<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
For Quarter Ended June 30, 1998 Commission file number 0-11656
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
A Delaware Corporation I.R.S. No. 22-1807533
Two Nationwide Plaza, Suite 760, Columbus, Ohio 43215
Registrant's Telephone No. (614) 221-6000
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
EACH OF THE FOLLOWING CLASSES ARE REGISTERED ON THE AMERICAN STOCK EXCHANGE.
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, par value 6,177,579
$.01 per share
Common Stock Purchase Warrants 414,538 (1)
(1) Upon exercise, represents 1,139,980 shares of The Wendt-Bristol Health
Services Corporation.
<PAGE> 2
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
Part I Page No.
- ------ --------
<S> <C>
Financial Statements:
Consolidated Balance Sheets - June 30, 1998 (Unaudited)
and December 31, 1997 3-4
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flow (Unaudited)
Six Months Ended June 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-17
Part II
- -------
Other Information 18
Signatures 19
Exhibits:
Exhibit 27 EDGAR Financial Data Schedule 20
</TABLE>
2
<PAGE> 3
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 2,118,463 $ 625,609
------------ ------------
Restricted cash 191,297 221,120
------------ ------------
Receivables:
Trade, net of allowance for doubtful
accounts of $185,000 (June)
and $201,000 (December) 2,426,566 2,878,726
Notes receivable 332,435 3,236,900
Allocation due from limited partnership (Notes 2 and 8) 628,000 440,000
Miscellaneous 933,028 1,210,664
------------ ------------
4,320,029 7,766,290
------------ ------------
Inventories 187,912 202,951
Prepaid expenses and other 163,632 148,825
------------ ------------
Total current assets 6,981,333 8,964,795
------------ ------------
Property, plant and equipment, at cost 14,394,625 13,081,583
Less: Accumulated depreciation and
amortization (5,056,926) (4,742,587)
------------ ------------
9,337,699 8,338,996
------------ ------------
Investments and other assets:
Notes and other receivables, net of current portion 398,734 420,651
Notes receivable from officers, employees and
related parties, net of amounts payable 866,941 902,271
Life insurance premiums receivable 1,026,027 972,451
Investment in unconsolidated affiliates 627,043 640,980
Advances to unconsolidated affiliates 677,854 451,110
Excess of cost over assets of businesses
and subsidiaries acquired, less amortization 348,167 355,439
Deferred charges 962,658 691,158
Other assets 330,012 258,668
------------ ------------
Total investments and other assets 5,237,436 4,692,728
------------ ------------
$ 21,556,468 $ 21,996,519
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS AT JUNE 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---- ----
(Unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 3,287,550 $ 3,307,082
Accrued expenses and other liabilities:
Salaries and wages 215,993 533,346
Taxes, other than federal income taxes 160,017 219,885
Interest 122,803 117,313
Other 293,600 874,814
Long-term obligations classified as current 987,001 986,148
Federal income taxes payable 40,000 40,000
------------ ------------
Total current liabilities 5,106,964 6,078,588
------------ ------------
Long-term obligations, less amounts classified
as current 9,780,951 9,151,637
------------ ------------
Total liabilities 14,887,915 15,230,225
------------ ------------
Minority interests 338,712 321,168
------------ ------------
Stockholders' equity:
Common stock: $.01 par;
authorized: 12,000,000 shares
issued: 8,248,480 shares 82,485 82,485
Capital in excess of par 10,244,985 10,244,805
Retained earnings (deficit) (1,230,094) (1,337,483)
------------ ------------
9,097,376 8,989,807
Treasury stock, at cost, 2,225,001 shares (June)
and 2,067,254 shares (December) (2,767,535) (2,544,681)
------------ ------------
Total stockholders' equity 6,329,841 6,445,126
------------ ------------
$ 21,556,468 $ 21,996,519
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 548,432 $ 1,420,408 $ 261,445 $ 736,429
Service income 4,922,457 9,052,493 2,627,064 4,540,943
------------ ------------ ------------ ------------
5,470,889 10,472,901 2,888,509 5,277,372
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 415,668 1,063,273 236,474 560,139
Selling, general and administrative
expenses, net 4,470,657 8,269,707 2,157,261 4,128,764
------------ ------------ ------------ ------------
4,886,325 9,332,980 2,393,735 4,688,903
------------ ------------ ------------ ------------
Operating income before depreciation 584,564 1,139,921 494,774 588,469
Depreciation 372,419 513,053 179,267 280,092
------------ ------------ ------------ ------------
Operating income 212,145 626,868 315,507 308,377
Equity in earnings of unconsolidated
affiliates, net of minority interests in
consolidated affiliates (Note 6) 150,519 102,641 64,226 66,412
------------ ------------ ------------ ------------
362,664 729,509 379,733 374,789
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (264,717) (613,341) (161,699) (299,295)
Other, net 12,942 52,256 2,182 34,952
------------ ------------ ------------ ------------
(251,775) (561,085) (159,517) (264,343)
------------ ------------ ------------ ------------
Income before income taxes 110,889 168,424 220,216 110,446
Income tax expense (3,500) (11,700) (5,100) (5,300)
------------ ------------ ------------ ------------
Net income $ 107,389 $ 156,724 $ 215,116 $ 105,146
============ ============ ============ ============
Income per common share: (Note 5)
Basic $ 0.02 $ 0.03 $ 0.04 $ 0.02
============ ============ ============ ============
Diluted $ 0.02 $ 0.02 $ 0.03 $ 0.02
============ ============ ============ ============
Weighted average shares outstanding:
Basic 6,092,009 6,241,865 6,045,854 6,247,161
============ ============ ============ ============
Diluted 6,136,807 6,291,130 6,600,689 6,285,869
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 107,389 $ 156,724
----------- -----------
Adjustments required to reconcile net income
to net cash provided by operating activities:
Amortization, depreciation and other, net 379,691 554,087
Provision for losses on notes and accounts receivable 48,938 68,763
Loss (gain) on disposition of assets 3,297 (18,621)
Minority interest in earnings (losses) of consolidated affiliates (169,456) 31,462
Equity in net losses (earnings) of unconsolidated affiliates 18,937 (134,103)
Changes in assets and liabilities:
Receivables
Purchase of receivables - (607,229)
Other changes 680,858 (394,225)
Merchandise inventories 15,039 92,774
Prepaid expenses and other current assets (2,991) (3,041)
Accounts payable (19,532) 126,822
Accrued expenses and other liabilities (952,945) (1,113,049)
Deferred charges and other (342,838) (70,219)
----------- -----------
Total adjustments (341,002) (1,466,579)
----------- -----------
Net cash used in operating activities (233,613) (1,309,855)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of assets - 40,000
Advances to unconsolidated affiliates (226,744) -
(Increase) decrease in notes receivable 2,926,382 (153,215)
Investment in unconsolidated affiliates (5,000) (457,300)
Disbursements to related parties
and former affiliates, net (18,246) (24,196)
Utilization of or (deposit to) restricted cash 29,823 (129,257)
Capital expenditures (168,805) (151,023)
----------- -----------
Net cash provided by (used in) investing activities 2,537,410 (874,991)
----------- -----------
Cash flows from financing activities:
Distributions to limited partners, net - (143,842)
Treasury stock purchased (234,490) -
Purchase of partnership units of subsidiary (1,000) -
Proceeds from officer obligation 50,000 90,000
Principal payments of officer obligation (50,000) (115,000)
Proceeds from stock options - 4,375
Principal payments of long-term obligations (575,453) (702,856)
Proceeds from long-term obligations - 3,554,934
Net payments to securitization program - (392,287)
----------- -----------
Net cash provided by (used in) financing activities (810,943) 2,295,324
----------- -----------
Net increase in cash 1,492,854 110,478
Cash at beginning of period 625,609 890,670
----------- -----------
Cash at end of period $ 2,118,463 $ 1,001,148
----------- -----------
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash paid during the three months for:
Interest, net of interest income $ 259,227 $ 565,573
Income taxes $ 36,000 $ 12,450
Supplemental disclosures of noncash investing and financing activity:
A subsidiary and a partnership, of which the subsidiary is the managing
general partner, purchased equipment which was financed by entering into
installment finance agreements
Increase in equipment cost, net $ 1,205,620 $ 740,418
Increase in long-term obligations (1,205,620) (740,418)
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MANAGEMENT'S REPRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
adjustments and recurring accruals) necessary to present fairly The
Wendt-Bristol Health Services Corporation ("Wendt-Bristol" or
"Company") and subsidiaries consolidated financial position as at June
30, 1998 and December 31, 1997 and the consolidated results of its
operations for the three and six months ended June 30, 1998 and 1997 as
well as the cash flows for the respective six months. The results of
operations for any interim period are not necessarily indicative of
results for the full year. THESE FINANCIAL STATEMENTS SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED
IN THE WENDT-BRISTOL ANNUAL REPORT FILED AS FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997, WHICH IS HEREBY INCORPORATED BY REFERENCE.
2. RECLASSIFICATIONS
Certain amounts on the balance sheet at December 31, 1997 have been
reclassified to conform with the presentation at June 30, 1998.
3. INCOME TAXES
Federal, state and local taxes are summarized as follows:
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal taxes:
Current expense (benefit) $(3,000) -- -- --
State and local taxes:
Current expense 6,500 11,700 5,100 5,300
------- ------- ------ ------
Total expense (benefit) $ 3,500 $11,700 $5,100 $5,300
======= ======= ====== ======
</TABLE>
(Continued)
8
<PAGE> 9
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
4. STOCKHOLDERS' EQUITY
At June 30, 1998 there were 414,538 Common Stock purchase warrants
outstanding, exercisable at $3.75 per warrant. Each warrant, upon
exercise, provides two and three quarters (2-3/4) shares of the
Company's common stock and a Series II warrant (issuable upon
completion of appropriate Securities and Exchange Commission filings)
exercisable for two shares at $3.00/share. The Warrants' expiration
dates, as amended by the Board of Directors in April 1998, are May 1,
1999 for the initial Warrant and May 1, 2000 for the Series II
Warrants. There were no warrants exercised during the six or three
months ended June 30, 1998.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standard Board issued
statement of Financial Accounting Standards No. 128, "Earnings per
Share," which changed the method used to calculate earnings per share.
Basic earnings per share has been calculated as income available to
common stockholders divided by the weighted average number of common
shares outstanding. Diluted earnings per share has been calculated as
diluted income available to common stockholders divided by the diluted
weighted average number of common shares. Diluted weighted average
number of common shares has been calculated using the treasury stock
method for Common Stock equivalents, which includes Common Stock
issuable pursuant to stock options and Common Stock warrants. The
following is provided to reconcile the earnings per share calculations:
(Continued)
9
<PAGE> 10
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
5. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income available to common stockholders $ 107,389 $ 156,724 $ 215,116 $ 105,146
Effect of dilutive 5.5% convertible
bond (net of tax) -- -- $ 9,075 --
---------- ---------- --------- ---------
Income available to common stockholders
and assumed conversions $ 107,389 $ 156,724 $ 224,191 $ 105,146
---------- ---------- --------- ---------
Shares:
Weighted average shares (basic) 6,092,009 6,241,865 6,045,854 6,247,161
Effect of dilutive securities
Options 44,798 (A) 49,265 (A) 49,540 (A) 38,708 (A)
Warrants -- (B) -- (B) 5,295 -- (B)
Convertible Debt -- (C) -- (C) 500,000 -- (C)
---------- ---------- --------- ---------
Diluted weighted average shares 6,136,807 6,291,130 6,600,689 6,285,869
---------- ---------- --------- ---------
Income per common share:
Basic $ 0.02 $ 0.03 $ 0.04 $ 0.02
========== ========== ========= =========
Diluted $ 0.02 $ 0.02 $ 0.03 $ 0.02
========== ========== ========= =========
</TABLE>
(A) 1,000 stock options not associated with convertible debt were excluded
from the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares.
(B) 414,538 warrants were excluded from the computation of diluted EPS
because the exercise price was greater than the average market price of
the common shares.
(C) 500,000 stock options associated with convertible debt were excluded
because their exercise would be anti-dilutive.
(Continued)
10
<PAGE> 11
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
6. UNCONSOLIDATED AFFILIATES/MINORITY INTEREST
The following table reflects the Company's proportionate share of the
earnings (losses) of unconsolidated affiliates and the proportionate
share of Minority interest attributable to investors in the (earnings)
losses of consolidated affiliates.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Minority interest in (earnings) losses of
consolidated affiliates, net of tax $ 169,456 $ (31,462) $ 85,745 $19,867
Equity in earnings (losses) of
unconsolidated affiliates (18,937) 134,103 (21,519) 46,545
--------- --------- -------- -------
$ 150,519 $ 102,641 $ 64,226 $66,412
========= ========= ======== =======
</TABLE>
Unaudited financial information of the affiliates which are accounted for by the
equity method is summarized below:
Combined Balance Sheets
June 30, 1998 June 30, 1997
------------- -------------
Current assets $1,027,979 $ 579,537
Property, plant and equipment
net of accumulated depreciation 7,604,279 919,858
Other non-current assets 329,757 271,128
---------- ----------
Total assets $8,962,015 $1,770,523
========== ==========
Liabilities $7,883,071 $ 642,716
Equity 1,078,944 1,127,807
---------- ----------
Total liabilities and equity $8,962,015 $1,770,523
========== ==========
Combined Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenues $1,223,396 $675,547 $ 674,393 $317,869
Operating income (loss) $ 10,504 $254,931 $ (21,033) $ 84,316
Net income (loss) $ (129,039) $268,206 $(102,926) $ 93,091
</TABLE>
As a result of the limited liability companies being taxed as partnerships for
Federal income tax purposes, there is no tax provided for earnings. See Note 2.
Income Taxes.
(Continued)
11
<PAGE> 12
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
7. WORKERS' COMPENSATION REFUND
One -time refunds of previously paid premiums were received from the Ohio Bureau
of Workers' Compensation during the second quarter of 1998 yielding a reduction
of selling, general and administrative expenses of $436,000 for the three and
six months ended June 30, 1998. These premium refunds were made to all
participants due to better-than-expected investment returns in the insurance
fund and are not expected to recur.
8. ALLOCATION DUE FROM LIMITED PARTNERSHIP
A subsidiary of the Company is the general partner in a limited partnership.
Based on the allocation of income in accordance with the partnership agreement,
the balance is due from the limited partners for excess income allocated to the
limited partners' from the general partner. It is management's estimate that all
income reallocated will be restored as a result of the priorities established in
the partnership agreement.
9. NEW ACCOUNTING PRONOUNCEMENTS
On April 3, 1998 the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5 "Reporting on the Costs of Start-up Activities" which
states that the costs of start-up activities, including organization costs,
should be expensed as incurred. Implementation of SOP 98-5 is required for
financial statements issued for fiscal years beginning after December 15, 1998
with the initial application of this SOP being reported as a cumulative effect
of a change in accounting principle. Currently, the Company has an asset of
approximately $267,000 included in the caption "Deferred charges" on the balance
sheet at June 30, 1998, of which $79,000 was capitalized during the first six
months of 1998.
10. PLANS TO ACQUIRE MINORITY INTERESTS
On June 23, 1998 the Company announced its plans to acquire all of the limited
partner interests in Wendt-Bristol Diagnostics Co. L.P., its ten year old,
initial Diagnostic and Radiology Center located in Columbus, Ohio. Additionally,
the Company intends to acquire the approximate 15% of the outstanding shares
that it doesn't already own in the partnership's sole general partner:
Wendt-Bristol Diagnostics Company.
The Board of Directors has approved the issuance of the Company's authorized,
but unissued convertible Series A $10.00 Preferred Stock, with cumulative
dividends at 6% per annum (payable quarterly) with the express intent to
accomplish the acquisition of all of the minority interests in each of the two
aforementioned affiliates.
(Continued)
12
<PAGE> 13
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
10. PLANS TO ACQUIRE MINORITY INTERESTS (CONTINUED)
The Directors have further authorized the registration of the Preferred Shares
by filing a registration statement with the Securities and Exchange Commission
and a listing application with the American Stock Exchange. Such filings are
anticipated utilizing the financial information contained herein along with the
Annual Report for the twelve months ended December 31, 1997. It is anticipated
that the issuance of the Preferred Shares and acquisition of the minority
interests will be completed in the fourth quarter of 1998, subject to the
approval of the limited partners, the shareholders of Wendt-Bristol Diagnostics
Company, the effectiveness of a registration statement to be filed by the
Company with the Securities and Exchange Commission regarding the Preferred
Shares, and any necessary third party consents.
11. SUBSEQUENT EVENT
On July 21, 1998, the Company sold 200,000 shares of common stock held in
treasury, pursuant to Regulation S of the Securities Act of 1933. The net
proceeds of such shares sold totaled $265,000.
13
<PAGE> 14
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOTE: REFERENCE SHOULD BE MADE TO THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS HEREIN.
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, economic, competitive, regulatory, growth strategies,
available financing and other factors discussed elsewhere in this report and in
the documents filed by the Company with the SEC. Many of these factors are
beyond the Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward- looking statements.
FINANCIAL CONDITION
Management has positioned the Company to focus on continuing the aggressive
expansion of its Diagnostic and Radiology business, including radiation therapy.
During 1997 the Company ceased operations of its unprofitable home health care
business and sold two of its three retail pharmacies in order to concentrate on
its core business. In addition, on December 31, 1997, the company sold its two
Columbus nursing homes and will use the cash from the gain on the sale to
further expand into the diagnostic and radiology services industry. The sale of
these two homes along with the cost savings from the closing of the home health
operations further strengthened the liquidity of the Company and will allow
management to focus on its diagnostic and radiology centers. In February 1998
the Company, through a subsidiary, opened its third diagnostic center in Central
Ohio. This center, located in Granville, Ohio, provides enhanced diagnostic
imaging techniques including magnetic resonance imaging (MRI), CT scans,
ultrasound, bone densitometry, x-ray and mammography.
(Continued)
14
<PAGE> 15
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
The next medical center to open is the complex on Jasonway Road in Columbus,
Ohio, scheduled for completion in the fourth quarter of 1998. This major
facility will include the Company's second radiation oncology facility as well
as an advanced diagnostic center including the first Positron Emission
Tomography (PET) scanning unit in Central Ohio.
In July 1998 the Company, through a subsidiary, broke ground on its Women's
Health Center on Kenny Road. This center will focus on women's health and
imaging services and will include an outpatient surgical suite for breast
surgery. This 7,500 square foot center is scheduled to open in the first quarter
of 1999.
Working capital decreased approximately $1,012,000 from $2,886,000 at December
31, 1997 to $1,874,000 at June 30, 1998, due mostly from debt repayment
($575,000), treasury stock purchases ($234,000), and advances to unconsolidated
affiliates ($227,000). Current assets decreased approximately $1,983,000 due
mostly from decreases in notes receivable ($2,904,000) and accounts receivable
($452,000) offset by an increase in cash ($1,493,000). The increase in cash and
decrease in notes receivable is due to the collection of the notes from the sale
of the nursing homes while the decrease in accounts receivable is attributable
to the collection of year-end receivables from the nursing homes that were sold.
Current liabilities decreased approximately $972,000, due primarily from
reductions in accrued wages ($317,000) related to the nursing homes and other
accrued liabilities ($581,000) primarily related to the payment of costs
associated with the sales of the nursing homes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position in the first half remains strong with working
capital at $1,874,000 at June 30,1998. During April 1998 the Company collected
the remaining balance of approximately $2.9 million on the notes receivable due
from the sale of the two nursing homes. Also in April 1998, the Company secured
an equipment lease line of credit for $1,000,000 with a finance company. As of
June 30, 1998, $270,000 has been drawn against this lease line.
The Company and its subsidiaries, limited partnership, and limited liability
companies, have committed to certain equipment upgrades or acquisitions that
will be financed either through the current equipment financing relationship or
through vendor programs. The cost of such equipment currently on order is
approximately $4,500,000.
(Continued)
15
<PAGE> 16
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During 1998, the Company, along with a partner, has commenced construction of a
major 31,000 square feet, two-building center including radiology, nuclear
medicine, cytology, radiation therapy, Positron Emission Tomography (the first
PET Scanner in central Ohio), and a therapy and rehab center. A subsidiary of
the Company has a participating partnership relationship (20%) in the rehab
center, a 22-1/2% interest and management control and responsibility in the
radiation therapy, and 100% ownership in the radiology, PET, nuclear and
cytology operations. The subsidiary also has a 50% interest in the land and
buildings associated to the new center. In addition, the Company, through a
subsidiary, is planning to expand one of its facilities by adding approximately
7,500 square feet. The adjoining addition (which will be financed with a
commitment from a bank) is anticipated to cost approximately $800,000 and will
be used to create one of the first major women's health centers in central Ohio.
Management further believes the present resources will meet anticipated
requirements for operations of the business. There are no further material
commitments for capital expenditures.
YEAR 2000 COSTS
The Company has addressed the year 2000 issues with its major equipment vendors
and has assessed that any software upgrades necessary will be installed in a
timely manner and at minimal incremental costs to the Company. Separately, the
Company has been evaluating its internal accounting software; an alternate plan
has been developed for the purchase of new software if the existing system
cannot be year 2000 compliant in a timely manner. The costs of such software and
implementation are approximately $30,000 and would be funded out of working
capital. Accordingly, "Year 2000" issues are not expected to have any material
impact on the Company's future financial condition or results of operations.
RESULTS OF OPERATIONS 1998 - 1997
Consolidated revenues from operations for the six and three months ended June
31, 1998 decreased approximately $5,002,000 or 47.8% and $2,389,000 or 45.3%,
respectively, from the same periods in 1997. Net sales decreased $872,000 or
61.4% while service revenues declined $4,130,000 or 45.6% for the first half and
$1,914,000 or 42.1% for the quarter over the same periods last year. The decline
in net sales is due to the reduction in the number of pharmacies from three in
1997 to one in 1998 while the decrease in service revenues is attributable to
the sale of two nursing homes at December 31,1997. Excluding the two sold
nursing homes, service revenues for the first half of 1998 are up 8% as compared
to 1997 due to the opening of the new center in February 1998.
(Continued)
16
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1998 - 1997 (CONTINUED)
Cost of sales decreased approximately $648,000 or 60.9% for the six months and
$324,000 or 57.8% for the three months ended June 30, 1998 as compared to the
corresponding periods in 1997. Gross margin for the first six months decreased
to 24.2% in 1998 from 25.1% in 1997. The decreases are due primarily to the 1997
sale of two retail pharmacies, whose sales are not included in the 1998 results.
Selling, general and administrative expenses decreased approximately $3,799,000
or 45.9% for the six months and $1,972,000 or 47.8% for the three months ended
June 30, 1998 as compared to the corresponding periods in 1997. The decrease is
mostly due to the reduction in expenses caused by the sale of the two nursing
homes and two pharmacies and a workers' compensation refund (see note 7) offset
by increases in expenses at the Diagnostic center due to additional modalities,
expenses of the new Granville Center, and the expansion of mobile mammography.
Interest expense for the six and three months ended June 30, 1998 decreased
approximately $349,000 or 56.8% and $138,000 or 46.0%, respectively, as compared
to the same periods in 1997. The reduction is mostly due to the reduced debt
from the mortgages on the two sold nursing homes and the interest income earned
on the notes receivable from the sale of the homes.
17
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The matters set forth in this Item 4 were submitted to a vote of
security holders of the Company at an Annual Meeting of Stockholders
held on June 30, 1998.
(a) The following directors, constituting the entire Board of Directors,
were elected at the Annual Meeting of Stockholders held on June 30,
1998: Also indicated are the affirmative, negative and authority
withheld votes for each director.
Authority
For Against Withheld
--- ------- --------
Marvin D. Kantor 4,296,494 - 1,079,566
Harold T. Kantor 4,735,731 - 640,329
Sheldon A. Gold 4,735,731 - 640,329
Reed A. Martin 4,735,831 - 640,229
Paul H. Levine 4,735,831 - 640,229
Gerald M. Penn 4,736,831 - 639,229
Clemente Del Ponte 4,736,831 - 639,229
David E. Fernie 4,736,831 - 639,229
(b) The following additional matter was approved at the Annual Meeting of
Stockholders held on June 30, 1998.
The approval of the amendment to the Company's Employee Stock Option
Plan
For 4,093,655
Against 1,263,708
Abstain 18,697
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.17-Second Amendment to the Wendt-Bristol Health Services
Corporation Employee Stock Option Plan
27 -EDGAR Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE> 19
--------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
(Registrant)
August 13, 1998 By: /s/ SHELDON A. GOLD
---------------------------
Sheldon A. Gold
President
(Principal Executive Officer)
August 13, 1998 By: /s/ CHARLES R. CICERCHI
----------------------------
Charles R. Cicerchi
Vice-President, Finance
(Principal Financial and
Accounting Officer)
19
<PAGE> 1
EXHIBIT 10.17
<PAGE> 2
SECOND AMENDMENT TO
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION EMPLOYEE
STOCK OPTION PLAN
The Wendt-Bristol Health Services Corporation ("Wendt-Bristol"), a
Delaware Corporation, hereby amends The Wendt-Bristol Health Services
Corporation Stock Option Plan (the "Plan") (as amended effective July 25, 1991),
as provided herein.
1. The Plan currently provides that the aggregate number of shares
which may be the subject of options granted pursuant to the Plan is 250,000,
which amount Wendt-Bristol desires to increase to 500,000. Therefore, Paragraph
2 of the Plan is hereby deleted in its entirety and the following is adopted in
its place and stead:
"2. Amount and Source of Stock. The aggregate number and class
of shares which may be the subject of options granted pursuant
to the Plan are 500,000 shares of Common Stock, par value $.01
per share, of the Company (the "Shares"), subject to
adjustment as provided in paragraph 10. Such shares may be
reserved or made available from the Company's authorized and
unissued Shares or from Shares reacquired and held in the
Company's treasury. In the event that any option granted
hereunder shall terminate prior to its exercise in full, for
any reason, including, without limitation, an option exchange
pursuant to paragraph 13 thereof, then the Shares subject to
the option which have not been acquired but the holder of the
option shall be added to the Shares otherwise available for
issuance pursuant to the exercise of options under the Plan."
2. Paragraph 12 of the Plan is hereby amended by deleting subparagraph
(c) of Paragraph 12 in its entirety and the following is adopted in its place
and stead:
"(c) There is hereby granted to Paul H. Levine, a
non-incentive stock option upon the same terms and conditions
as those provided with respect to the options contemplated by
subparagraph 12(b) as though repeated here ipsissimis verbis,
except that the date of the Grant shall be August 1, 1998, and
the exercise price shall be 100% of the fair market value per
share of the shares on such date."
3. Paragraph 12 of the Plan is hereby amended by deleting subparagraph
(d) of Paragraph 12 in its entirety and the following is adopted in its place
and stead:
"(d) The Board or, if so designated, the Committee, shall
grant additional non-incentive stock options annually to each
of the Directors of the Company who is entitled to receive or
has received an option (the "initial option") pursuant to the
provisions of either subparagraph 12(b) or, in the case of
Paul H. Levine, 12(c) provided that such Director continues to
be a Director of the Company on the relevant Date of Grant
hereinafter referred to. Each of such additional non-incentive
stock options shall be granted upon the same terms and
conditions as those provided with respect to the options
contemplated by subparagraph 12(b) as though repeated here
ipsissimis verbis, except that the Date of the Grant of the
initial option to such Director and the number of Shares
subject to each of such additional stock options shall be
1,000, except upon the fifth anniversary of the Date of Grant
of the initial option, and each fifth anniversary date
thereafter, the number of Shares subject to each of such
additional stock options shall be 10,000.
<PAGE> 3
The foregoing shall become effective as of the 18th day of June, 1998,
provided that the shareholders of Wendt-Bristol approve this Second Amendment at
its 1998 Annual Meeting of Stockholders.
NOW, THEREFORE, this Second Amendment to the Plan is adopted by order
of the Board of Directors this 18th day of June, 1998.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
By:
---------------------------------------
Marvin D. Kantor, Chairman of the Board
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