Company
continues to maintain the policies. The Company has
represented its intention and obligation to maintain the
policies. The individuals have agreed to provide additional
collateral, to the Company, by pledging common shares they own
in the Company to enhance the realization of these
receivables.
E. NOTES PAYABLE TO OFFICER
------------------------
In January 1996, the Company borrowed the sum of $300,000. In
September 1996, the Company borrowed an additional $60,000
(the "Loans") from Marvin D. Kantor, a director and the
Chairman of the Board of the Company. The Loans were obtained
to meet certain short-term working capital needs of the
Company. The Loans bear interest at 8.5% per annum. The Loans
are payable in monthly installments and are collateralized by
a pledge of the Company's common stock held in Wendt-Bristol
Diagnostics Company. The balance outstanding at December 31,
1996 totals $55,000.
NOTE 12. COMMITMENTS AND CONTINGENCIES
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION
-----------------------------------------------
In October 1991, the Company sold substantially all of the
assets (other than real estate) of its manufacturing division
located in New Jersey.
As part of that transaction, the buyer entered into a lease on
the physical facilities which initially included a purchase
option. The buyer is responsible for taxes, maintenance, and
insurance costs. Rental income has been recorded on a
straight-line basis over the term of the lease.
During September 1994, the buyer/tenant instituted arbitration
proceedings against the Company. The Company and the tenant
settled in June 1995. The settlement agreement provides (a) a
revised term of ten years for the lease commencing January 1,
1995, (b) monthly rental of $28,000 for the first five years
and $30,000 for the remaining five years, (c) identification
of approximately $200,000 in repairs, of which the tenant has
paid $40,000; such repairs were subsequently completed, (d)
tenant's option to renew for an additional two years at
$10,000 per month; if option not exercised, the tenant is
obligated to pay $10,000 per month in the eleventh year
despite the fact that premises are vacated and (e) tenant
abandoned its option to purchase the premises as well as any
role in the Company's compliance with the environmental laws
of the State of New Jersey.
II-30
<PAGE> 39
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION (CONTINUED)
-----------------------------------------------------------
As a result of compliance with the State of New Jersey
environmental laws and in connection with the sale of the
division, the Company is in the process of a clean-up of
contamination caused by prior ownership whereby the property
had been contaminated by leaking underground storage tanks and
the discharge of certain industrial fluids into the sewage
system. The Company spent approximately $50,000, $61,000 and
$52,000 related to the clean-up during the years ended
December 31, 1996, 1995 and 1994, respectively. Costs
attributable to the project, incurred or accrued, have been
capitalized. The Company's consulting engineers have completed
a study of the contamination and have submitted a clean-up
plan to the appropriate State of New Jersey department. In
December 1995, the State of New Jersey granted a conditional
approval of the plan with a two year monitoring period. The
remaining estimated costs to complete the plan are
approximately $100,000. Refer to Note 4 regarding restricted
cash set aside to satisfy the New Jersey Department of
Environmental Protection and Energy.
B. RENTAL AGREEMENT ON A NURSING HOME
----------------------------------
The landlord of a nursing home facility filed a complaint for
Declaratory Judgment against a subsidiary of the Company
seeking a judgment that the subsidiary is in default of the
lease agreement and seeks the right to purchase the license of
the nursing home. The landlord had filed a Motion for Summary
Judgment and was denied by the court. The subsidiary is
presently current on its rent obligation but is disputing the
calculation of the late rent charges imposed under the lease.
Although not directly subject to this complaint, the Company
is seeking payment of a receivable related to a Share Transfer
Agreement with the subsidiary of the Company. Such amounts
became due in February 1996, one year after final settlement
of certain State of Ohio Medicaid receivables, as provided in
the Agreement. See Item 3. Legal Proceedings for additional
discussion.
In the opinion of management, the ultimate costs and liability
to the Company and its subsidiaries as a result of this legal
proceeding will not be material. It is further believed that
the receivable at December 31, 1996 totaling $367,000 (see
Note 5(b)) will be realized through the ultimate settlement of
the entire dispute in the near term.
C. INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, AS
--------------------------------------------------------------
THE STATUTORY LIQUIDATOR FOR CORPORATE LIFE INSURANCE COMPANY
-------------------------------------------------------------
(UNAFFILIATED THIRD PARTY)
--------------------------
On February 20, 1995, the Company entered into a
Stock-Exchange Agreement with the Insurance Commissioner of
the Commonwealth of Pennsylvania, as the Statutory Liquidator
of Corporate Life Insurance Company (CLIC) (see Note 2). The
Statutory Liquidator caused a Writ of Summons in the
Commonwealth Court of Pennsylvania (Case No. 509-MD-1995) to
be served on the Company indicating in its entirety that
Statutory Liquidator has commenced an unspecified action
against the Company which counsel for the Statutory Liquidator
advised the Company that the Statutory Liquidator intends to
seek performance in the action for the amounts due it from the
Company. During 1996, the Company paid $300,000 toward the
purchase of the shares, leaving a balance of $325,000 at
December 31, 1996. The Company subsequently paid the balance
during the first quarter of 1997.
On March 19, 1997, the Insurance Commissioner of the
Commonwealth of Pennsylvania, as the Statutory Liquidator of
CLIC dismissed with prejudice the action it had commenced
against the Company in the Commonwealth Court of Pennsylvania.
II-31
<PAGE> 40
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
C. INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, AS
--------------------------------------------------------------
THE STATUTORY LIQUIDATOR FOR CORPORATE LIFE INSURANCE COMPANY
-------------------------------------------------------------
(UNAFFILIATED THIRD PARTY) (CONTINUED)
--------------------------------------
Additionally, as a result of a Federal investigation of the
activities of CLIC, the Company had been requested to furnish
documents and information in its files related to transactions
with CLIC and Life Holdings, Inc. The Company complied with
this request and is cooperating fully with this on-going
investigation.
D. DEBT GUARANTEES
---------------
The Company or its subsidiaries is contingently liable as a
guarantor of long-term debt and capital lease obligations
totaling $790,000 for medical equipment that will be placed in
service the second quarter 1997 by entities that a subsidiary,
Wendt-Bristol Diagnostics Company ("Diagnostics"), has
ownership interests varying from 22.5% to 50%. The Company and
its subsidiaries anticipate obtaining cross-collateral
agreements with the other investors in their applicable
ownership interest. After these cross-collateral agreements
are obtained, the Company and its subsidiaries will be
contingently liable for debt obligations approximating
$310,000.
Additionally, the Company and Diagnostics are contingently
liable for a two year lease agreement and the purchase price
($1,400,000) of a building used by an entity in which
Diagnostics has a 22.5% ownership interest. The Company and
Diagnostic are currently 100% contingently liable for the two
year lease and purchase price. The Company anticipates
obtaining cross-collateral agreements from the other investors
related to their applicable ownership interest.
E. CONTINGENT LIABILITY
--------------------
The Company has received a proposed correction notice for
payroll taxes, interest and penalties. The amounts for payroll
taxes and accrued interest have been accrued at December 31,
1996 while the amounts for penalties approximate $166,000. The
Company has a meeting scheduled in the second quarter 1997
with the applicable tax authorities to structure a payment
plan for the payroll tax and interest and to request a waiver
of all or a portion of the penalties. Management has been
successful in the past at obtaining waivers for all or a
portion of tax penalties. Management has accrued $40,000 of
these penalties as their estimate of their pending successful
negotiations. While the Company believes it has meritorious
defenses against the penalties assessed, the ultimate
resolution of the matter, which is expected to occur within
one year, could result in an additional expense of $126,000 in
excess of the amount accrued.
NOTE 13. INDUSTRY SEGMENT DATA
Industry segment data for years ended December 31, 1996, 1995
and 1994 included in Item 1 ("Industry Segments") of this
report is an integral part of these financial statements.
II-32
<PAGE> 41
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. RETIREMENT PLAN
The Company adopted, effective July 1, 1989, a retirement
plan, under Section 401(k) of the Internal Revenue Code,
covering substantially all employees with more than one year
of service. The plan provides for the Company to contribute,
on an annual basis, 10% of the employees' eligible deferred
compensation; such employer contribution is in the form of
Company common stock. The Company values the actual shares
transferred to the Plan from the treasury at the respective
December 31 market value. During 1996, 1995 and 1994, the
Company contributed 16,262, 21,764 and 8,448 shares, and
recorded an expense of $8,733, $9,900 and $13,066,
respectively.
NOTE 15. SUBSEQUENT EVENTS
A. During December, 1996, Wendt-Bristol Diagnostics Company
("Diagnostics") formed Wendt-Bristol Crosswoods, Ltd., an Ohio
limited liability company. Diagnostics acquired a 50% interest
through a capital contribution of $325,000 in January 1997.
The new entity closed, in January 1997, on the acquisition of
operating assets, including an open field magnetic resonance
imaging device. Operations began in January, 1997. The Company
is managing the facility. See Note 12D for commitments and
contingencies relating to this entity.
B. On February 14, 1997, the Company issued thirty-three (33)
bonds, designated as Series No. 1 Bonds, totaling five million
Swiss francs, due February 14, 2002, to European investors.
The Company received $3,416,934 for the conversion of the
proceeds of these Bonds. The Bonds provide for quarterly
interest payments commencing March 31, 1997 at a rate of 5%
per annum. The Bonds and interest are payable in Swiss francs,
and as a result, the Company is hedging the currency risk by
entering into future contracts. The Bond holders were issued
Series No. 1 warrants to purchase an aggregate of 300,000
shares of common stock of the Company at $2.00 per share
exercisable after March 25, 1997 and before February 15, 2002
to warrant holders outside the U.S. Both the Series No. 1
Bonds and the Series No. 1 Warrants were issued pursuant to
Regulation S of the Securities Act of 1933. Proceeds will be
used to liquidate its accounts receivable securitization
program (Notes 5 and 15C), expansion in the diagnostic and
radiology ventures (Notes 1B and 15A) and general working
capital requirements.
C. On March 14, 1997, the Company terminated its accounts
receivable securitization program and repaid advances which
totaled $1,461,633.
D. In April, 1997, Wendt-Bristol Diagnostics Company acquired a
22.5% interest in Wendt-Bristol at Park Oncology Center, Ltd.
("WB at Park"), an Ohio limited liability company which will
operate a radiation therapy practice. WB at Park has entered
into a two year lease agreement which includes a mandatory
purchase of the building for $1,400,000. The Company will
manage the facility. See Note 12D for commitments and
contingencies relating to this entity.
E. Effective mid April 1997, management has decided to cease
operations of a significant portion of its home health care
agency in order to eliminate unprofitable portions of the
business. Management believes the impact to operations in 1997
is not anticipated to be significant. See Note 1B for the 1996
impact to operations.
II-33
<PAGE> 42
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITY
A partnership, of which the Company is
the managing general partner purchased
equipment which was financed by entering
into an installment finance agreement.
Increase in equipment cost, net $ 875,626
Increase in long-term obligations (875,626)
Subsidiaries of the Company sold trade
accounts receivable, a portion of which
was used for certain related fees
Increase in deferred costs $ 27,500
Increase in miscellaneous accounts
receivable reserves 185,507
Decrease in notes payable 53,155
Decrease in accounts receivable - sold (266,162)
Common stock of the Company
(2,000,000 shares) and common stock of
a subsidiary (300,000 shares) were exchanged
for 30,000 shares of preferred stock, par
value $100 per share, owned by the Company in
Life Holdings, Inc.
Decrease in investment in preferred
stock, at cost $ (3,000,000)
Decrease in minority interest 512,653
Increase in treasury stock 2,487,347
The Company purchased common stock
(500,000 shares) of the Company for a price
of $.80 per share and common stock of a
subsidiary (45,000 shares) for a price
of $5.00 per share
Increase in accrued expenses and other
liabilities $ (625,000)
Increase in treasury stock 400,000
Increase in excess of cost of assets of
businesses and subsidiaries acquired,
less amortization 148,103
Decrease in minority interest 76,897
</TABLE>
II-34
<PAGE> 43
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
A subsidiary of the Company sold
the operating assets, net of associated
liabilities to a related party in
exchange for an interest bearing note (Note 11B)
Increase in notes receivable from
officers, employees and related
parties, net of amounts payable:
Note arising in transaction $ 574,949
Other (55,936)
Decrease in accounts payable 48,624
Decrease in accrued expenses and
other liabilities 83,006
Decrease in trade and miscellaneous
receivables (4,668)
Decrease in inventories (126,703)
Decrease in prepaid expenses and other
current assets (38,409)
Decrease in property, plant and
equipment, net (240,079)
Decrease in deferred charges (500)
Decrease in other assets (240,284)
A partnership, of which the Company is the managing general
partner, traded-in a piece of equipment for a
substantially improved model, which was financed by
entering into an installment finance agreement, which
included a refinancing of existing debt
Increase in equipment cost, net $ 642,692
Increase in long-term obligations (642,692)
A subsidiary of the Company incurred costs for the
construction of an Alzheimer's and related syndromes
facility with draws against a HUD- insured financing
agreement
Increase in property, plant and
equipment $ - $ 1,901,236
Increase in long-term obligations (166,826) (1,901,236)
Increase in prepaid expenses and other
current assets 45,116
Decrease in accounts payable 121,710
A subsidiary of the Company purchased
equipment with a capital lease obligation
Increase in property, plant and
equipment $ 37,823
Increase in capital lease obligation (37,823)
</TABLE>
II-35
<PAGE> 44
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
A subsidiary of the Company purchased
land with a portion financed with a
bank note payable
Increase in land $ 105,000
Increase in note payable (105,000)
A partnership, of which the Company is
managing general partner, sold the land
and building and reduced related
deferred charges
Increase in miscellaneous receivable $1,700,000
Decrease in deferred charges (21,097)
Increase in accrued expenses, other (74,800)
Decrease in gain on sale of assets (621,860)
Decrease in property, plant and
equipment, net (982,243)
A subsidiary of the Company, less than
100% owned, sold shares of common
stock; deferred offering costs have been
reduced against the gain on sale of
subsidiaries
Decrease gain on sale of stock of
subsidiary $ (88,357)
Decrease in deferred charges (61,643)
Decrease in minority interest 150,000
Common stock in treasury of the
Company was exchanged for common
stock of a subsidiary
Decrease in treasury stock $ (18,644)
Decrease in minority interest 18,644
A partnership, of which a subsidiary
of the Company is the managing general
partner refinanced a mortgage on its
Diagnostic and Radiology Center
building and has capitalized certain costs
relating to the transaction
Increase in deferred charges $ 9,735
Increase in long-term obligations (9,735)
</TABLE>
II-36
<PAGE> 45
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standard Board ("FASB") Statement No.
107, "Disclosure about Fair Value of Financial Instruments",
is effective for the Company's year ended December 31, 1995
and thereafter. The statement requires disclosure of fair
value information about financial instruments. For certain of
the Company's financial instruments including cash,
receivables, accounts and notes payable, and other accrued
liabilities the carrying amounts approximate fair value due to
their short maturities. For long-term notes receivable and
notes payable, the Company believes the carrying value will
approximate their fair value. For the subordinated note, the
Company believes the carrying amount approximates fair value
with the conversion feature to the Company's common stock
available.
At December 31, 1996 and 1995, management believes the
carrying amount of these long-term receivables are not
impaired and will be realized in the normal course of business
in accordance with their contract terms. The fair value of
debt is believed to be approximately equal to their current
carrying value based on current market prices.
II-37
<PAGE> 46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table and the text following the table set forth
certain information with respect to the Directors and
Executive Officers (being all of the Directors of the Company,
except for Dr. Penn and Mr. Levine) of the Company. Each
Director serves until the next Annual Meeting of Stockholders
of the Company and until his successor is elected and
qualifies, unless such Director resigns or dies prior thereto.
Each Executive Officer serves at the pleasure of the Board.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITIONS WITH COMPANY
---- --- ------------------------------
<S> <C> <C>
Marvin D. Kantor 68 Chairman of the Board, Director
Sheldon A. Gold 54 President, Treasurer, Chief Executive Officer,
Director, member of Audit Committee
Reed A. Martin 43 Executive Vice President, Chief Operating
Officer and Director
Harold T. Kantor 63 Vice Chairman of the Board, Director
Paul H. Levine 56 Director, member of Audit Committee
Gerald M. Penn 59 Director, member of Audit Committee
Charles R. Cicerchi 37 Vice President of Finance, Principal Financial
and Accounting Officer
</TABLE>
Marvin D. Kantor has been Chairman of the Board since May
1988; prior to June 1993 he had also been President and Chief
Executive Officer of the Company and W-B since May 1988. In
addition, he is a Director of all of the Company's
subsidiaries. He is a brother of Harold T. Kantor.
Sheldon A. Gold is a certified public accountant and has been
President and Chief Executive Officer of the Company since
June 1993. Prior thereto and since March 1992 he had been Vice
Chairman of the Board and since May 1988 he had been Executive
Vice President, Treasurer, and Chief Financial and Accounting
Officer of the Company. He again became Treasurer and Chief
Financial and Accounting Officer of the Company in July 1992,
until May, 1996. In addition, he has been a Director of the
Company since May 1988. He has also been the President of W-B
since June 1993, Executive Vice President between 1979 and
June 1993, and Chief Financial and Accounting Officer of W-B
since 1979 through May 1996.
Reed A. Martin, elected as a Director in May 1992, has since
June 1993 been Executive Vice President and Chief Operating
Officer, since May 1991 he had been a Senior Vice President of
the Company supervising operations. Mr. Martin is a son-in-law
of Marvin D. Kantor.
Harold T. Kantor has been Vice-Chairman since June 1993 and a
Director of the Company since May 1988. In addition, he has
been Vice President of W-B since October 1985. He is brother
of Marvin D. Kantor.
III-1
<PAGE> 47
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (CONTINUED)
Paul H. Levine has been a Director since January, 1990 and
serves on the audit and stock option committee. He is
President of Nichols and Levine Asset Management, Inc., a
registered investment advisor. Mr. Levine is an attorney and a
certified public accountant and has been active in venture
capital, investment banking and financial consulting since
1972. He is also a Director of Learning Technologies, Inc.
Dr. Gerald M. Penn, M.D., Ph.D., was elected as a director on
February 8, 1995 and serves on the audit and stock option
committees. Dr. Penn was previously Chairman and Medical
Director of the Department of Pathology at Grant Medical
Center 1981-1996. Educated at The Ohio State University,
Doctor Penn received his medical degree from the College of
Medicine and a doctoral degree in biochemistry. He completed a
pathology residency at University Hospital and postgraduate
training at The Rockefeller University, New York, NY. He is
board certified in clinical and anatomical pathology,
immunopathology and hematopathology. He serves on the Board of
Trustees of the Columbus Medical Association Foundation, the
Health Coalition of Central Ohio and the editorial board of
the American Association of Laboratory Immunology.
Charles R. Cicerchi is a certified public accountant and has
been Vice President of Finance since joining the Company in
September, 1994. Since May, 1996 he has been the Principal
Financial and Accounting Officer of the Company. Prior
thereto, he was Controller of Speer Industries, a mechanical
contractor, where he was responsible for all accounting and
treasury functions from the period 1990 to 1994.
ITEM 11. EXECUTIVE COMPENSATION
GENERAL. The following table sets forth the total annual
compensation paid or accrued by the Company and its
subsidiaries to or for the account of (i) the President (the
chief executive officer) of the Company and (ii) for the
Company's most highly compensated executive officers other
than the chief executive officer who were serving as executive
officers at December 31, 1996 and with respect each of whom
such compensation exceeded $100,000.
III-2
<PAGE> 48
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) SARS (#) COMP. ($)**
------------------ ---- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sheldon A. Gold 1996 $ 150,000 50,000/0 $ -
President and Chief 1995 140,000 * -
Executive Officer 1994 140,000 * -
Marvin D. Kantor 1996 130,000 * 75,866
Chairman of the 1995 127,404 * 65,028
Board 1994 127,404 * 59,609
--------------
<FN>
* Not applicable
** Includes life insurance premiums paid by the Company for
each of named persons (see Note 11 of the Notes to the
Consolidated Financial Statements herein). For the fiscal year
ended December 31, 1996, the amounts paid by the Company for
each of the named persons is:
</TABLE>
<TABLE>
<CAPTION>
LIFE
NAME INSURANCE
---- ---------
<S> <C>
Marvin D. Kantor $ 75,866
</TABLE>
III-3
<PAGE> 49
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
OPTIONS. The following table sets forth information respecting
the grant by the Company of options to purchase shares of its
Common Stock and other information related to options granted
by the Company:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
INDIVIDUAL GRANTS
-----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE ($)
---- ----------- ----------- ------ ---- ---------
<S> <C> <C> <C> <C> <C>
Sheldon A. Gold 50,000/0 38.5%/0 .875 5/23/01 $ 43,750
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END-# SHRS AT FY END-$
------------- -----------
SHARES
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Sheldon A. Gold 0 0 50,000/0 $75,000/0
</TABLE>
-------------
All options held by Mr. Sheldon A. Gold were exercisable at
December 31, 1996. All were "in-the-money". American Stock
Exchange reported quotations for the Common Stock of the
Company on December 31, 1996, are: high, $1.50; low $1.50; and
close, $1.50; such prices on February 28, 1997 are: high,
$1.4375; low, $1.375; and close, $1.4375. The exercise price
of each of the options of Mr. Sheldon A. Gold is $.875 and the
options expire on May 23, 2001.
III-4
<PAGE> 50
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
STOCK OPTION PLAN. In 1983, the Company adopted an Incentive
Stock Option Plan which was amended in 1989 (as amended, the
"Plan"). Pursuant to the Plan, the Company is authorized to
grant stock options to purchase up to 250,000 shares of Common
Stock of the Company, subject to anti-dilution provisions, to
key personnel, including eligible directors, officers and
employees of the Company. In the event that any option granted
under the Plan shall terminate prior to its exercise in full
for any reason, then the shares subject to the option not
acquired by exercise of the option shall be added to the
shares otherwise available for the grant of options under the
Plan. Options granted under the Plan may be those intended to
qualify as "incentive stock options", as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or those not intended so to qualify. At February 28,
1997, options to purchase an aggregate of 19,000 shares of
Common Stock of the Company, subject to anti-dilution
provisions, could still be granted under the Plan.
The Plan is currently administered by a Committee of the Board
of Directors of the Company consisting of Messrs. Levine and
Penn, which have the authority (except with respect to stock
options to Non-Employee Directors [as defined in the Plan,
i.e., directors of the Company who are not also employees of
the Company, who have served as directors for twelve
consecutive full calendar months, and who at the end of such
period are continuing to serve as directors] which are
mandated by the Plan) to determine the grantees of the
options, whether options granted are to be "incentive stock
options" or non-incentive stock options except that
Non-Employee Directors must receive non-incentive stock
options, the number of shares to be covered by each option,
the time at which each option is exercisable, the method of
payment, and certain other provisions of the option. Options
may be granted for a term not to exceed 10 years (five years
with respect to a 10% stockholder) and are not transferable or
assignable other than by will or the laws of descent and
distribution.
An option may be exercised within twelve months after the
death or disability of the optionee, to the extent the option
was exercisable at the time of death or disability. The
exercise price of all options (other than non-incentive stock
options granted to persons other than Non-Employee Directors)
must be at least equal to the fair market value of shares of
Common Stock of the Company on the date of grant, or 110% of
such fair market value with respect to any optionee who is a
10% stockholder of the Company.
The Plan will terminate on April 25, 2001. The Board of
Directors of the Company may, however, terminate the Plan at
any time prior to such date. Termination of the Plan will not
alter or impair, without the consent of the optionee, any of
the rights or obligations under any option theretofore granted
under the Plan.
The Plan provides that no option granted thereunder shall be
exercisable if the Company shall, at any time and in its sole
discretion, determine that (i) the listing upon any securities
exchange, registration or qualification under any state or
federal law of any shares otherwise deliverable upon such
exercise, or (ii) the consent or approval of any regulatory
body of the satisfaction of withholding tax or other
withholding liabilities, is necessary or appropriate in
connection with such exercise. In any of such events, the
exercisability of the option is suspended and is not effective
unless and until such withholding, listing, registration,
qualification or approval shall have been effected or obtained
free of any conditions not acceptable to the Company in its
sole discretion, notwithstanding any termination of any option
or any portion of any option during the period when
exercisability has been suspended.
III-5
<PAGE> 51
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
The Plan also provides that the Board or, if so designated,
the Committee (of directors of the Company appointed to
administer the Plan) may require, as a condition to the right
to exercise an option, that the Company receive from the
option holder, at the time of any such exercise, the
representation, warranties and agreements to the effect that
the shares acquired upon exercise of such options are being
purchased by the option holder only for investment and without
any present intention to sell or otherwise distribute such
shares and that the option holder will not dispose of such
shares in transactions which, in the opinion of counsel to the
Company, would violate the registration provisions of the
Securities Act of 1933 and the rules and regulations
thereunder. The certificates issued to evidence such shares
will bear appropriate legends summarizing such restriction on
the disposition thereof.
SPLIT-DOLLAR INSURANCE POLICIES. The following table sets
forth information as of December 31, 1996, concerning
split-dollar insurance policies on the lives of the named
persons in the Summary Compensation Table (1):
<TABLE>
<CAPTION>
INITIAL FACE INSURANCE PREMIUMS
AMOUNT OF ADVANCED IN EXCESS OF
NAME OF INSURED (2) POLICY ISSUED CASH VALUE (5)
------------------- ------ ------ --------------
<S> <C> <C> <C>
Marvin D. Kantor $ 1,500,000(3) 06/08/92 $414,000
Sheldon A. Gold 375,000(4) 09/11/86 62,000
</TABLE>
The Company, pursuant to split-dollar agreements, has
purchased life insurance on the lives of certain officers
(including named persons in the Summary Compensation Table)
and key employees on a "split-dollar" basis. The program is
designed so that advances of premium payments (the "advances")
the Company makes on behalf of each insured are collateralized
by assignment of the related life insurance policy (i.e., the
accumulated policy cash value and the policy death benefit).
The insured person owns the policy and, with the consent of
the Company, is permitted to borrow from the cash surrender
value of the policy.
Under the "split-dollar" agreements, the Company upon death or
other separation from service of
the insured receives the return of the advances from the death
benefits or cash surrender value, if any, of the policy, as
the case may be.
-------------------------
(1) See footnote to the Summary Compensation Table for
information respecting Company premium payments for
the fiscal year ended December 31, 1996.
(2) The beneficiaries of the policies are the spouses of
the insured.
(3) The policy is an increasing death benefit policy
(through use of dividends) and has replaced a
previous universal life policy.
(4) The policy is of the universal life nature, whereby
the cash value is added to the face value at all
times, including death.
(5) Represents monies advanced by the Company in excess
of cash value available in the policies.
III-6
<PAGE> 52
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
Additionally, the insureds/officers of the Company have
accepted personal responsibility for these amounts to the
extent they are not recovered through the respective policies.
The Company has represented its intention and obligation to
maintain the policies. The individuals have enhanced the
realization of these receivables by pledging a portion of
their common stock ownership in the Company.
SECTION 401(K) PLAN. Effective July 1, 1989, the Company
established a Plan and Trust (the "Plan") intended to comply
with the provisions of Section 401(k) of the Internal Revenue
Code.
All full-time (as defined) employees of the Company and of its
subsidiaries (collectively referred to under this sub-caption
as the "Company") who were employees on July 1, 1989, and
persons who became employees thereafter and are continuously
employed for one year are eligible to participate in the Plan.
Under the Plan, an eligible employee who elects to participate
defers a portion (the "Portion") of his compensation, as
defined, the Portion being up to the maximum which will not
cause the Plan to favor Highly-Compensated Employees, as
defined, or cause the Plan to exceed the maximum amount
allowable as a deduction to the company under Section 404 of
the Code. The Company contributes under the Plan, for the
account of such eligible employee, an amount equal to the
Portion; in substance the contribution is being made by the
eligible employee.
The Plan provides that the Company shall make a contribution
(which is in addition to the contribution referred to in the
preceding sentence and shall be in shares of Common Stock of
the Company) equal to 10% of the aggregate amount of all
contributions made by participants, except that for this
purpose a maximum of 10% of the compensation of each
participant is taken into account. The Plan also provides that
the Company may contribute a discretionary amount to all
participants out of its current or accumulated Net Profit, as
defined, for the applicable Fiscal Year, as defined.
All contributions of the participant vest immediately.
Contributions of the Company vest in accordance with the
number of Years of Service, as defined, of the participant
with vesting of 20% after one year of Service and thereafter
increasing by 20% increments for each Year so that after five
years or more of Service, the Company's contributions become
fully vested. Notwithstanding the foregoing, the Company's
contributions fully vest upon the retirement of a participant
at his Normal Retirement Date or Early Retirement Date, as
defined; upon the death of a participant before his Retirement
Date, as defined, or certain other termination of his
employment; in the event of a participant's Total and
Permanent Disability, as defined, prior to his Retirement
Date, as defined, or other Disability, as defined, prior to
his Retirement Date or other termination of his employment; or
in the event that the Plan is terminated in whole, or to the
extent particular participants are affected thereby, in part.
The Trustee under the Plan, Merrill Lynch Trust Company,
invests cash contributed or otherwise held under the Plan as
it is instructed by the employee participants, who have the
discretion of fund selection.
Distributions from the Plan are made on a participant's Normal
Retirement Date, Early Retirement Date, death, Total and
Permanent Disability, or the termination of employment for any
reason other than the foregoing. Advance distributions on
account of hardship may be made in limited circumstances as
provided in the Plan.
Payment of vested amounts are made in accordance with
directions of the Committee, appointed by the Company to act
under the Plan, either in one lump sum payment or in annual
cash installments over a period not to exceed 10 years.
III-7
<PAGE> 53
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
During 1995, the Company did not make the contributions to the
401(k) plan on a timely basis. The IRS instituted an amnesty
program for matters of this nature that the Company utilized
to bring the contributions to a current status in 1996.
COMPENSATION OF DIRECTORS. Non-employee Directors of the
Company receive $650 for each meeting of the Board of
Directors of the Company which they attend and such Directors
are also reimbursed for any expenses incurred. In addition,
beginning January 1, 1995 all non-employee directors are
compensated $500 per month for serving as director of the
Company. No additional amounts are paid for committee
participation.
In addition, Non-Employee Directors have been granted stock
options under the Plan (see "Item 11. Executive Compensation -
Stock Option Plan") to purchase shares of Common Stock of the
Company. Non-Employee Directors are defined in the Plan as
Directors of the Company who are not also employees of the
Company, who have served as Directors for twelve consecutive
full months, and who at the end of such period are continuing
to serve as Directors. Mr. Levine was granted options on May
13, 1992, to purchase up to an aggregate of 5,000 shares of
the Common Stock of the Company at a price of $1.375 per
share, subject to anti-dilution provisions. Dr. Gerald M. Penn
was elected as a director in February, 1995 and was granted
options on February 1, 1995 to purchase up to an aggregate of
10,000 shares, subject to anti-dilution provisions, at a price
of $.375 per share. The Plan also provides for a grant of
additional stock options to each Director who received an
option ("initial option") as hereinbefore described, each of
such additional options to provide for the purchase of an
aggregate maximum of 1,000 shares of Common Stock of the
Company at a price per share equal to the fair market value of
the Common Stock of the Company on the date of grant, subject
to anti-dilution provisions, one of such additional options to
be granted on each successive anniversary of the date of grant
of the initial option, provided that such Director continues
on such anniversary to be a Non-Employee Director. Pursuant to
this provision of the Plan, Mr. Levine received on July 11,
1992, options to purchase an aggregate of 1,000 shares of the
Common Stock of the Company at a price of $1.375 per share,
subject to anti-dilution provisions; received on July 11,
1993, options to purchase an aggregate of 1,000 shares of the
common stock of the Company at a price of $1.0625 per share,
subject to antidilution provisions; he received on July 11,
1994, options to purchase an aggregate of 1,000 shares of the
common stock of the Company at a price of $.6875 per share,
subject to antidilution provisions; he received on July 11,
1995, options to purchase an aggregate of 1,000 shares of
common stock of the Company at a price of $.4375 per share,
subject to anti-dilution provisions and he received on July
11, 1996, options to purchase an aggregate of 1,000 shares of
common stock of the Company at a price of $.875 per share,
subject to anti-dilution provisions. Dr. Penn received on
February 1, 1996, options to purchase an aggregate of 1,000
shares of common stock of the Company at a price of $.375 per
share, subject to anti-dilution provisions and he received on
February 1, 1997, options to purchase an aggregate of 1,000
shares of common stock of the Company at a price of $1.435,
subject to anti-dilution provisions. Each of the stock options
referred to in this paragraph are exercisable commencing on
the date of grant and ending on the fifth anniversary of such
date. None of the options referred to in this paragraph have
been exercised.
III-8
<PAGE> 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below presents as of February 28, 1997, certain
information (1) with respect to any person (including any
"group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ) who is known to
the Company to be the beneficial owner of more than five
percent of any class of the Company's voting securities and
(2) as to each class of equity securities of the Company or
any of its parents or subsidiaries, other than directors'
qualifying shares, beneficially owned by each director and
executive officer of the Company and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE AND PERCENT
TITLE OF CLASS NAME BENEFICIAL OWNERSHIP (1) OF CLASS (2)
-------------- ---- ------------------------ ------------
<S> <C> <C> <C>
Common Stock Marvin D. Kantor 866,120 13.57%
Two Nationwide Plaza
Suite 760
Columbus, Ohio 43215
Common Stock Harold T. Kantor 247,475 (3) 3.88%
Common Stock Sheldon A. Gold 106,375 (4) 1.67%
Common Stock Reed A. Martin 40,064 (5) -
Common Stock Paul H. Levine 10,500 (6) -
Common Stock Dr. Gerald M. Penn 15,000 (7) -
Common Stock All Directors and 1,285,534 (8) 20.14%
Executive Officers
As a Group (6 persons)
Common Stock McBridge Advisory, Ltd. 626,200 9.81%
Dollard House
Wellington Quay
Dublin 2 Ireland
Common Stock Gerald F. Schroer 389,800 6.11%
25109 Detroit Road
Westlake, Ohio 44145
-------------------
<FN>
(1) The individuals named have direct ownership and sole
voting and investment power, except as otherwise
indicated.
(2) Percent of class shown net of treasury shares (see
(8) below). Except as otherwise indicated, shares
owned by the individuals named represent less than 1%
of the outstanding shares of Common Stock of the
Company.
</TABLE>
III-9
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MHK Corp., of which Marvin D. Kantor and Harold T. Kantor are
the sole shareholders, has incurred indebtedness to the
Company. The largest amount of such indebtedness outstanding
in 1996 was $809,435; 1995 was $773,638; and 1994 was
$121,818. On March 1, 1997, the amount of such indebtedness,
exclusive of interest, outstanding was $794,776. Interest at
9% totaling $61,823 has been charged, through December 31,
1996. See Note 11B.
Effective January 1, 1995, the Company sold the operating
assets of a subsidiary's retail liquor store and two lounges
in Florida to MHK Corp. The purchase price was equivalent to
the net book value of the net assets which totaled $574,949 as
adjusted for certain 1995 transactions. A promissory note
bears interest at 9%. Additional advances were made in 1995
and 1996. (See Note 11B)
The President and CEO of the Company has incurred indebtedness
to the Company. The largest amount of such indebtedness
outstanding in 1996 was $243,412; 1995 was $204,975; and 1994
was $146,454. No interest is paid or charged on such
indebtedness. The President/CEO has granted collateral to the
Company to enhance the realization of the indebtedness, which
is evidenced by a promissory note providing for minimum annual
payments of $25,000. (See Note 11C).
Pursuant to a ten-year lease entered into in 1985, the Company
leased a warehouse facility from the Kantors. Effective May 1,
1992, a renewal option was exercised on the leased warehouse
facility extending its term to 2005. During the extension, the
annual rent of $66,000 continued to be payable by the Company;
however, approximately $24,000 of the amount due annually
applied against the amount due the Company from MHK Corp. The
Company also collected annually approximately $18,500, through
1995, from a sub-tenant of part of the premises. In May 1992,
the Company received a second mortgage on the warehouse
facility as collateral for the amount remaining due from MHK
Corp. In January 1996, the officers sold a portion of the
property and terminated the lease with the Company. The
remaining parcel is pledged as additional collateral toward a
note due the Company from the sale of the liquor operations
(see Note 11B).
Certain executive officers and directors of the Company were
limited partners owning less than an aggregate 10% interest in
1275 Olentangy River Road Limited Partnership and certain
executive officers and directors of the Company are limited
partners owning less than an aggregate 10% interest in
Wendt-Bristol Diagnostics Company L.P. W-B was the general
partner of 1275 Olentangy River Road Limited Partnership which
owned and operated a medical office building in Columbus,
Ohio. A subsidiary of W-B is the general partner of
Wendt-Bristol Diagnostics Company L.P. which owns and operates
an outpatient medical diagnostic imaging center in Columbus,
Ohio.
See also Note 11 of the Notes to Consolidated Financial
Statements.
(3) Includes 25,000 shares which Mr. Kantor may acquire
by exercising options granted to him under the
Company's Stock Option Plan.
(4) Includes 13,750 shares of Common Stock which Mr. Gold
may acquire by exercising Warrants and 50,000 shares
of common stock which Mr. Gold may acquire by
exercising options granted to him under the Company's
stock option plan.
(5) Includes 1,100 shares of Common Stock which Mr.
Martin may acquire by exercising Warrants and 35,000
shares of Common Stock which he may acquire by
exercising options granted to him under the Company's
Stock Option Plan.
(6) Includes 10,000 shares of Common Stock which Mr.
Levine may acquire by exercising options granted
under the Company's Stock Option Plan.
III-10
<PAGE> 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
(Footnotes continued from previous page)
(7) Includes 12,000 shares of Common Stock which Dr. Penn
may acquire by exercising options granted under the
Company's Stock Option Plan.
(8) Includes 14,850 shares of Common Stock which may be
acquired by exercise of Warrants and 132,000 shares
which may be acquired by exercise of options granted
under the Company's Stock Option Plan.
-------------------------
III-11
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements. The following financial
statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors II-7
Consolidated Balance Sheets as of December
31, 1996 and 1995 II-8 and II-9
Consolidated Statements of Operations for
the years ended December 31, 1996, 1995
and 1994 II-10
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 II-11
Consolidated Statements of Cash Flow for
the years ended December 31, 1996, 1995
and 1994 II-12 and II-13
Notes to Consolidated Financial Statements II-14 through II-37
</TABLE>
2. Financial Statement Schedules. The following financial
statement schedules for the years ended December 31,
1996, 1995 and 1994 are included in Part IV:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C> <C>
II. Valuation and Qualifying Accounts and
Reserves IV-6
</TABLE>
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the
Financial Statements or Notes thereto.
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601).
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of
registrant. Filed as Exhibit B to the
Company's Proxy Statement (June 27,
1988) and incorporated herein by
reference pursuant to Rule 411(c).
IV-1
<PAGE> 58
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601). (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.2 By-Laws of the Company. Filed as
Exhibit C to the Company's Proxy
Statement (June 27, 1988) and
incorporated herein by reference
pursuant to Rule 411(c).
4.1 See Exhibits numbered Exhibit 3.1 and
3.2
4.2 Warrant Agreement, dated April 29,
1988, between The Wendt-Bristol
Company, Corna & Co., Inc. and Mellon
Securities Trust Company, as Warrant
Agent. Filed as Exhibit 4.2 to
Registration Statement on Form S-1 of
The Wendt-Bristol Company (Reg. No.
33-8399, filed October 15, 1986) and
incorporated herein by reference to
Rule 411(c).
4.3 Warrant Agreement, dated April 29,
1988, between The Wendt-Bristol
Company, Pittsburgh National Bank,
N.A., and The Fifth Third Bank, as
Warrant Agent. Filed as Exhibit 4.3 to
the Company's Annual Report on Form
10-K for the year ended December 31,
1992 and incorporated herein by
reference pursuant to Rule 411(c).
9 Voting Trust Agreement, dated December
4, 1992, between The Wendt-Bristol
Health Services Corporation, Corporate
Life Insurance Company and Marvin D.
Kantor, as Voting Trustee. Filed as
Exhibit 9 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1993 and incorporated
herein by reference pursuant to Rule
411(c).
10.1 Employee Stock Option Plan, as amended.
Filed as Exhibit 28.1 to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1991, and
incorporated herein by reference
pursuant to Rule 411(c).
10.2 Temco National Corporation 401(k)
Profit Sharing Plan. Filed as Exhibit
28.2 to the Company's Annual Report on
Form 10-K for the Year Ended December
31, 1991, and incorporated herein by
reference pursuant to Rule 411(c).
10.3 Sale and Subservicing Agreement, dated
as of February 5, 1993, among The
Wendt-Bristol Company, et al, NPF IV,
Inc. and National Premier Financial
Services, Inc., relating to the health
care receivables securitization
program. Filed as Exhibit 28.6 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1992,
and incorporated herein by reference
pursuant to Rule 411(c).
IV-2
<PAGE> 59
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.4 Stock Purchase Agreement, dated June 4,
1993, between The Wendt-Bristol Health
Services Corporation and Corporate Life
Insurance Company. Filed as Exhibit
10.4 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1993 and incorporated herein by
reference pursuant to Rule 411(c).
10.5 Installment Business Loan Note, dated
January 30, 1996, between The
Wendt-Bristol Company and Marvin D.
Kantor related to working capital loan.
Filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1995 and
incorporated herein by reference
pursuant to Rule 411(c).
10.6 Stock Pledge Agreement dated January
30, 1996, between The Wendt-Bristol
Company and Marvin D. Kantor related to
working capital loan. Filed as Exhibit
10.6 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1995 and incorporated herein by
reference pursuant to Rule 411(c).
10.7 Loan and Security Agreement, dated
March 27, 1996, between Wendt-Bristol
Diagnostics Company, L.P. and DVI
Capital Company relating to equipment
financing. Filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1995
and incorporated herein by reference
pursuant to Rule 411(c).
10.8 Loan and Security Agreement, dated
March 27, 1996, between Health America,
Inc. dba Wendt-Bristol Center and DVI
Capital Company relating to equipment
financing. Filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1995
and incorporated herein by reference
pursuant to Rule 411(c).
10.9 Loan and Security Agreement, dated
March 27, 1996, between American Care
Center, Inc. dba Bristol House of
Columbus and DVI Capital Company
relating to equipment financing. Filed
as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1995 and incorporated
herein by reference pursuant to Rule
411(c).
10.10 Loan and Security Agreement, dated
March 27, 1996, between Ethan Allen
Care Center, Inc. dba Bristol House of
Springfield and DVI Capital Company
relating to equipment financing. Filed
as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1995 and
incorporated herein by reference
pursuant to Rule 411(c).
IV-3
<PAGE> 60
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.11 Asset Purchase Agreement, dated April
15, 1996, between Congress Liquors,
Inc. and MHK Corp. Filed as Exhibit
10.11 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1995 and incorporated herein by
reference pursuant to Rule 411(c).
10.11 Mortgage and security agreement dated
April 1, 1996, between Wendt-Bristol
Diagnostics Co. L.P. and National City
Bank. Filed as Exhibit 10.11 to the
Company's Form 10-Q for the quarter
ended June 30, 1996 and incorporated
herein by reference pursuant to Rule
411(c).
10.12 Mortgage and security agreement dated
April 19, 1996 between The
Wendt-Bristol Health Services
Corporation and Grand Pacific Finance
Corp. Filed as Exhibit 10.12 to the
Company's Form 10-Q for the quarter
ended June 30, 1996 and incorporated
herein by reference pursuant to Rule
411(c).
10.13 Receivables purchase and sale agreement
dated May 30, 1996 between The
Wendt-Bristol Company, et al, and
HealthPartners Funding L.P., relating
to the health care receivables
securitization program. Filed as
Exhibit 10.13 to the Company's Form
10-Q for the quarter ended June 30,
1996 and incorporated herein by
reference pursuant to Rule 411(c).
10.14 Amendment to Receivables Purchase and
Sale Agreement dated August 29, 1996
between The Wendt-Bristol Company, et
al, and HealthPartners Funding L.P.,
relating to the health care receivables
financing program. Filed as Exhibit
10.14 to the Company's Form 10-Q for
the quarter ended September 30, 1996
and incorporated herein by reference
pursuant to Rule 411(c).
10.15 Convertible subordinated bond, dated
December 23, 1996, by and between The
Wendt-Bristol Health Services
Corporation and Societe Generale Bank &
Trust, or registered assigns. Filed as
Exhibit 1 to the Company's Form 8-K
dated December 23, 1996 and
incorporated herein by reference
pursuant to Rule 411(c).
10.16 Series 1 Bond dated February 14, 1997,
by and between The Wendt-Bristol Health
Services Corporation and Societe
Generale Bank & Trust, or registered
assigns, with Schedule 1. Filed as
Exhibit 1 to the Company's Form 8-K
dated February 14, 1997 and
incorporated herein by reference
pursuant to Rule 411(c).
IV-4
<PAGE> 61
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.17 Series 1 Warrant dated February 14,
1997, by and between The Wendt-Bristol
Health Services Corporation and Societe
Generale Bank & Trust, or registered
assigns, with Schedule 1. Filed as
Exhibit 2 to the Company's Form 8-K
dated February 14, 1997 and
incorporated herein by reference
pursuant to Rule 411(c).
21 List of Subsidiaries
27 EDGAR Financial Data Schedule
(b) Reports on Form 8-K filed during last fiscal (calendar)
quarter of 1996:
(1) Report dated December 23, 1996 relating to the sale
of a subordinated convertible bond, pursuant to
Regulation S of the Securities Act of 1933.
(2) Report dated February 14, 1997 relating to the sale
of bonds and warrants, pursuant to Regulation S of
the Securities Act of 1933.
IV-5
<PAGE> 62
SCHEDULE II
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------- -------- -------- -------- --------
ADDITIONS
---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 340,000 $ 114,620 $ (a) 264,620 $ 190,000
========== ========== ============== =========
Valuation allowance for deferred
tax assets $ 300,000 $ - $ 100,000 $ 200,000
========== ========== ============== =========
December 31, 1995
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade (a)
accounts $ 250,000 $ 105,528 $ (b) 15,528 $ 340,000
========== ========== ============== =========
Valuation allowance for deferred
tax assets $ 400,000 $ - $ 100,000 $ 300,000
========== ========== ============== =========
December 31, 1994
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 224,353 $ 111,647 $ (a) 86,000 $ 250,000
========== ========== ============== =========
Valuation allowance for deferred
tax assets $ 531,480 $ - $ 131,480 $ 400,000
========== ========== ============== =========
<FN>
Notes: (a) Write-off of uncollectible amounts
(b) Net of reserves of approximately $150,000 which are no longer
connected with a financing arrangement involving the
securitization of certain accounts receivable. See Note 5.
</TABLE>
IV-6
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
(Registrant)
By: /s/ Sheldon A. Gold
------------------------------
April 14, 1997 Sheldon A. Gold
President
By: /s/ Charles R. Cicerchi
-------------------------------
April 14, 1997 Charles R. Cicerchi
Vice-President, Finance
and Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Marvin D. Kantor Chairman of the Board and
- ------------------------ Director April 14, 1997
Marvin D. Kantor
/s/ Harold T. Kantor Vice Chairman of the Board April 14, 1997
- ------------------------ and Director
Harold T. Kantor
/s/ Sheldon A. Gold President (Principal Executive April 14, 1997
- ------------------------ Officer) and Director
Sheldon A. Gold
/s/ Reed A. Martin Executive Vice President, Chief April 14, 1997
- ------------------------ Operating Officer and Director
Reed A. Martin
/s/ Paul H. Levine Director April 14, 1997
- -----------------------
Paul H. Levine
/s/ Gerald M. Penn Director April 14, 1997
- -----------------------
Gerald M. Penn
</TABLE>
IV-7
<PAGE> 1
EXHIBIT 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
STATE OF OWNERSHIP OF
NAME INCORPORATION VOTING SECURITIES
---- ------------- -----------------
<S> <C> <C>
Consolidated Subsidiaries:
The Wendt-Bristol Company Delaware 100% by The Wendt-Bristol Health
("Wendt-Bristol") Services Corporation
Wendt-Bristol Home Health Ohio 100% by Wendt-Bristol
Care Company
Wendt-Bristol Diagnostics Ohio 83.3% by Wendt-Bristol
Company (1)
Wendt-Bristol Organizational Ohio 100% by Wendt-Bristol
L.P., Inc. (2)
1275 Olentangy River Road Ohio Wendt-Bristol is the sole general and
Limited Partnership (2) (3) limited partner
Wendt-Bristol Diagnostics Delaware Wendt-Bristol Diagnostics Company is
Company L.P. (2) the sole general partner
Consolidated Medical Ohio 100% by Wendt-Bristol Home Health
Services, Inc. Care Company
CMSI Medco Limited Ohio Consolidated Medical Services is the
Partnership (2) (3) sole general partner
American Living Centers, Inc. Ohio 100% by Wendt-Bristol
American Care Center, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Columbus
Ethan Allen Care Center, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Springfield
Congress Liquors, Inc. (3) Florida 100% by Wendt-Bristol
Health America, Inc. Ohio 100% by Wendt-Bristol Diagnostics
dba The Wendt-Bristol Center Company
American Hospital of Athens, Inc. (3) Ohio 100% by Health America, Inc.
<FN>
(1) See Item 1. Business - MEDICAL AND RELATED SERVICES
(2) Limited partnership
(3) Inactive
</TABLE>
IV-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,271,695
<SECURITIES> 0
<RECEIVABLES> 2,204,403
<ALLOWANCES> 190,000
<INVENTORY> 482,930
<CURRENT-ASSETS> 5,031,243
<PP&E> 20,880,293
<DEPRECIATION> 6,135,704
<TOTAL-ASSETS> 23,918,105
<CURRENT-LIABILITIES> 6,801,091
<BONDS> 12,080,856
0
0
<COMMON> 82,435
<OTHER-SE> 4,659,595
<TOTAL-LIABILITY-AND-EQUITY> 23,918,105
<SALES> 2,816,386
<TOTAL-REVENUES> 21,341,202
<CGS> 2,071,596
<TOTAL-COSTS> 2,071,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,104,278
<INCOME-PRETAX> (285,387)
<INCOME-TAX> (39,109)
<INCOME-CONTINUING> (246,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,278)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
