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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-1807533 3842
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) NO.) CLASSIFICATION NUMBER)
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TWO NATIONWIDE PLAZA, SUITE 760
COLUMBUS, OHIO 43215
(614) 221-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THE PRENTICE-HALL CORPORATION SYSTEM, INC.
1013 CENTRE ROAD
WILMINGTON, DELAWARE 19805-1297
(302) 998-0595
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective and
after conditions in the merger agreement have been satisfied.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS
OF PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE AMOUNT MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
REGISTERED TO BE REGISTERED PRICE PER UNIT OFFERING PRICE FEE
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Preferred Stock,
Series 1, $1.00 par
value per share,
$20 stated value... 42,857 $20 $857,140 $260
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PROSPECTUS
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
SERIES 1 PREFERRED STOCK
This Prospectus relates to 42,857 shares of preferred stock of The
Wendt-Bristol Health Services Corporation, a Delaware corporation (the
"Company"), designated Series 1, with a par value $1.00 per share and a stated
value of $20.00 per share, entitled to cumulative dividends at a rate of $1.20
per share per annum and convertible to shares of common stock of the Company at
a rate of 6 2/3 common shares per Series 1 preferred share (the "Preferred
Shares"), to be issued in connection with the merger (the "Merger") of
Wendt-Bristol Acquisition, Inc. ("WBA"), an Ohio corporation and wholly-owned
subsidiary of the Company, with and into Wendt-Bristol Diagnostics Company, an
Ohio corporation ("WBDC").
Presently, the Company, through a wholly-owned subsidiary, holds in excess
of 85% of the outstanding WBDC common stock and the remainder is held by third
parties. The shareholders of WBDC (the "WBDC Shareholders") are being asked to
approve the Merger as described in this Prospectus. The Company intends to vote
its majority share ownership in favor of the Merger. Upon approval of the
Merger, the WBDC Shareholders will have their shares cancelled and converted to
the right to receive one (1) Preferred Share for every four (4) shares of WBDC
common stock. The Preferred Shares will be listed on the American Stock Exchange
("AMEX"), subject to approval for listing.
THE MERGER INVOLVES CERTAIN RISKS THAT SHOULD BE CONSIDERED BY THE WBDC
SHAREHOLDERS. SEE "INVESTMENT CONSIDERATIONS" BEGINNING ON .
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... 2
SUMMARY..................................................... 3
The Merger................................................ 3
WBDC Special Meeting...................................... 3
The Companies............................................. 3
Benefits.................................................. 4
Fairness.................................................. 4
The Preferred Shares...................................... 4
Dissenters' Rights........................................ 5
Conflicts of Interest..................................... 5
Accounting Treatment...................................... 5
Cautionary Statement Regarding Forward-Looking
Statements............................................. 5
Selected Financial Information............................ 6
INVESTMENT CONSIDERATIONS................................... 8
Considerations Associated with the Merger................. 8
Adverse Tax Consequences.................................. 8
Considerations Associated with the Company................ 8
Regulatory Concerns....................................... 9
THE MERGER.................................................. 10
General................................................... 10
Background................................................ 10
WBDC Special Meeting...................................... 10
Terms of Merger Agreement................................. 11
No Fractional Preferred Shares............................ 11
Reasons for the Merger.................................... 12
Effective Time of Merger.................................. 12
Dissenting Shares......................................... 12
Accounting Treatment...................................... 12
Federal Income Tax Consequences........................... 12
Stock Exchange Listing.................................... 13
Interests of Certain Persons in the Merger................ 13
Regulatory Approvals...................................... 13
CERTAIN INFORMATION CONCERNING THE COMPANY.................. 13
Properties................................................ 17
MANAGEMENT OF THE COMPANY................................... 19
Directors and Officers of the Company..................... 19
Executive Compensation.................................... 20
General................................................... 20
Options................................................... 21
Stock Option Plan......................................... 21
Split-Dollar Insurance Policies........................... 22
Section 401(k) Plan....................................... 23
Compensation of Directors................................. 23
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Security Ownership of Certain Beneficial Owners and
Management............................................. 25
Certain Relationships and Related Transactions............ 26
Certain Information Regarding Company and WBDC Stock...... 26
THE PREFERRED SHARES........................................ 28
COMPARISON OF RIGHTS OF HOLDERS OF PREFERRED SHARES
AND WBDC SHARES........................................... 28
General................................................... 28
Voting Rights............................................. 28
Management................................................ 28
Convertibility............................................ 29
Liquidity................................................. 29
State of Incorporation.................................... 29
Preemptive Rights......................................... 29
Dividends................................................. 29
Transactions with Interested Shareholders................. 29
Special Shareholder Meetings.............................. 29
Notice of Shareholder Meetings............................ 29
Removal of Directors...................................... 29
Amendment of Bylaws/Code of Regulations................... 30
Cumulative Voting......................................... 30
Redemption of Shares...................................... 30
Preferences Upon Liquidation.............................. 30
Indemnification........................................... 30
LEGAL MATTERS............................................... 31
INDEX TO FINANCIAL STATEMENTS............................... F-1
LIST OF APPENDICES
Appendix A--Merger Agreement................................ A-1
Appendix B--Terms of Series 1 Cumulative Dividend
Convertible Preferred Stock............................... B-2
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following Regional Offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission and the address of the site is http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-4 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the issuance of shares of the Preferred Shares in connection with the
Merger. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and the Exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an Exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference.
The Company's securities are listed on the American Stock Exchange and
reports and other information concerning the Company can be inspected at 86
Trinity Place, New York, New York 10006-1881.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
SANDRA W. WEBER, SECRETARY, THE WENDT-BRISTOL HEALTH SERVICES CORPORATION, TWO
NATIONWIDE PLAZA, SUITE 760, COLUMBUS, OHIO 43215, (614) 221-6000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER
20, 1998.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Prospectus or in documents incorporated herein by reference. This
summary should be read in conjunction with, and is qualified in its entirety by,
the more detailed information and financial statements included or incorporated
by reference in this Prospectus. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY
ARE DEFINED ELSEWHERE IN THIS PROSPECTUS.
THE MERGER
This Prospectus relates to the proposed merger (the "Merger") of
Wendt-Bristol Acquisition, Inc. ("WBA") with and into Wendt-Bristol Diagnostics
Company, an Ohio corporation ("WBDC"). The Merger is being proposed in
accordance with a Merger Agreement by and among the Company, WBDC and WBA (the
"Merger Agreement"). The form of the Merger Agreement is attached to this
Prospectus as Appendix A.
The shareholders of WBDC (the "WBDC Shareholders") are being asked to
approve the Merger as described in this Prospectus. Upon completion of the
Merger, the WBDC Shareholders shall receive the right to receive the Preferred
Shares in exchange for their shares in WBDC. WBDC Shareholders (other than the
Company) will have the right to receive one (1) Preferred Share for every four
(4) shares of WBDC common stock owned by them. See "THE PREFERRED SHARES."
Application is being made for the Preferred Shares to be listed on the American
Stock Exchange (the "AMEX").
WBDC SPECIAL MEETING
A special meeting of the WBDC Shareholders will be held on October 26,
1998, at 9:00 a.m., to consider and vote upon a proposal to approve and adopt
the Merger Agreement (the "Special Meeting"). Only holders of record of WBDC
common stock at the close of business on July 31, 1998 are entitled to receive
notice of and vote at the Special Meeting. A majority of the WBDC Shares
entitled to vote on the Merger Agreement, represented in person or by proxy, is
required in order for a quorum to be present at the Special Meeting. The
majority vote of the WBDC Shares is required to adopt and approve the Merger
Agreement and authorize the Merger.
THE COMPANIES
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
The Company, a Delaware corporation, was originally organized under the
laws of the State of New Jersey on January 19, 1966, under the name of Temco
Products, Inc. and assumed its present name on October 26, 1992. The Company,
through its 100% subsidiary, The Wendt-Bristol Company ("W-B"), has evolved
through the years into an outpatient health care provider. The Company operates
one nursing home in Springfield, Ohio and is the owner or managing partner of
several multi-disciplinary diagnostic/radiology centers and a radiation therapy
center. Additionally, the Company owns and operates a retail pharmacy. The
Company's address and phone number are as follows: Two Nationwide Plaza, Suite
760, Columbus, Ohio 43215, (614) 221-6000.
WENDT-BRISTOL DIAGNOSTICS COMPANY
WBDC was incorporated in the State of Ohio on February 17, 1987. W-B is a
controlling shareholder of WBDC. WBDC is the general partner of Wendt-Bristol
Diagnostics Company L.P. (the "Partnership") and was formed by W-B to facilitate
the establishment of an outpatient medical diagnostic imaging center, which is
currently owned and operated by the Partnership. WBDC's address and phone number
are as follows: Two Nationwide Plaza, Suite 760, Columbus, Ohio 43215, (614)
221-6000.
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WENDT-BRISTOL ACQUISITION, INC.
WBA was incorporated in Ohio on September 15, 1998, solely for the purpose
of consummating the Merger and does not own or operate any business. WBA's sole
shareholder is W-B. WBA's address and phone number are as follows: Two
Nationwide Plaza, Suite 760, Columbus, Ohio 43215, (614) 221-6000.
BENEFITS
The following is a summary of the principal benefits of the Merger. This
summary is qualified in its entirety by the more detailed discussion in the
section entitled "REASONS FOR THE MERGER" contained in this Prospectus:
- The Merger creates the potential for substantially enhanced liquidity of
investment due to the conversion of shares of WBDC, which lack an
established trading market, into the publicly traded Preferred Shares of
the Company on an established exchange, conditioned upon the approval of
the Company's listing application.
- The Preferred Shares offer a specified return in the form of a quarterly
cumulative dividend, while the WBDC Shares are entitled to dividends only
if and when declared by WBDC's board of directors, which has yet to
occur.
- The Merger will afford the Company a greater degree of control over its
business operations and enhance the uniformity of its activities, which
has the potential to increase the efficiency of the Company and favorably
impact revenues and growth.
- The Preferred Shares are convertible into common stock of the Company,
which may increase the demand for common stock of the Company and bolster
the per share price of the Company's common stock.
- The Merger could result in greater trading activity in the Company's
common stock, enhancing investor interest in the Company and the stock's
price.
- The Preferred Shares will offer preferences over the Company's common
shareholders in the event of the liquidation of the Company, a position
the WBDC Shareholders, as common shareholders, do not presently occupy.
FAIRNESS
The directors of WBDC have unanimously agreed that the terms of the Merger
are fair as a whole to the WBDC Shareholders. The WBDC Shareholders (other than
the Company) will receive a more liquid security in exchange for those they
presently hold, as it is anticipated that the Preferred Shares will be traded on
AMEX and they are convertible into the common stock of the Company, which is
traded on the AMEX. Moreover, the Preferred Shares are entitled to quarterly
cumulative dividends, while the WBDC Shares are entitled to dividends only if
and when declared by WBDC's board of directors.
THE PREFERRED SHARES
In connection with the Merger, the Company will issue to the WBDC
Shareholders (other than the Company) up to 42,857 Preferred Shares on the basis
of one (1) Preferred Share for every four (4) shares of WBDC common stock. The
total number of Preferred Shares issued in connection with the Merger was based
upon the Exchange Value and the total number of WBDC common shares outstanding
at the time of the Merger.
The Preferred Shares will be nonvoting preferred stock of the Company,
designated Series 1, with a par value of $1.00 and a stated value of $20.00. The
Preferred Shares are entitled to cumulative dividends at a rate of $1.20 per
share per annum, are redeemable by the Company at a price of $24.00 per Share,
and may be converted into the common stock of the Company (the "Common Shares")
at a rate of 6 2/3 Common Shares per 1 Preferred Share. See "THE PREFERRED
SHARES."
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DISSENTERS' RIGHTS
Shares of WBDC that are outstanding immediately prior to the Special
Meeting and which are held by the WBDC Shareholders who have not voted in favor
of or consented in writing to the Merger and who have demanded properly in
writing the fair cash value of their shares in accordance with the Ohio Revised
Code will not be converted as set forth above. Such shareholders shall be
entitled to receive such consideration as is determined to be due with respect
to such WBDC Shares in accordance with Sections 1701.84 and 1701.85 of the Ohio
Revised Code. In the event that such dissenting shareholders and WBDC are unable
to come to an agreement as to the fair cash value of such shareholder's WBDC
Shares, a complaint must be filed and a judicial proceeding held to appraise the
value of the shares at issue.
CONFLICTS OF INTEREST
In considering the WBDC board of directors' recommendation that you vote in
favor of the Merger, you should be aware that the officers and directors of the
Company and its affiliates have interests in the Merger that are different from,
or in addition to, the interests of the WBDC Shareholders generally, including
interlocking management and certain ownership interests. For a more detailed
discussion of those matters, see "INTERESTS OF CERTAIN PERSONS IN THE MERGER."
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting in
accordance with GAAP. Prior to the Merger and Partnership Merger, the Company,
through W-B, owns approximately 85% of WBDC and WBDC owns 50% of the
Partnership. Therefore, only the portion of the Merger and Partnership Merger
resulting in the Company acquiring the remaining interests of WBDC and the
Partnership will be accounted for under the purchase method of accounting.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
(i) Certain statements, including possible or assumed future results
of operations of the Company contained in this Prospectus including any
forecasts, projections and descriptions of anticipated benefits or other
synergies of the Merger referred to herein, and certain statements
incorporated by reference from documents filed with the Commission by the
Company including any statements contained herein or therein regarding the
development or possible or assumed future results of operations of the
Company's businesses, the markets for the Company's services and products,
regulatory developments, and the effects of the Merger and Partnership
Merger;
(ii) any statements preceded by, followed by or that include the
words "believes," "expects," anticipates," "intends" or similar
expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date thereof.
Among the factors that could cause actual results to differ materially are:
customer growth, the speed and degree to which competition enters those markets
in which the Company competes, acceptance by AMEX of the Company's application
for listing, state and federal regulatory and/or legislative initiatives, the
ability of the Merger and Partnership Merger to successfully enhance the
uniformity of the Company's activities and bolster its esteem among investors,
the economic climate, and other risks detailed from time to time in the reports
filed with the SEC by the Company and further discussed in this Prospectus. See,
"INVESTMENT CONSIDERATIONS."
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The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that may be issued by the Company or persons acting on its behalf.
Except for its ongoing obligation to disclose material information as required
by the federal securities laws, the Company undertakes no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
FINANCIAL INFORMATION
WENDT-BRISTOL HEALTH SERVICES CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
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AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31,
ENDED ---------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
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(UNAUDITED)
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INCOME STATEMENT DATA:
Revenues............................... $ 5,471 $ 20,819 $ 21,341 $ 20,856 $ 19,487 $ 19,488
Income (loss) from continuing
operations........................... $ 107 $ 1,782 $ (246) $ 217 $ 204 $ (238)
Income (loss) from continuing
operations per common share(A)....... $ 0.02 $ 0.26 $ (0.04) $ 0.04 $ 0.03 $ (0.03)
Cash dividends declared per common
share................................ $ -- $ -- $ -- $ -- $ -- $ --
Ratio of earnings to fixed charges..... 1.248 2.213 0.810 1.183 1.141 0.815
BALANCE SHEET DATA:
Book value per common share............ $ 1.05 $ 1.04 $ 0.76 $ 0.79 $ 0.88 $ 0.86
Total assets........................... $ 21,556 $ 21,997 $ 23,918 $ 22,807 $ 26,508 $ 23,920
Long-term debt......................... $ 9,781 $ 9,152 $ 12,081 $ 7,881 $ 7,965 $ 9,249
Redeemable preferred stock............. $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity (deficit)......... $ 6,330 $ 6,445 $ 4,742 $ 4,543 $ 7,200 $ 6,964
Shares outstanding at end of period.... 6,023,479 6,181,226 6,236,020 5,719,758 8,195,244 8,141,796
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(A) Calculated on a diluted share basis
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WENDT-BRISTOL DIAGNOSTICS COMPANY
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
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AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
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(UNAUDITED) (UNAUDITED)
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INCOME STATEMENT DATA:
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Revenues.............................. $ 2,737 $ 7,932 $ 7,689 $ 6,911 $ 3,998 $ 3,821
Income (loss) from continuing
operations.......................... $ 81 $ 751 $ 589 $ 362 $ 183 $ 464
Income (loss) from continuing
operations per common share(A)...... $ 0.07 $ 0.63 $ 0.50 $ 0.31 $ 0.15 $ 0.40
Cash dividends declared per common
share............................... $ -- $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Book value per common share........... $ 3.23 $ 3.17 $ 2.53 $ 2.04 $ 1.73 $ 1.61
Total assets.......................... $ 10,116 $ 9,549 $ 11,542 $ 10,399 $ 9,441 $ 7,146
Long-term debt........................ $ 3,940 $ 3,235 $ 6,263 $ 4,673 $ 4,731 $ 3,439
Redeemable preferred stock............ $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity (deficit)........ $ 3,832 $ 3,751 $ 3,000 $ 2,412 $ 2,050 $ 1,885
Shares outstanding at end of period... 1,184,991 1,184,991 1,184,991 1,184,991 1,184,991 1,167,613
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INVESTMENT CONSIDERATIONS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered in evaluating the Company and
its business in the context of the Merger.
CONSIDERATIONS ASSOCIATED WITH THE MERGER
There is no guarantee as to the prices at which the Preferred Shares will
trade after the Merger. This risk is exacerbated by the fact that the Company
will be simultaneously issuing and registering Preferred Shares in connection
with the merger of Wendt-Bristol Acquisition LLC with and into the Partnership
(the "Partnership Merger"). In addition, the Company intends to issue Preferred
Shares for cash in non-U.S. sales and register Preferred Shares for that
purpose. The Preferred Shares to be issued in connection with the cash offering
and the Partnership Merger will be Series 1 Preferred Stock, with the same
rights and privileges of those shares described in this Prospectus. Thus, there
is the possibility that the Preferred Shares may trade at prices below the value
assigned to the Preferred Shares for purposes of the Merger. Moreover, the price
at which the Common Stock may trade at the time of the conversion of Preferred
Shares to Common Shares is uncertain and there is the possibility the price of
the Common Shares could decrease. The listing of the Preferred Shares on AMEX is
conditioned upon the acceptance of the Company's application for listing on the
AMEX. Also, the realization of all the potential benefits by the Company of the
Merger is partially dependent upon the approval of the Partnership Merger and
there is no assurance that the Partnership Merger will be approved by the
limited partners of the Partnership.
The rights of holders of the Preferred Shares are also fundamentally
different from those of the WBDC Shareholders. For a more detailed discussion of
these differences, see "COMPARISON OF RIGHTS OF HOLDERS OF PREFERRED SHARES AND
WBDC SHARES."
The affiliated nature of the parties to the Merger raises the possibility
of conflicted interests playing a role in the structuring of the Merger. In
addition, the Company, WBDC and WBA share management and this interlocking
management structure could have caused the management of any of the parties to
base its decision-making on the interests of one of the other parties to the
Merger. Certain members of the management of the parties to the Merger are
shareholders of the Company and may have conflicted interests as a result.
Additionally, the Partnership Merger is being simultaneously conducted and WBDC
is the general partner of the Partnership. See "INTERESTS OF CERTAIN PERSONS IN
THE MERGER."
The Preferred Shares are nonvoting and will not allow the holders of the
Preferred Shares to participate in the selection of the management of the
Company. However, if converted, the Common Shares do have voting rights. The
Preferred Shares are also subject to redemption by the Company.
ADVERSE TAX CONSEQUENCES
The Merger will be taxable to the WBDC Shareholders. The WBDC Shareholders
will recognize gain or loss equal to the difference, if any, between the
shareholder's tax basis in the WBDC common shares and the sum of the fair market
value of the Preferred Shares (i.e, $20.00 per Preferred Share) received in the
Merger and any cash received in lieu of a fractional share. Any gain or loss
recognized will be capital gain or loss. The gain or loss will generally be
long-term capital gain or loss if the WBDC Shareholder held such common stock in
excess of one (1) year, otherwise the gain or loss will be short-term capital
gain or loss. A WBDC Shareholder may use up to $3,000 of capital losses in
excess of capital gains to offset ordinary income in any taxable year.
CONSIDERATIONS ASSOCIATED WITH THE COMPANY
The health care industry is highly competitive and the Company faces
competition from other entities and institutions, both public and private. Some
of these institutions have greater financial and other resources than the
Company. Moreover, changes in economic, political or market conditions could
have an adverse impact upon the Company's financial performance.
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Certain components of the Company's organizational structure also present
risks. The Company's Certificate of Incorporation contains provisions limiting
the remedies shareholders of the Company may seek for breaches of fiduciary
duties by its directors. The Company has also elected in its Certificate of
Incorporation not to be governed by the provisions of Delaware General
Corporation Law, which limit the types and timing of business combinations with
interested shareholders of the Company.
REGULATORY CONCERNS
The health care industry is subject to extensive state and federal
regulation and changes in these regulations or a failure to comply with them
could have an adverse impact on the Company's business. See "REGULATION OF
HEALTH CARE INDUSTRY" and "REQUIREMENT OF CERTIFICATE OF NEED."
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THE MERGER
GENERAL
W-B has proposed the Merger in which (i) WBDC and the WBA will be merged,
(ii) the separate existence of the WBA will cease and WBDC will be the surviving
entity, and (iii) every four (4) WBDC Shares (other than those held by the
Company) will be converted into the right to receive one (1) Preferred Share
(i.e., "Exchange Value").
The Company, WBDC and WBA will consummate the Merger pursuant to the terms
thereof promptly after the affirmative vote of the majority of the outstanding
shares of WBDC at the Special Meeting.
BACKGROUND
In hopes of strengthening its position in the markets in which it competes
and in the esteem of investors, the Company decided to seek ways in which to
energize its and its affiliates' businesses and share prices. This process began
as a very broad-based evaluation of the Company's business prospects in early
1997 and narrowed to an investigation of the possibility of restructuring its
affiliates later in that same year. In furtherance of this restructuring and
throughout the course of 1997, the Company and its affiliates divested
themselves of certain of their businesses and expanded into promising markets.
For a discussion of the other steps the Company and its affiliates have taken in
furtherance of this restructuring, see "CERTAIN INFORMATION ABOUT THE COMPANY."
In mid-1998, the Company's management determined that providing investors
who held minority interests in its affiliates a more liquid investment in
exchange for their interests, which lack an established trading market, would be
beneficial in a number of different ways. First and foremost, it will allow
investors who no longer wanted to retain an ownership interest in WBDC to
receive an interest in the Company and, if they choose, trade the Preferred
Shares in an established trading market. The Company believes that this
increased investment activity should favorably impact investors' interest in the
Company. In addition, the holders of the Preferred Shares will hold a preferred
position in relation to the common stock shareholders of the Company in the
event of the liquidation of the Company, a position the WBDC Shareholders, as
common shareholders, do not presently enjoy. These benefits are further
strengthened by the fact that the Preferred Shares will grant quarterly
cumulative dividends, offering the WBDC Shareholders a specified return on their
investment.
The Merger, when coupled with the Partnership Merger, will also afford the
Company a greater degree of control over its business operations and enhance the
uniformity of its activities, which has the potential to increase the efficiency
of the Company and favorably impact revenues and growth. The Preferred Shares
are also convertible into the Common Shares, which may increase the demand for
Common Shares and bolster the per share price of the Common Shares. For a more
complete discussion of the benefits of the Merger, see "REASONS FOR THE MERGER."
In furtherance of these plans, during June 1998, the Board of Directors of
the Company authorized the issuance of the Preferred Shares, the filing of a
registration statement with the Securities and Exchange Commission, the listing
of the Preferred Shares on the AMEX and the basic terms of the Merger.
Similarly, during June 1998, the Board of Directors of WBDC approved the basic
terms of the Merger and approved the basic terms of the Partnership Merger as
general partner of the Partnership and effective on September 16, 1998,
authorized the issuance and registration of additional Preferred Shares to sell
for cash.
WBDC SPECIAL MEETING
A special meeting of the WBDC Shareholders will be held on October 26,
1998, at 9:00 a.m., to consider and vote upon a proposal to approve and adopt
the Merger Agreement (the "Special Meeting"). Only holders of record of WBDC
common stock at the close of business on July 31, 1998 are entitled to receive
notice of and vote at the Special Meeting. A majority of the WBDC Shares
entitled to vote on the Merger Agreement, represented in person or by proxy, is
required in order for a quorum to be present at the Special Meeting. The
10
<PAGE> 14
majority vote of WBDC Share is required to adopt and approve the Merger
Agreement and authorize the Merger.
TERMS OF MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary does not purport to be complete and is subject to, and qualified in
its entirety by, the terms of the Merger Agreement, a copy of which is attached
as Appendix A of this Prospectus and is incorporated herein by reference.
Effect of the Merger. Under the terms of the Merger Agreement (i) WBDC and
the WBA will be merged, (ii) the separate existence of the WBA will cease and
WBDC will be the surviving entity, and (iii) the WBDC Shares (other than those
held by the Company through its wholly-owned subsidiary) will be converted to
the right to receive the Preferred Shares based upon the Exchange Value. The
directors and officers of the WBDC shall remain the officers of WBDC after the
consummation of the Merger.
Conditions to the Consummation of the Merger. The closing for the Merger
will take place promptly after the Special Meeting and the approval of the
Merger by a majority of WBDC's outstanding shares. Other conditions to the
closing, all of which may be waived in writing by the appropriate party, are (i)
the declaration of the effectiveness of the registration statement for the
Preferred Shares under the Securities Act of 1933, as amended, (ii) the approval
of the Preferred Shares for listing on AMEX, subject to official notice of
issuance, (iii) all actions to be taken by WBA and WBDC in connection with the
consummation of the Merger and certificates, opinions, instruments and other
documents required to effect the Merger are completed to the satisfaction of WBA
and WBDC.
Conversion of WBDC Shares to the Preferred Shares. Upon the effectiveness
of the Merger, each WBDC Shareholder (other than the Company or its affiliates)
will have such shareholder's WBDC Shares converted into the right to receive
those number of Preferred Shares represented by the product of the Exchange
Value multiplied by such WBDC Shareholders' WBDC Shares. The "Exchange Value"
shall be one Preferred Share for each four WBDC Shares. The Company will not pay
any dividend or make any distribution on the Preferred Shares to any record
holder of WBDC Shares until the holder surrenders for exchange his or its
certificates which represent the WBDC Shares. The Company will instead pay the
dividend or make the distribution to an exchange agent designated by it (the
"Exchange Agent") in trust for the benefit of the holder pending surrender and
exchange. The Company may cause the Exchange Agent to return Preferred Shares
and any dividends and distributions thereon remaining unclaimed 180 days after
the effectiveness of the Merger, and thereafter each remaining record holder of
outstanding WBDC Shares shall be entitled to look to the Company (subject to
abandoned property, escheat, and other similar laws) as a general creditor with
respect to the Preferred Shares and any dividends and distributions thereon.
Amendment of the Merger Agreement. The parties to the Merger Agreement may
amend any of its provisions at any time prior to approval by the WBDC
Shareholders with the prior authorization of their boards of directors;
provided, however, that any amendment effected subsequent to the approval of the
WBDC Shareholders will be subject to the restrictions contained in the Ohio
Revised Code. In order to be valid, any amendment must be in writing and signed
by all of the parties to the Merger Agreement.
Termination of the Merger Agreement. Any time prior to the filing of the
Certificate of Merger with the Secretary of State of Ohio and with the prior
authorization of their boards of directors, WBA, WBDC and the Company may, by
mutual written consent, terminate the Merger Agreement.
NO FRACTIONAL PREFERRED SHARES
No fractional Preferred Shares will be issued by the Company in the Merger.
In lieu of receiving any fractional Preferred Share, each WBDC Shareholder who
would otherwise have been entitled to a fractional Preferred Share upon
surrender of WBDC certificates for exchange will receive cash (without interest)
in an amount rounded to the nearest whole dollar.
11
<PAGE> 15
REASONS FOR THE MERGER
The Company believes that the exchange of the WBDC Shares, which lack an
established trading market, for the Preferred Shares, which (upon the approval
of the Company's listing application) will be traded on the AMEX, will result in
greater trading activity in the Company's securities, thereby bolstering
investor interest in the Company. Additionally, the Preferred Shares are also
convertible into common stock of the Company, which may increase the demand for
common stock of the Company and bolster the price of the Company's common stock.
Thus, the WBDC Shareholders will also gain a more liquid and readily
transferable security as a result of the Merger. The Preferred Shares will have
preferences over the Company's common shareholders in the event of the
liquidation of the Company, a position the WBDC Shareholders, as common
shareholders, do not presently occupy. Moreover, the Preferred Shares offer a
specified return in the form of a quarterly cumulative dividend, while the WBDC
Shares are entitled to dividends only if and when declared by WBDC's board of
directors, which has yet to occur.
The Merger will also afford the Company a greater degree of control over
its business operations and enhance the uniformity of its activities, which has
the potential to increase the efficiency of the Company and favorably impact
revenues and growth. It is hoped that unifying the Company's holdings will
facilitate future restructurings and allow the Company to better position itself
to compete in the various markets in which it is involved. The Company believes
that these factors, when coupled with the Company's efforts over the past
several years to focus more directly on those markets which it believes to be
the most promising, may help bolster the Company's stock price and better face
the competitive challenges of the markets in which it competes.
EFFECTIVE TIME OF MERGER
The Merger shall be effective at the time the Certificate of Merger with
respect to the Merger is filed with the Ohio Secretary of State, or at such
later time as may be specified in the Certificate of Merger or such later date
as the parties may agree. It is anticipated that such filing will be made as
promptly as is practicable after the requisite approval of the WBDC Shareholders
has been obtained and the other conditions to the Merger have been satisfied or
waived.
DISSENTING SHARES
WBDC Shares that are outstanding immediately prior to the Special Meeting
and which are held by the WBDC Shareholders who have not voted in favor of or
consented in writing to the Merger and who have properly demanded in writing the
fair cash value of their shares in accordance with the Ohio Revised Code (the
"Dissenting Shares") will not be converted into or represent the right to
receive the Preferred Shares. Such shareholders will be entitled to receive such
consideration as is determined to be due with respect to such Dissenting Shares
in accordance with Sections 1701.84 and 1701.85 of the Ohio Revised Code. In the
event that such dissenting shareholder and WBDC are unable to come to an
agreement as to the fair cash value of such shareholder's WBDC Shares, a
complaint may be filed by such dissenting shareholder or WBDC. A judicial
proceeding will then be held to appraise the value of such dissenting
shareholder's shares.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method of accounting in
accordance with GAAP. Prior to the Merger and the Partnership Merger, the
Company, through W-B, owns approximately 85% of WBDC and WBDC owns 50% of the
Partnership. Therefore, only the portion of the Merger and the Partnership
Merger resulting in the Company acquiring the remaining interests of WBDC and
the Partnership will be accounted for under the purchase method of accounting.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences that may result from the Merger. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable existing and proposed Treasury Department regulations promulgated
thereunder (the
12
<PAGE> 16
"Regulations"), rulings of the Internal Revenue Service (the "Service"), and
applicable court decisions, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax consequences as
described herein. Furthermore, there is no assurance that there will not be
differences of opinion as to the interpretation of provisions of the Code and
Regulations and their application to the Merger.
Readers of this Prospectus should be aware that this discussion does not
address all United States federal income tax consequences that may be relevant
to certain individuals or entities in light of their particular circumstances,
such as those who are dealers in securities, subject to the alternative minimum
tax provision of the Code, foreign persons, insurance companies, banking
institutions, regulated investment companies, real estate investment trusts, or
other persons or entities to which special rules apply by virtue of the nature
of their specific activities. In addition, the following discussion does not
address the tax consequences under foreign, state or local tax laws.
The Tax Treatment of the Merger. The Merger will be taxable to the WBDC
Shareholders. The WBDC Shareholders will recognize gain or loss equal to the
difference, if any, between the shareholder's tax basis in the WBDC common
shares and the sum of the fair market value of the Preferred Shares (i.e, $20.00
per Preferred Share) received in the Merger and any cash received in lieu of a
fractional share. Any gain or loss recognized will be capital gain or loss. The
gain or loss will generally be long-term capital gain or loss if the WBDC
Shareholder held such common stock in excess of one (1) year, otherwise the gain
or loss will be short-term capital gain or loss. A WBDC Shareholder may use up
to $3,000 of capital losses in excess of capital gains to offset ordinary income
in any taxable year.
STOCK EXCHANGE LISTING
Conditioned upon the approval for listing, the Preferred Shares will be
publicly traded on AMEX.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the WBDC board of directors' recommendation that you vote in
favor of the Merger, you should be aware that the officers and directors of the
Company, WBDC and their affiliates have interests in the Merger that are
different from, or in addition to, the interests of the shareholders of the
Company and the WBDC Shareholders.
Interlocking Management. Marvin D. Kantor, Sheldon A. Gold and Reed A.
Martin (the "Management Group") are members of the boards of directors and
officers of the Company, WBDC and WBA.
Ownership Interests. The entities that are parties to the Merger have
interlocking ownership structures, as they are affiliated companies. The Company
holds 100% of the outstanding common stock of W-B. W-B, in turn, holds in excess
of 85% of the outstanding common stock of WBDC and is the sole shareholder of
WBA. WBDC is the sole general partner of the Partnership. The Management Group
also holds common stock in the Company. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
REGULATORY APPROVALS
Compliance with certain federal and state regulatory requirements relating
to offering the Preferred Shares and the consummation of the Merger is required.
CERTAIN INFORMATION CONCERNING THE COMPANY
The Company, through its 100% subsidiary W-B, has evolved through the years
as an outpatient health care provider. The Company's operations consist of
ownership and operation of a nursing home, a retail pharmacy, acting as managing
partner of two multi-disciplinary diagnostic/radiology centers and a radiation
therapy center, and wholly-owning a third diagnostic center. These centers
provide diagnostic imaging techniques, including magnetic resonance imaging
(MRI), CT Scans, ultra-sound, x-ray, bone densitometry, mammography,
fluoroscopy, out-patient angiography and, where applicable, radiation therapy.
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<PAGE> 17
In 1997, the Company, through its subsidiaries, sold two of its three
nursing homes, including its Alzheimer's and related syndromes facility, and two
of its three retail pharmacies. The Company also ceased operations of its
Medicare-certified home health agency, which had conducted business through
Wendt-Bristol Home Health Care Company, a wholly-owned subsidiary of the
Company. Additionally, in the fourth quarter of 1997, the Company opened a
radiation therapy center in which it is the managing partner.
The Company plans to selectively and aggressively expand its diagnostics
and radiation therapy business activity. During 1998, the Company 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. WBDC has a participating partnership relationship (20%) in the rehab
center, a 22 1/2% interest and management in the radiation therapy, and 100%
ownership in the radiology, PET, nuclear and cytology operations. WBDC also has
a 50% interest in the land and buildings associated to the new center. The
Company also broke ground on previously acquired land adjacent to its Kenny Road
diagnostic and radiology facility, to construct a Women's Health Center
dedicated to the early detection of breast disease including an ambulatory
surgery unit for breast surgery.
The Company receives a fee (a percentage of collected revenues) for those
operations where it serves as a managing partner.
The Company's primary activities are currently located in Central Ohio.
Nursing Homes. The Company owned and operated two nursing homes in
Columbus, Ohio (147 beds and 75 beds) until December 31, 1997 and leases (with
an option to buy) the premises and operates the one remaining nursing home in
Springfield, Ohio (100 beds).
Medical and Related Services. During February 1987, W-B formed WBDC for the
purpose of establishing an outpatient medical diagnostic imaging center. The
center was financed through the formation of the Partnership, of which WBDC is
the general partner and currently receives management fees in addition to its
share of the profits. The center opened in April 1988 in Columbus, Ohio. The
center specializes in 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
suite to accommodate a new angiography/fluoroscopy unit.
Pharmacies. The Company operates one retail pharmacy in a downtown Columbus
department store.
Employees: Labor Relations. The Company had approximately 200 employees at
June 30, 1998. The Company considers its relations with its employees 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:
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<PAGE> 18
Financial information by industry segments for the years ended December 31,
1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues/sales to unaffiliated customers:
Nursing homes..................................... $13,428,624 $13,147,964 $12,604,828
Medical services and other........................ 7,390,267 8,193,238 8,251,370
Operating income or (loss):
Nursing homes..................................... 1,560,091 865,837 857,040
Medical services and other........................ (552,308) (79,340) 508,625
Equity in earnings of unconsolidated affiliates
Nursing homes..................................... -- -- --
Medical services and other........................ 198,680 -- --
Identifiable assets:
Nursing homes..................................... 9,291,623 13,311,345 12,353,302
Medical services and other........................ 12,704,896 10,606,760 10,454,023
Investment in net assets of unconsolidated
affiliates Nursing homes.......................... -- -- --
Medical services and other........................ 640,980 -- --
Depreciation expense:
Nursing homes..................................... 209,502 354,152 365,780
Medical services and other........................ 613,861 610,563 536,912
Capital expenditures:
Nursing homes..................................... 278,606 184,143 178,880
Medical services and other........................ 1,233,485 1,236,352 968,133
</TABLE>
Financial information for WBDC by industry segments for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues/sales to unaffiliated customers:
Nursing homes..................................... $ 3,712,358 $ 3,471,111 $ 2,824,074
Medical services and other........................ 4,220,000 4,217,924 4,086,993
Operating income or (loss):
Nursing homes..................................... 727,609 289,102 (38,478)
Medical services and other........................ 402,922 844,269 991,008
Equity in earnings of unconsolidated affiliates:
Nursing homes..................................... -- -- --
Medical services and other........................ 198,680 -- --
Identifiable assets:
Nursing homes..................................... 1,130,184 4,258,702 4,518,651
Medical services and other........................ 8,418,455 7,282,804 5,880,223
Investment in net assets of unconsolidated
affiliates:
Nursing homes..................................... -- -- --
Medical services and other........................ 640,980 -- --
Depreciation expense
Nursing homes..................................... 78,911 147,037 145,272
Medical services and other........................ 471,123 454,719 389,673
Capital expenditures
Nursing homes..................................... 27,172 27,584 35,414
Medical services and other........................ 1,178,844 1,201,452 998,845
</TABLE>
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<PAGE> 19
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.
Nursing homes 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. The operations and activities of nursing homes are also
affected by the Medicare/Medicaid conditions of participation and other relevant
federal and local laws. Activities of nursing homes 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, including the
requirements governing the foregoing areas, leads 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, 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.
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.
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.
Requirement of 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, 1999. In recent years, CON laws and regulations have been relaxed
and even eliminated in certain instances.
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<PAGE> 20
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.
New construction or renovation of a nursing home costing $2 million or more
requires a CON. 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.
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.
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, which is presently leased to the buyer) 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.
The New Jersey Department of Environmental Protection and Energy (the
"Department") 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. The Company has incurred
total costs of $1,078,000 related to environmental matters in New Jersey, of
which $241,000 was spent in the five fiscal (calendar) years ended December 31,
1997.
PROPERTIES
The Company leases approximately 7,200 square feet of space in a downtown
Columbus, Ohio, office building which serves as the Company's, WBDC's and WBA's
general offices.
The pharmacy operated by W-B is a leased premises located in a department
store in downtown Columbus, Ohio (3,300 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 pharmacy. The Company closed two pharmacies during
1997: one leased premises in Columbus, Ohio (4,000 square feet) and one leased
premises in Canal Winchester, Ohio (4,000 square feet).
The facilities of the Partnership 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 approximately $683,000 at June 30, 1998.
In February 1998, a subsidiary of the Company opened a 3,200 square feet
diagnostic center in Granville, Ohio. This one story center, Wendt-Bristol
Erinwood, operates on leased premises.
The nursing homes of the Company operated during 1997 consist of one owned
147-bed home in Columbus, Ohio, (sold at December 31, 1997), one owned 75-bed
Alzheimer's and related syndromes center (sold at December 31, 1997) and one
100-bed home with leased facilities in Springfield, Ohio. The lease expires in
July, 2015. In November, 1994 the Company acquired approximately 2 acres of land
adjacent to the Alzheimer's center for approximately $144,000. The property is
not subject to any mortgage indebtedness and is being considered by the Company
for the future development of a diagnostic, Women's Health and/or radiation
therapy center.
The present aggregate annual rentals of all remaining property leases
referred to are approximately $528,000 and their terms have expiration dates
ranging through July 2015.
17
<PAGE> 21
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 1998, the Company has been 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 and the mortgage amortization schedule
coincides with the term of the lease.
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<PAGE> 22
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS OF THE COMPANY
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, Mr. Del Ponte, Mr. Levine and
Mr. Fernie) 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...................... 70 Chairman of the Board, Director
Sheldon A. Gold....................... 55 President, Treasurer, Chief Executive
Officer, Director, member of Audit
Committee
Reed A. Martin........................ 44 Executive Vice President, Chief
Operating Officer and Director
Harold T. Kantor...................... 65 Vice Chairman of the Board, Director
Paul H. Levine........................ 58 Director, member of Audit Committee
Gerald M. Penn........................ 61 Director, Vice President of Medical
Affairs (1998)
Clemente Del Ponte.................... 47 Director
Charles R. Cicerchi................... 38 Vice President of Finance, Principal
Financial and Accounting Officer
David E. Fernie....................... 50 Director; member of Audit Committee
</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 a brother of Marvin D. Kantor.
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 became the Vice President of Medical Affairs of the Company on January
1, 1998. He serves on the stock option committee and also served on the audit
committee through December 31, 1997. 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
19
<PAGE> 23
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.
Clemente Del Ponte was elected as a director of the Company on June 18,
1997. For the past five years he has been the managing director of McBridge
Advisory, Ltd., an import/export consulting agency. Prior thereto, he was an
independent consulting agent. Mr. Del Ponte resides in Lugano, Switzerland.
Charles R. Cicerchi is a certified public accountant and has been Vice
President of Finance since joining the Company in September, 1994. 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. Since May, 1996 he has been the Principal Financial and Accounting
Officer of the Company.
David E. Fernie was elected as a director of the Company on July 30, 1998
and is a member of the Audit Committee. He has been Professor of Education at
Ohio State University since 1984. Prior to that, he was an Assistant Professor
at the University of Houston. He received his Ed.D. from University of
Massachusetts at Amherst and his Bachelors degree in political theory from
Harvard College.
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, 1997
and with respect to each of whom such compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) SARS(#) COMP.($)**
------------------ ----- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Sheldon A. Gold............................... 1997 $160,000 * $15,532
President and Chief Executive Officer 1996 150,000 50,000/0 --
1995 140,000 * --
Marvin D. Kantor.............................. 1997 140,000 * 65,028
Chairman of the Board 1996 130,000 * 75,866
1995 127,404 * 65,028
</TABLE>
- ---------------
* 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, 1997, the amounts paid by the
Company for each of the named persons is:
<TABLE>
<CAPTION>
LIFE
NAME INSURANCE
---- ---------
<S> <C>
Sheldon A. Gold............................................ $15,532
Marvin D. Kantor........................................... $65,028
</TABLE>
20
<PAGE> 24
OPTIONS
The following table sets forth information respecting the grant by the
Company of options to purchase shares of its Common Stock and other information
related to options granted by the Company:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE VALUE($)
---- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
None...........................
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END-# SHRS AT FY END-S
SHARES --------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Sheldon A. Gold.......................... 0 0 50,000/0 $62,500/0
</TABLE>
All options held by Mr. Sheldon A. Gold were exercisable at December 31,
1997. All were "in-the-money". American Stock Exchange reported quotations for
the Common Stock of the Company on December 31, 1997, are: high, $1.25; low
$1.1875; and close, $1.25; such prices on July 31, 1998 are: high, $1,4375; low,
$1.4375; 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.
STOCK OPTION PLAN
In 1983, the Company adopted an Incentive Stock Option Plan which was
amended in 1989 and 1998 (as amended, the "Plan"). Pursuant to the Plan, the
Company is authorized to grant stock options to purchase up to 500,000 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 July 31, 1998, options to purchase an
aggregate of 347,000 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 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
21
<PAGE> 25
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.
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, 1997,
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 $421,000
Sheldon A. Gold.......................... $ 375,000(4) 09/11/86 $ 67,000
</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, 1997.
(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.
22
<PAGE> 26
(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.
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
"401(k) 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 401(k)
Plan. Under the 401(k) 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 401(k) Plan to favor
Highly-Compensated Employees, as defined, or cause the 401(k) Plan to exceed the
maximum amount allowable as a deduction to the company under Section 404 of the
Code. The Company contributes under the 401(k) 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 401(k) 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 401(k) 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, death,
disability of a participant (all as defined in the 401(k) Plan), or in the event
that the 401(k) Plan is terminated in whole, or to the extent particular
participants are affected thereby, in part.
The Trustee under the 401(k) Plan, Merrill Lynch Trust Company, invests
cash contributed or otherwise held under the 401(k) Plan as it is instructed by
the employee participants, who have the discretion of fund selection.
Distributions from the 401(k) Plan are made available on a participant's
retirement, death, 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 401(k) Plan.
Payment of vested amounts are made in accordance with directions of the
Committee, appointed by the Company to act under the 401(k) Plan, either in one
lump sum payment or in annual cash installments over a period not to exceed 10
years.
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.
23
<PAGE> 27
In addition, Non-Employee Directors have been granted stock options under
the 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. 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.
David E. Fernie was elected as a director in July, 1998 and was granted options
on July 30, 1998 to purchase up to an aggregate of 10,000 shares, subject to
anti-dilution provisions at price of $1.375 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 the Second
Amendment of the Stock Option Plan, on each fifth anniversary of receiving the
initial 10,000 stock option, such Non-Employee director will receive an option
for 10,000 shares instead of 1,000 shares. Pursuant to the provisions of the
Plan, Mr. Levine 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 anti-dilution 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; 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,
he received on July 11, 1997, options to purchase an aggregate of 1,000 shares
of common stock of the Company at a price of $1.1875 per share, subject to
anti-dilution provisions; he received on July 11, 1998 options to purchase an
aggregate of 1,000 shares of common stock of the Company at a price of $1.3125
per share, subject to anti-dilution provisions and he received on July 30, 1998
options to purchase an aggregate of 10,000 shares of common stock of the Company
at a price of $1.375 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, 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 and he received on February 1, 1998,
options to purchase an aggregate of 1,000 shares of common stock of the Company
at a price of $1.25 per share, 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.
24
<PAGE> 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below presents as of July 31, 1998, 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........................
Two Nationwide Plaza 872,920 13.88%
Suite 760
Columbus, Ohio 43215
Common Stock Harold T. Kantor........................ 222,475 3.54%
Common Stock Sheldon A. Gold......................... 106,375(3) 1.69%
Common Stock Reed A. Martin.......................... 15,751(4) --
Common Stock Paul H. Levine.......................... 15,500(5) --
Common Stock Dr. Gerald M. Penn...................... 16,000(6) --
Common Stock Clemente Del Ponte......................
Dollard House 658,200(7) 10.47%
Wellington Quay
Dublin 2 Ireland
Common Stock David E. Fernie......................... 10,000(8) --
Common Stock All Directors and.......................
Executive Officers 1,917,221(9) 30.49%
As a Group (7 persons)
Common Stock Gerald F. Schroer.......................
25109 Detroit Road 413,800(10) 6.58%
Westlake, Ohio 44145
</TABLE>
- ---------------
(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 (9) 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.
(3) 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.
(4) Includes 1,100 shares of Common Stock which Mr. Martin may acquire by
exercising Warrants and 10,000 shares of Common Stock which he may acquire
by exercising options granted to him under the Company's Stock Option Plan.
(5) Includes 15,000 shares of Common Stock which Mr. Levine may acquire by
exercising options granted under the Company's Stock Option Plan.
(6) Includes 13,000 shares of Common Stock which Dr. Penn may acquire by
exercising options granted under the Company's Stock Option Plan.
(7) All of the shares are in the record name of McBridge Advisory, Ltd. of
which Mr. Del Ponte is the managing director of said company.
(8) Includes 10,000 shares of Common Stock which Mr. Fernie may acquire by
exercising options granted under the Company's Stock Option Plan.
25
<PAGE> 29
(9) Includes 14,850 shares of Common Stock which may be acquired by exercise of
Warrants and 128,000 shares which may be acquired by exercise of options
granted under the Company's Stock Option Plan.
(10) Pursuant to a July 6, 1998 letter received from Mr. Schroer.
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 1997 was $799,718; 1996 was $809,435; and 1995
was $773,638. On June 30, 1998, the amount of such indebtedness, exclusive of
interest, outstanding was approximately $724,000. Interest at 9% totaling
$68,328 and $61,823 has been charged, through December 31, 1997 and 1996,
respectively. A significant portion of this indebtedness arose effective January
1, 1995, when 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. Additional advances were made in 1995
and 1996. Collateral for this indebtedness includes the operating assets of MHK
Corp. and additional commercial real estate property owned by the Kantors in
Dayton, Ohio.
The President and CEO of the Company has incurred indebtedness to the
Company. The largest amount of such indebtedness outstanding in 1997 was
$243,412; 1996 was $243,412; and 1995 was $204,975. On June 30, 1998, the amount
of such indebtedness was approximately $199,000. 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 $15,000, as amended.
Certain executive officers and directors of the Company are limited
partners owning less than an aggregate 10% interest in the Partnership and WBDC
is the general partner of the Partnership.
CERTAIN INFORMATION REGARDING COMPANY AND WBDC STOCK
Price Range of Common Stock of WBDC:
<TABLE>
<CAPTION>
1997* HIGH LOW
----- ---- ---
<S> <C> <C>
1st Quarter................................................. 3 2 1/2
2nd Quarter................................................. 3 2 1/2
3rd Quarter................................................. 3 2 1/2
4th Quarter................................................. 3 2 1/2
</TABLE>
<TABLE>
<CAPTION>
1998
----
<S> <C> <C>
1st Quarter................................................. 3 1/4 2 3/4
2nd Quarter................................................. 2 7/8 2 3/4
</TABLE>
- ---------------
* Prices are not available prior to 1997
Price Range of Common Stock of the Company:
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
1st Quarter................................................. 3/4 7/16
2nd Quarter................................................. 1 1/2 1/2
3rd Quarter................................................. 1 3/4 5/8
4th Quarter................................................. 1 3/4 1 1/8
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
1st Quarter................................................. 1 5/8 1 1/4
2nd Quarter................................................. 1 7/16 1
3rd Quarter................................................. 1 1/2 1
4th Quarter................................................. 1 7/16 1 1/16
</TABLE>
<TABLE>
<CAPTION>
1998
----
<S> <C> <C>
1st Quarter................................................. 1 3/8 1 1/16
2nd Quarter................................................. 1 5/8 1 1/8
</TABLE>
PERFORMANCE GRAPHS
This chart shows the Company's performance in the form of cumulative total
return to shareholders from December 31, 1992 until December 31, 1997 in
comparison to Standard and Poor's 500 and Standard and Poor's 500 Healthcare
Composite Index.
TOTAL SHAREHOLDER RETURNS
(DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
YEARS ENDING
----------------------------------------------
COMPANY/INDEX DEC93 DEC94 DEC95 DEC96 DEC97
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WEDNT-BRISTOL, HEALTH SVC CP.................. (25.00) (41.73) 28.60 166.90 (16.67)
HEALTH CARE-500............................... (8.40) 13.12 57.85 20.75 43.72
S&P 500 INDEX................................. 10.08 1.32 37.58 22.96 33.36
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
YEARS ENDING
BASE ----------------------------------------------
PERIOD
COMPANY/INDEX DEC92 DEC93 DEC94 DEC95 DEC96 DEC97
------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WENDT-BRISTOL HEALTH SVC CP........... 100 75.00 43.70 56.20 150.00 125.00
HEALTH CARE -- 500.................... 100 91.60 103.61 163.55 197.49 283.82
S&P 500 INDEX......................... 100 110.08 111.53 153.45 188.66 251.63
</TABLE>
27
<PAGE> 31
THE PREFERRED SHARES
Pursuant to the Company's Certificate of Incorporation, the total amount of
shares of capital stock the Company is authorized to issue is 12,500,000,
consisting of 12,000,000 shares of common stock, par value $.01 per share and
500,000 shares of preferred stock, par value $1.00 per share. The board of
directors of the Company is authorized by the Certificate of Incorporation to
determine the power, preferences and rights of any preferred shares issued by
the Company. The board of directors by resolution as set forth in The Wendt-
Bristol Health Services Corporation Terms of Series 1 Cumulative Dividend
Convertible Preferred Stock, attached hereto as Appendix B, has determined that
the Preferred Shares will be non-voting preferred stock, designated Series 1,
with a par value of $1.00 and a stated value of $20.00 and redeemable by the
Company at a price of $24.00 per Preferred Share. The Preferred Shares are
entitled to quarterly cumulative dividends at a rate of $1.20 per Preferred
Share per annum on such conditions and at such times as set forth in the board
of directors' resolutions declaring such dividends. The Preferred Shares may be
converted into Common Shares at a rate of 6 2/3 Common Shares per Preferred
Share. The board of directors has authorized the issuance of up to 115,000
Preferred Shares in connection with the Merger and the Partnership Merger and
approximately an additional 385,000 in connection with an offering for cash. The
Preferred Shares are not entitled to preemptive rights. There are no
restrictions on the repurchase or redemption of the Preferred Shares by the
Company while there is an arrearage in the payment of dividends or sinking fund
installments.
COMPARISON OF RIGHTS OF HOLDERS OF PREFERRED SHARES
AND WBDC SHARES
GENERAL
As a result of the Merger, holders of WBDC Shares will become preferred
shareholders of the Company, and the rights of such former WBDC Shareholders
will thereafter be governed by the Company's Certificate of Incorporation, its
Bylaws and the laws of the State of Delaware. The rights of the WBDC
Shareholders are presently governed by the Articles of Incorporation of WBDC and
the Code of Regulations of WBDC and the laws of the State of Ohio. The following
summary sets forth the material differences between the rights of holders of the
Preferred Shares and the holders of WBDC Shares under these governing documents
and bodies of law. This summary is qualified in its entirety by reference to the
full text of each such document and the applicable state statutes.
The following paragraphs should be reviewed with the recognition that the
Company, through its wholly-owned subsidiary, W-B, presently holds in excess of
85% of WBDC's outstanding common stock and the voting powers associated
therewith.
VOTING RIGHTS
The WBDC Shareholders are entitled to vote in the election of directors,
while the holders of the Preferred Shares would not be entitled to a vote.
Pursuant to WBDC's Articles of Incorporation, any vote or consent of the WBDC
Shareholders requiring of two-thirds or any other proportion of the voting
power, unless expressly required by statute, may be taken by the vote or consent
of holders of WBDC Shares exercising a majority of the voting power of WBDC. The
Company presently holds a majority of the voting power of WBDC, through a
wholly-owned subsidiary. The holders of the Preferred Shares do not have voting
rights, but do have the right to convert the Preferred Shares to the Common
Shares, which do have voting rights.
MANAGEMENT
The management of both the Company and WBDC are vested in their respective
board of directors; however, the holders of the Preferred Shares are not
entitled to vote in the election of directors while the WBDC Shareholders are
entitled to vote in the election of directors.
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CONVERTIBILITY
The Preferred Shares are convertible into the common stock of the Company.
The WBDC Shares are already common stock and not convertible into any other form
of security.
LIQUIDITY
There is no established market for the transfer of WBDC Shares. Conditioned
upon the approval of the Preferred Shares for listing on AMEX, subject to
official notice of issuance, the Preferred Shares will be publicly traded on
AMEX. The Common Shares are publicly traded on AMEX.
STATE OF INCORPORATION
WBDC was incorporated under the laws of the State of Ohio while the Company
was incorporated under the laws of the State of Delaware. Consequently, the laws
and regulations governing the business and operations of WBDC and the Company
are often different as a result.
PREEMPTIVE RIGHTS
Shareholders of the Company are not entitled to any form of preemptive
rights, which would allow them to purchase shares of the same class offered for
sale by the Company in proportion to their present shareholdings in order to
prevent dilution of their ownership interest. WBDC Shareholders are entitled to
those preemptive rights provided for under Ohio law.
DIVIDENDS
The Preferred Shares are entitled to quarterly cumulative dividends at a
rate of $1.20 per Preferred Share per annum on such conditions and at such times
as set forth in the board of directors resolutions declaring such dividends. The
WBDC Shares can receive dividends, though none have been declared to date, at
such times and in such amounts as the directors, in their discretion and subject
to Ohio law, authorize.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
The Company's Certificate of Incorporation expressly waives the application
of Section 203 of the Delaware General Corporation Law forbidding certain
transactions by the Company with interested shareholders. WBDC's Articles of
Incorporation contains no such similar provision.
SPECIAL SHAREHOLDER MEETINGS
Shareholders of the Company may call a special meeting of the shareholders
at the request in writing by shareholders owning a majority of the issued and
outstanding capital stock of the Company entitled to vote. WBDC Shareholders may
call a special meeting upon the written request of WBDC Shareholders
representing 25% of the WBDC Shares issued and entitled to vote.
NOTICE OF SHAREHOLDER MEETINGS
WBDC Shareholders are entitled to at least 10 days written notice of annual
or special shareholder meetings. Notice of annual or special shareholder
meetings must be provided to shareholders of the Company at least 10 days and no
more than 50 days prior to such meeting in writing.
REMOVAL OF DIRECTORS
The Company's Articles of Incorporation provides that a director may be
removed from office by either the majority vote of the stockholders of the class
that elected such director or by the affirmative vote of 3/4 of the board of
directors. Ohio law provides that the directors of WBDC may be removed by the
affirmative vote of a majority of the voting power entitled to elect directors
in place of the director to be removed.
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<PAGE> 33
AMENDMENT OF BYLAWS/CODE OF REGULATIONS
The Company's Bylaws may be amended, altered or repealed and new bylaws
adopted by the board of directors or by the shareholders. The Code of
Regulations of WBDC may be adopted, amended or repealed by the affirmative vote
of a majority of the shares entitled to vote thereon at a meeting called for
such a purpose or by the written assent of the owners of 2/3 of the shares
entitled to vote thereon.
CUMULATIVE VOTING
Pursuant to Ohio law, the shareholders of WBDC have the right to vote
cumulatively in the election of directors upon compliance with certain notice
requirements. The common stock shareholders of the Company, however, do not have
the right to vote cumulatively pursuant to Delaware law.
REDEMPTION OF SHARES
The Preferred Shares are subject to redemption by the Company at a price of
$24.00 per Preferred Share. WBDC's Articles of Incorporation provide that WBDC
may repurchase, through its board of directors, any WBDC Shares at such price
and on such terms as may be agreed to by WBDC and the WBDC Shareholders.
PREFERENCES UPON LIQUIDATION
Since the Preferred Shares are preferred stock, in the event of the
dissolution of the Company, the holders of the Preferred Shares would occupy a
preferred position upon the liquidation of the Company's assets. The WBDC Shares
are common stock and would not occupy such a preferred position.
INDEMNIFICATION
The Company is required to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent to the Company against expenses (including attorneys' fees),
judgment, fines and amounts paid in settlement actually and reasonably believed
to be in or not opposed to the best interests of the Company. In the case of a
criminal action, indemnification will be provided if the individual had no
reason to believe his conduct was unlawful. Indemnification will also be
provided by the Company to directors, officers, employees and agents of the
Company as a result of a threatened, pending or completed action by or in the
right of the Company to procure a judgment in its favor against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company. However, no indemnification shall be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged liable for negligence or misconduct in the performance of his duty to
the Company unless the court in which such action or suit was brought determines
otherwise. If successful on the merits, such persons shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the matter.
Whether an individual has met the standards of conduct set forth above is
left to the determination of a majority of the disinterested members of the
board of directors, unless a quorum is not available or an independent legal
opinion dictates otherwise, in which case the determination will be reached by
the shareholders of the Company. The payment of such expenses may be made prior
to the final disposition of the matter, upon the authorization of the board of
directors and the receipt of an undertaking by such individual to repay the
advance amount if indemnification is ultimately determined to be inappropriate.
WBDC is required to indemnify the directors and officers of WBDC against
any and all costs and expenses (including attorneys' fees, judgments, fines,
penalties, amounts paid in settlement, and other disbursements) actually and
reasonably incurred by or imposed upon such person in connection with any
action, suit, investigation or proceeding in which such person is named as a
result of being or having been a director or officer of WBDC. Employees and
agents of WBDC must be indemnified if successful on the merits or otherwise in
defense of an action in which such a person is named a party by reason of being
an employee or
30
<PAGE> 34
agent of WBDC. WBDC may indemnify any such person if the board of directors of
WBDC determines that indemnification is warranted in that particular case.
LEGAL MATTERS
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. Both cases are currently scheduled for different
trial dates during 1998.
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<PAGE> 35
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
AMONG
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION,
WENDT-BRISTOL ACQUISITION, INC.
AND
WENDT-BRISTOL DIAGNOSTICS COMPANY
SEPTEMBER 25, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions...................................................... A-1
(a) "Buyer-owned Share"......................................... A-1
(b) "Dissenting Share".......................................... A-1
(c) "Ohio General Corporation Law".............................. A-1
(d) "Person".................................................... A-1
(e) "Preferred Shares".......................................... A-1
(f) "Prospectus"................................................ A-1
(g) "Requisite Stockholder Approval"............................ A-1
(h) "SEC"....................................................... A-1
(i) "Securities Act"............................................ A-1
(j) "Securities Exchange Act"................................... A-1
(k) "Target Share".............................................. A-1
(l) "Target Stockholder"........................................ A-1
2. Basic Transaction................................................ A-1
(a) The Merger.................................................. A-1
(b) Closing..................................................... A-1
(c) Actions at the Closing...................................... A-1
(d) Effect of Merger............................................ A-2
(i) General................................................ A-2
(ii) Articles of Incorporation............................. A-2
(iii) Code of Regulations................................... A-2
(iv) Directors and Officers................................. A-2
(v) Conversion of Target Shares............................ A-2
(vi) Conversion of Capital Stock of the Transitory
Subsidiary.................................................. A-2
(e) Procedure for Payment....................................... A-2
(f) Closing of Transfer Records................................. A-3
3. Covenants........................................................ A-3
(a) General..................................................... A-3
(b) Notices and Consents........................................ A-3
(c) Regulatory Matters and Approvals............................ A-3
(i) Federal and State Securities Laws...................... A-3
(ii) Ohio General Corporation Law.......................... A-3
4. Conditions to Obligation to Close................................ A-3
Conditions to Obligation of the Buyer and the Transitory
(a) Subsidiary.................................................. A-3
(b) Conditions to Obligation of the Target...................... A-3
5. Termination...................................................... A-4
(a) Termination of Agreement.................................... A-4
(b) Effect of Termination....................................... A-4
</TABLE>
i
<PAGE> 37
<TABLE>
<S> <C> <C>
6. Miscellaneous.................................................... A-4
(a) No Third-Party Beneficiaries................................ A-4
(b) Entire Agreement............................................ A-4
(c) Succession and Assignment................................... A-4
(d) Counterparts................................................ A-4
(e) Headings.................................................... A-4
(f) Notices..................................................... A-4
(g) Governing Law............................................... A-5
(h) Amendments and Waivers...................................... A-5
(i) Severability................................................ A-5
</TABLE>
ii
<PAGE> 38
MERGER AGREEMENT
This Agreement is entered into effective the 25th day of September, 1998,
by and among The Wendt-Bristol Health Services Corporation, a Delaware
corporation ( "Buyer"), Wendt-Bristol Acquisition, Inc., an Ohio corporation and
a wholly-owned Subsidiary of the Buyer ("Transitory Subsidiary"), and
Wendt-Bristol Diagnostics Company, an Ohio corporation ("Target"). Buyer,
Transitory Subsidiary, and Target are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which the Buyer ( or its
wholly owned Subsidiary) will acquire all of the outstanding capital stock of
the Target for the Preferred Shares through a reverse subsidiary merger of the
Transitory Subsidiary with and into the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
(a) "Buyer-owned Share" means any Target Share that the Buyer or the
Transitory Subsidiary owns beneficially.
(b) "Dissenting Share" means any Target Share which any stockholder who or
which has exercised his or its appraisal rights under the Ohio General
Corporation Law holds of record.
(c) "Ohio General Corporation Law" means the General Corporation Law of the
State of Ohio, as amended.
(d) "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
(e) "Preferred Shares" means The Series 1 preferred shares of the Buyer.
(f) "Prospectus" means the final prospectus relating to the registration of
the Preferred Shares under the Securities Act.
(g) "Requisite Stockholder Approval" means the affirmative vote of the
holders of a majority of the Target Shares in favor of this Agreement and the
Merger.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Securities Act" means the Securities Act of 1933, as amended.
(j) "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Target Share" means any share of the Common Stock of the Target.
(l) "Target Stockholder" means any Person who or which holds any Target
Shares.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, Transitory Subsidiary will merge with and into the Target ("Merger")
at the Effective Time. The Target shall be the corporation surviving the Merger
("Surviving Corporation").
(b) Closing. The closing of the transactions contemplated by this Agreement
("Closing") shall take place at the offices of Schottenstein, Zox & Dunn Co.,
L.P.A. in Columbus, Ohio, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
("Closing Date").
(c) Actions at the Closing. At the Closing, (i) Target and Transitory
Subsidiary will file with the Secretary of State of the State of Ohio a
Certificate of Merger ("Certificate of Merger"), and (ii) the Buyer
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<PAGE> 39
will cause the Surviving Corporation to deliver the Preferred Shares to the
Exchange Agent in the manner provided below in this sec.2.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time ("Effective
Time") the Target and the Transitory Subsidiary file the Certificate of
Merger with the Secretary of State of the State of Ohio. The Merger shall
have the effect set forth in the Ohio General Corporation Law. The
Surviving Corporation may, at any time after the Effective Time, take any
action (including executing and delivering any document) in the name and on
behalf of either the Target or the Transitory Subsidiary in order to carry
out and effectuate the transactions contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation as in effect immediately prior to the Effective Time
shall remain unchanged.
(iii) Code of Regulations. The Code of Regulations of the Surviving
Corporation as in effect immediately prior to the Effective Time shall
remain unchanged.
(iv) Directors and Officers. The directors and officers of Target
shall continue as the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions and
terms of office).
(v) Conversion of Target Shares. At and as of the Effective Time, (A)
the Target Stockholders (other than any Dissenting Share or Buyer-owned
Share) shall have the right to receive 1 Preferred Share ("Conversion
Ratio") for each four (4) Target Shares (the "Merger Consideration"), (B)
each Dissenting Share shall be converted into the right to receive payment
from the Surviving Corporation with respect thereto in accordance with the
provisions of the Ohio General Corporation Law, and (C) each Buyer-owned
Share shall be cancelled; provided, however, that the Merger Consideration
shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change in the number of
Target Shares outstanding. No Target Share shall be deemed to be
outstanding or to have any rights other than those set forth above in this
sec. 2(d)(v) after the Effective Time. No fractional Preferred Shares shall
be issued and, in lieu thereof, cash shall be paid to such Target
Stockholders at the rate of $5.00 per Target Share.
(vi) Conversion of Capital Stock of the Transitory Subsidiary. At and
as of the Effective Time, each share of Common Stock of the Transitory
Subsidiary shall be cancelled.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Buyer will furnish
to an exchange agent selected by it ("Exchange Agent") a stock certificate
(issued in the name of the Exchange Agent or its nominee) representing that
number of Preferred Shares equal to the product of (I) the Conversion Ratio
times (II) the number of outstanding Target Shares (other than any
Dissenting Shares and Buyer-owned Shares) and (B) the Buyer will mail a
letter of transmittal (with instructions for its use) each record holder of
outstanding Target Shares for the holder to use in surrendering the
certificates which represented his or its Target Shares in exchange for a
certificate representing the number of Buyer Shares to which he or it is
entitled.
(ii) The Buyer will not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Target Shares until the holder surrenders for
exchange his or its certificates which represented Target Shares. The Buyer
instead will pay the dividend or make the distribution to the Exchange
Agent in trust for the benefit of the holder pending surrender and
exchange.
(iii) The Buyer may cause the Exchange Agent to return any Buyer
Shares and dividends and distributions thereon remaining unclaimed 180 days
after the Effective Time, and thereafter each remaining record holder of
outstanding Target Shares shall be entitled to look to the Buyer (subject
to abandoned property, escheat, and other similar laws) as a general
creditor thereof with respect to the
A-2
<PAGE> 40
Buyer Shares and dividends and distributions thereon to which he or it is
entitled upon surrender of his or its certificates.
(f) Closing of Transfer Records. After the close of business on the Closing
Date, transfers of Target Shares outstanding prior to the Effective Time shall
not be made on the stock transfer books of the Surviving Corporation.
3. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties will use its reasonable efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
sec. 4 below).
(b) Notices and Consents. The Target will give any notices to third
parties, and will use its reasonable efforts to obtain any third party consents,
that the Buyer reasonably may request.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies. Without limiting the generality of the foregoing:
(i) Federal and State Securities Laws. The Buyer will prepare and file
with the SEC a registration statement under the Securities Act relating to
the offering and issuance of the Preferred Shares (the "Registration
Statement") and may make certain associated filings as may be required
under state law. The filing Party in each instance will use its reasonable
efforts to respond to the comments of the SEC or state securities agency,
as the case may be, thereon and will make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper, or advisable.
(ii) Ohio General Corporation Law. The Target will call a special
meeting of its stockholders (the "Special Meeting"), as soon as reasonably
practicable in order that the stockholders may consider and vote upon the
adoption of this Agreement and the approval of the Merger in accordance
with the Ohio General Corporation Law.
4. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer and the Transitory Subsidiary.
The Buyer and the Transitory Subsidiary may waive any condition specified
in this sec. 4(a) if they execute a writing so stating at or prior to the
Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) this Agreement and the Merger shall have received the Requisite
Stockholder Approval; and
(iii) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target.
A-3
<PAGE> 41
The Target may waive any condition specified in this sec. 4(b) if it
executes a writing so stating at or prior to the Closing.
5. Termination.
(a) Termination of Agreement. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time; or
(ii) any Party may terminate this Agreement by giving written notice
to the other Parties at any time after the Special Meeting in the event
this Agreement and the Merger fail to receive the Requisite Stockholder
Approval.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to sec. 5(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach).
6. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
sec. 2 above concerning payment of the Merger Consideration are intended for the
benefit of the Target Stockholders.
(b) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(c) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Target: Wendt-Bristol Diagnostics Company
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
If to the Buyer: The Wendt-Bristol Health Services Corporation
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
A-4
<PAGE> 42
If to the Transitory Wendt-Bristol Acquisition, Inc.
Subsidiary: Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Ohio without giving effect to
any choice or conflict of law provision or rule (whether of the State of Ohio or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Ohio.
(h) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however,that
any amendment effected subsequent to stockholder approval will be subject to the
restrictions contained in the Ohio General Corporation Law. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective the date first above written.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
By: /s/ SHELDON A. GOLD
------------------------------------
Sheldon A. Gold, President
WENDT-BRISTOL ACQUISITION, INC.
By: /s/ SHELDON A. GOLD
------------------------------------
Sheldon A. Gold, President
WENDT-BRISTOL DIAGNOSTICS COMPANY
By: /s/ SHELDON A. GOLD
------------------------------------
Sheldon A. Gold, President
A-5
<PAGE> 43
APPENDIX B
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
TERMS OF SERIES 1 CUMULATIVE DIVIDEND
CONVERTIBLE PREFERRED STOCK
Resolved, that pursuant to the authority vested in the board of directors
of The Wendt-Bristol Health Services Corporation by its Certificate of
Incorporation, as amended, the board of directors hereby assigns the attributes
of previously authorized preferred stock, a series of preferred stock designated
as Series 1 Cumulative Dividend Convertible Preferred Stock ("Series"),
consisting of 500,000 shares, $1 par value each, with a stated value of $20.00
per share, of which the preferences and other special rights and the
qualifications, limitations, or restrictions on such preferences and rights
shall be as follows:
DIVIDENDS
The holders of record of shares of this Series shall be entitled to
receive, when and as declared by the board of directors out of funds legally
available therefor, cash dividends at the rate of $1.20 per share per annum,
payable quarterly on such dates as may from time to time be determined by the
board of directors, in preference to and in priority over dividends upon the
Common Stock of the Corporation and all other shares of Preferred Stock of the
Corporation that are by their terms expressly made junior as to dividends to
this Series. The holders of shares of this Series shall not be entitled to any
dividends other than the cash dividends provided for in this Section. No
dividends shall be declared or paid on the Common Stock of the Corporation
during any period when the Corporation has failed to pay a quarter-annual
dividend on this Series for any preceding quarter.
LIQUIDATION
In the event of a liquidation, dissolution, or winding up of the
Corporation, the holders of shares of this Series shall be entitled to receive
out of the assets of the Corporation an amount equal to $20 per share, plus any
accrued and unpaid dividends thereon to the date fixed for distribution, in
preference to and in priority over any such distribution upon the Common Stock
of the Corporation and all other shares of Preferred Stock of the Corporation
that are by their terms expressly made junior as to liquidation preferences to
this Series. If the assets of the Corporation are not sufficient to pay such
amounts in full to the holders of this Series and all other Series of Preferred
Stock of the Corporation ranking equally as to liquidation preferences with the
shares of this Series, the holders of this Series and of all such other Series
shall share ratably in any such distribution of assets in accordance with the
amounts that would be payable on such distribution if the amounts to which the
holders of this and all such other Series are entitled were paid in full.
REDEMPTION
This Series may be redeemed, in whole or in part, at the option of the
Corporation by resolution of its board of directors, at any time and from time
to time, at the redemption price per share of $24 plus any accrued and unpaid
dividends thereon to the date fixed for redemption.
In the event that less than the entire number of the shares of this Series
outstanding is at any one time redeemed by the Corporation, the shares to be
redeemed shall be selected by lot in a manner determined by the board of
directors of the Corporation.
Not less than thirty nor more than sixty days prior to the date fixed for
any redemption of this Series or any part thereof, a notice specifying the time
and place of such redemption shall be given by first-class mail, postage
prepaid, to the holders of record of the shares of this Series selected for
redemption at their respective addresses as the same shall appear on the books
of the Corporation, but no failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the proceedings for
redemption. Any notice that was mailed in the manner herein provided shall be
conclusively presumed to have been duly given
B-1
<PAGE> 44
whether or not the holder receives the notice.
After the giving of any notice of voluntary redemption and prior to the
close of business on the date fixed for such redemption, the holders of shares
of this Series called for redemption may convert such stock into Common Stock of
the Corporation in accordance with the conversion privileges set forth below in
"Conversion Privilege and Price." After the date fixed for the redemption of
shares of this Series by the Corporation, the holders of shares selected for
redemption shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. The Corporation may, at its option, at any
time after a notice of redemption has been given, deposit the redemption price
for all shares of this Series designated for redemption and not yet redeemed,
plus any accrued and unpaid dividends thereon to the date fixed for redemption,
with the transfer agent or agents for this Series, as a trust fund for the
benefit of the holders of the shares of this Series designated for redemption.
From and after the making of such deposit, the holders of the shares
designated for redemption shall cease to be stockholders with respect to such
shares and shall have no interest in or claim against the Corporation by virtue
thereof and shall have no other rights with respect to such shares, except the
right to receive from such trust fund the moneys payable upon such redemption,
without interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. Such deposit shall not impair the right of
conversion provided for herein. Any moneys deposited by the Corporation pursuant
to this Section for the redemption of shares thereafter converted into Common
Stock shall be returned to the Corporation forthwith upon their conversion, and
any balance of such moneys remaining unclaimed at the end of the five years
commencing on the date fixed for redemption shall be repaid to the Corporation
upon its request expressed in a resolution of its board of directors, subject to
applicable escheat laws.
NON-VOTING
Except as otherwise expressly provided below or as required by Law, this
Series shall be non-voting.
CHANGES IN PREFERRED STOCK TERMS
The Corporation may, by resolution of its board of directors or as
otherwise permitted by law, from time to time alter or change the preferences,
rights, or powers of this Series. However, no such alteration or change shall be
made that adversely affects the preferences, rights, or powers of the shares of
all outstanding Series of Preferred Stock of the Corporation without the
affirmative vote or the written consent as provided by law of the holders of at
least two thirds of the outstanding shares of all Series of Preferred Stock,
voting as a single class. No alteration or change shall be made that adversely
affects the preferences, rights, or powers of this but not all outstanding
Series of Preferred Stock of the Corporation, without the affirmative vote or
written consent as provided by law of the holders of at least two thirds of the
outstanding shares of this and any other Series so affected by such alteration
or change, voting as a single class. The holders of this Series shall not be
entitled to participate in any such class vote if, at or prior to the time when
any such alteration or change is to take effect, provision is made pursuant to
"Redemption" above for the redemption of all shares of this Series at the time
outstanding. Nothing in this paragraph shall require a class vote or consent in
connection with the authorization, designation, increase, or issuance of any
shares of any class or series of stock (including additional shares of this
Series) that ranks junior to or on a parity with shares of this Series as to
dividends and liquidation rights, or in connection with the authorization,
designation, increase, or issuance of any bonds, mortgages, debentures, or other
obligations of the Corporation.
CONVERSION PRIVILEGE AND PRICE
The holders of shares of this Series shall have the right, at their option,
to convert such shares into full-
B-2
<PAGE> 45
paid and nonassessable shares of Common Stock of the Corporation. Each share of
this Series shall be convertible into 6 2/3 share of Common Stock. See
Adjustment of Conversion Ratio below.
In case shares of this Series are called for redemption by the Corporation
pursuant to "Redemption" above, the right to convert such shares shall cease and
terminate at the close of business on the date fixed for redemption by the
Corporation.
CONVERSION PROCEDURE
In order to convert shares of this Series into Common Stock, the holder
shall surrender at the office of any transfer agent for this Series designated
for that purpose by the board of directors, or at any such other office as may
be designated by the board of directors, the certificate or certificates
therefor, duly endorsed or assigned to the Corporation or in blank, and shall
give written notice to the Corporation at said office that he elects to convert
such shares. No payment or adjustment shall be made upon any conversion on
account of any dividends accrued on the shares of this Series surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
Shares of this Series shall be deemed to have been converted immediately
prior to the close of business on the day of the surrender of such shares for
conversion in accordance with the foregoing provisions and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at said office a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with a payment in lieu of any fraction of a share, as
hereafter provided, to the person or persons entitled to receive the same.
No fractional shares of Common Stock shall be issued upon conversion, but,
instead of any fraction of a share that would otherwise be issuable, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the market price per share of Common Stock at the
close of business on the day of conversion. The market value of a share of
Common Stock shall be the last reported sale price on the American Stock
Exchange on the last business day prior to the conversion date when the American
Stock Exchange is open, or, if there is no reported sale on such day, the last
reported closing bid price on the American Stock Exchange at the close of
trading on that day. If the Common Stock is not then listed on the American
Stock Exchange, the market value shall be the prevailing market value of the
Common Stock on any other securities exchange or in the open market, as
determined by the Corporation, which determination shall be conclusive.
The Corporation will pay any and all documentary, stamp, or similar taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of shares of this Series. The Corporation shall not,
however, be required to pay any such tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of this Series so converted were registered,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any such tax, or
has established, to the satisfaction of the Corporation, that such tax has been
paid.
The Corporation shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock (or held in
treasury), for the purpose of effecting the conversion of the shares of this
Series, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of this Series then outstanding.
ADJUSTMENT OF CONVERSION RATIO
If the Corporation subdivides or combines in a larger or smaller number of
shares its outstanding shares of Common Stock, then the number of shares of
Common Stock issuable upon the conversion of this Series shall be proportionally
increased in the case of a subdivision and decreased in the case of a
combination, effective in either case at the close of business on the date that
the subdivision or combination becomes
B-3
<PAGE> 46
effective.
If the Corporation is recapitalized, is consolidated with or merged into
any other corporation, or sells or conveys to any other corporation all or
substantially all of its property as an entity, provision shall be made as part
of the terms of the recapitalization, consolidation, merger, sale, or conveyance
so that the holders of this Series may receive, in lieu of the Common Stock
otherwise issuable to them upon conversion of this Series, at the same
conversion ratio, the same kind and amount or securities or assets as may be
distributable upon the recapitalization, consolidation, merger, sale, or
conveyance with respect to the Common Stock.
If the Corporation at any time pays to the holders of its Common Stock a
dividend in Common Stock, the number of shares of common stock issuable upon the
conversion of Preferred Stock shall be proportionally increased, effective at
the close of business on the record date for determination of the holders of the
Common Stock entitled to the dividend.
If the Corporation at any time pays any dividend or makes any distribution
on its Common Stock in property (other than cash or Common Stock of the
Corporation), then the number of shares of Common Stock issuable upon the
conversion of this Series shall be equitably adjusted at the close of business
on the record date for determination of the holders of the Common Stock entitled
to said dividend or distribution.
These adjustments shall be made successively if more than one of these
events occurs. However, no adjustment in the conversion ratio of this Series
into Common Stock shall be made by reason of:
(a) the payment of a cash dividend on the Common Stock or on any other
class of stock of the Corporation;
(b) the purchase, acquisition, redemption, or retirement by the
Corporation of any shares of common stock or of any other class of stock of
the Corporation, except as provided above in connection with a subdivision
or combination of the outstanding Common Stock of the Corporation;
(c) the issuance, other than as provided above, of any shares of
Common Stock, or of any securities of the Corporation convertible into
common stock or into other securities of the Corporation, or of any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
other securities of the Corporation.
NOTICE TO HOLDERS OF CERTAIN TRANSACTIONS
The Corporation shall cause a notice to be mailed to the transfer agent or
agents for this Series, and to the holders of record of shares of this Series at
their respective addresses as the same shall appear on the books of the
Corporation, in case of any transaction which would result in a change in the
conversion formula.
NO OTHER RIGHTS
The shares of this Series shall not have any relative, participating,
optional, or other special rights or powers other than as set forth above and in
the Certificate of Incorporation of the Corporation, as amended.
B-4
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS OF WENDT-BRISTOL HEALTH
SERVICES CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet at June 30, 1998
(Unaudited)............................................ F-2
Pro Forma Consolidated Statement of Operations for the Six
Months Ended June 30, 1998 (Unaudited)................. F-3
Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1997 (Unaudited)............... F-4
Computation of Pro Forma Earnings Per Share for the Six
Months Ended June 30, 1998 and Year Ended December 31,
1997 (Unaudited)....................................... F-5
Notes to Pro Forma Financial Statements (Unaudited)....... F-6
FINANCIAL STATEMENTS OF WENDT-BRISTOL HEALTH SERVICES
CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997...................... F-7
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended June 30, 1998 and 1997...... F-8
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1998 and 1997................ F-9
Notes to Consolidated Financial Statements for the Six
Months Ended June 30, 1998 and 1997.................... F-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Six Months
Ended June 30, 1998 and 1997........................... F-14
Report of Independent Auditors............................ F-17
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-18
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-19
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995........... F-20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-21
Notes to Consolidated Financial Statements for the Years
ended December 31, 1997, 1996 and 1995................. F-22
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-43
FINANCIAL STATEMENTS OF WENDT-BRISTOL DIAGNOSTICS COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997...................... F-45
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months ended June 30, 1998 and 1997...... F-46
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1998 and 1997................ F-47
Notes to Consolidated Financial Statements for the Six
Months Ended June 30, 1998 and 1997.................... F-48
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Six Months
Ended June 30, 1998 and 1997 and the Years Ended
December 31, 1997, 1996 and 1995....................... F-49
Report of Independent Auditors............................ F-51
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-52
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-53
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995........... F-54
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-55
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1997, 1996 and 1995................. F-57
</TABLE>
F-1
<PAGE> 48
PRO FORMA FINANCIAL INFORMATION
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DIAGNOSTICS DIAGNOSTICS PREFERRED
COMPANY PRO FORMA CO. L.P. FOR CASH PRO FORMA
PRO FORMA WITH DIAGNOSTICS PRO FORMA PRO FORMA WITH ALL
HISTORICAL ADJUSTMENTS COMPANY ONLY ADJUSTMENTS ADJUSTMENTS TRANSACTIONS
----------- ----------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.................................. $ 2,118,463 $ (77,142) $ 2,041,321 $ 21,884 $7,007,000 $ 9,070,205
Restricted Cash....................... 191,297 191,297 191,297
Receivables:
Trade, net of allowance for doubtful
accounts of $185,000.............. 2,426,566 2,426,566 2,426,566
Notes receivable.................... 332,435 332,435 332,435
Allocation due from limited
partnership....................... 628,000 628,000 (628,000)
Miscellaneous....................... 933,028 933,028 933,028
----------- --------- ----------- ---------- ---------- -----------
4,320,029 4,320,029 (628,000) 3,692,029
=========== ========= =========== ========== ========== ===========
Inventories........................... 187,912 187,912 187,912
Prepaid expenses and other............ 163,632 163,632 163,632
----------- --------- ----------- ---------- ---------- -----------
Total current assets............ 6,981,333 (77,142) 6,904,191 (606,116) 7,007,000 13,305,075
----------- --------- ----------- ---------- ---------- -----------
Property, plant and equipment, at
cost.................................. 14,394,625 14,394,625 716,295 15,110,920
Less: Accumulated depreciation and
amortization........................ (5,056,926) (5,056,926) (95,132) (5,152,058)
----------- --------- ----------- ---------- ---------- -----------
9,337,699 9,337,699 621,163 9,958,862
----------- --------- ----------- ---------- ---------- -----------
Investments and other assets:
Notes and other receivables, net of
current portion..................... 398,734 398,734 398,734
Notes receivable from officers,
employees and related parties, net
of amounts payable.................. 866,941 866,941 866,941
Life insurance premiums receivable.... 1,026,027 1,026,027 1,026,027
Investment in unconsolidated
affiliates.......................... 627,043 627,043 627,043
Advances to unconsolidated affiliates,
net................................. 677,854 677,854 677,854
Excess of cost over assets of
businesses and subsidiaries
acquired, less amortization......... 348,167 398,214 746,381 835,566 1,581,947
Deferred charges...................... 962,658 962,658 962,658
Other assets.......................... 330,012 330,012 229,194 559,206
----------- --------- ----------- ---------- ---------- -----------
Total investments and other
assets........................ 5,237,436 398,214 5,635,650 1,064,760 6,700,410
----------- --------- ----------- ---------- ---------- -----------
$21,556,468 $ 321,072 $21,877,540 $1,079,807 $7,007,000 $29,964,347
=========== ========= =========== ========== ========== ===========
LIABILITIES
Current liabilities:
Accounts payable...................... $ 3,287,550 $ 3,287,550 $ 3,287,550
Accrued expenses and other liabilities
Salaries and wages.................. 215,993 215,993 215,993
Taxes, other than federal income
taxes............................. 160,017 160,017 160,017
Interest............................ 122,803 122,803 122,803
Other............................... 293,600 293,600 293,600
Long-term obligations classified as
current............................. 987,001 987,001 987,001
Federal income taxes payable.......... 40,000 40,000 40,000
----------- --------- ----------- ---------- ---------- -----------
Total current liabilities....... 5,106,964 5,106,964 5,106,964
----------- --------- ----------- ---------- ---------- -----------
Long-term obligations, less amounts
classified as current................. 9,780,951 9,780,951 9,780,951
----------- --------- ----------- ---------- ---------- -----------
Total liabilities............... 14,887,915 14,887,915 14,887,915
----------- --------- ----------- ---------- ---------- -----------
Minority interests...................... 338,712 (554,463) (215,751) 215,751
----------- --------- ----------- ---------- ---------- -----------
Stockholders' equity:
Preferred stock....................... 857,140 857,140 1,438,420 7,700,000 9,995,560
Common stock.......................... 82,485 82,485 82,485
Capital in excess of par.............. 10,244,985 10,244,985 10,244,985
Retained earnings (deficit)........... (1,230,094) 18,395 (1,211,699) (574,364) (693,000) (2,479,063)
----------- --------- ----------- ---------- ---------- -----------
9,097,376 875,535 9,972,911 864,056 7,007,000 17,843,967
Treasury stock, at cost............... (2,767,535) (2,767,535) (2,767,535)
----------- --------- ----------- ---------- ---------- -----------
Total stockholders' equity...... 6,329,841 875,535 7,205,376 864,056 7,007,000 15,076,432
----------- --------- ----------- ---------- ---------- -----------
$21,556,468 $ 321,072 $21,877,540 $1,079,807 $7,007,000 $29,964,347
=========== ========= =========== ========== ========== ===========
</TABLE>
F-2
<PAGE> 49
PRO FORMA FINANCIAL INFORMATION
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
DIAGNOSTICS DIAGNOSTICS PREFERRED
COMPANY PRO FORMA CO. L.P. FOR CASH PRO FORMA
PRO FORMA WITH DIAGNOSTICS PRO FORMA PRO FORMA WITH ALL
HISTORICAL ADJUSTMENTS COMPANY ONLY ADJUSTMENTS ADJUSTMENTS TRANSACTIONS
---------- ----------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales....................... $ 548,432 $ 548,432 $ 548,432
Service income.................. 4,922,457 4,922,457 4,922,457
---------- -------- ---------- --------- ---------- ----------
5,470,889 5,470,889 5,470,889
---------- -------- ---------- --------- ---------- ----------
Cost and expenses:
Cost of sales................... 415,668 415,668 415,668
Selling, general and
administrative expenses,
net.......................... 4,470,657 14,749 4,485,406 30,947 4,516,353
---------- -------- ---------- --------- ---------- ----------
4,886,325 14,749 4,901,074 30,947 4,932,021
---------- -------- ---------- --------- ---------- ----------
Operating income before
depreciation.................... 584,564 (14,749) 569,815 (30,947) 538,868
Depreciation...................... 372,419 372,419 31,711 404,130
---------- -------- ---------- --------- ---------- ----------
Operating income.................. 212,145 (14,749) 197,396 (62,658) 134,738
Other income (expense):
Minority interests in loss
(earnings), net of tax....... 169,456 11,745 181,201 (181,201)
Interest expense, net........... (264,717) (264,717) (264,717)
Equity in earnings of
unconsolidated affiliates.... (18,937) (18,937) (18,937)
Other, net...................... 12,942 12,942 12,942
---------- -------- ---------- --------- ---------- ----------
(101,256) 11,745 (89,511) (181,201) (270,712)
---------- -------- ---------- --------- ---------- ----------
Income before income taxes........ 110,889 (3,004) 107,885 (243,859) (135,974)
Income tax benefit (expense)...... (3,500) (3,500) 82,912 79,412
---------- -------- ---------- --------- ---------- ----------
Net income........................ $ 107,389 $ (3,004) $ 104,385 $(160,947) $ $ (56,562)
========== ======== ========== ========= ========== ==========
Income per common share:
Basic........................... $ 0.02 $ $ 0.01 $ $ $ (0.06)
========== ======== ========== ========= ========== ==========
Diluted......................... $ 0.02 $ $ 0.01 $ $ $ (0.06)
========== ======== ========== ========= ========== ==========
Weighted average shares
outstanding:
Basic........................... 6,092,009 6,092,009 6,092,009
========== ======== ========== ========= ========== ==========
Diluted......................... 6,136,807 6,136,807 6,136,807
========== ======== ========== ========= ========== ==========
Ratio of earnings to fixed
charges......................... 1.248 0.424
========== ==========
</TABLE>
F-3
<PAGE> 50
PRO FORMA FINANCIAL INFORMATION
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DIAGNOSTICS DIAGNOSTICS PREFERRED
COMPANY PRO FORMA CO. L.P. FOR CASH PRO FORMA
PRO FORMA WITH DIAGNOSTICS PRO FORMA PRO FORMA WITH ALL
HISTORICAL ADJUSTMENTS COMPANY ONLY ADJUSTMENTS ADJUSTMENTS TRANSACTIONS
----------- ----------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales..................... $ 2,435,334 $ 2,435,334 $ 2,435,334
Service income................ 18,383,557 18,383,557 18,383,557
----------- -------- ----------- --------- ---------- -----------
20,818,891 20,818,891 20,818,891
----------- -------- ----------- --------- ---------- -----------
Cost and expenses:
Cost of sales................. 1,820,352 1,820,352 1,820,352
Selling, general and
administrative expenses,
net........................ 17,167,393 29,497 17,196,890 61,894 17,258,784
----------- -------- ----------- --------- ---------- -----------
18,987,745 29,497 19,017,242 61,894 19,079,136
----------- -------- ----------- --------- ---------- -----------
Operating income before
depreciation.................. 1,831,146 (29,497) 1,801,649 (61,894) 1,739,755
Depreciation.................... 823,363 823,363 63,421 886,784
----------- -------- ----------- --------- ---------- -----------
Operating income................ 1,007,783 (29,497) 978,286 (125,315) 852,971
Other income (expense):
Minority interests in loss
(earnings), net of tax..... 176,888 128,038 304,926 (304,926)
Interest expense, net......... (1,264,878) (1,264,878) (1,264,878)
Equity in earnings of
unconsolidated
affiliates................. 198,680 198,680 198,680
Gain on sale of nursing homes
assets..................... 1,778,007 1,778,007 1,778,007
Other, net.................... 84,633 84,633 84,633
----------- -------- ----------- --------- ---------- -----------
973,330 128,038 1,101,368 (304,926) 796,442
----------- -------- ----------- --------- ---------- -----------
Income before income taxes...... 1,981,113 98,541 2,079,654 (430,241) 1,649,413
Income tax benefit (expense).... (199,500) (199,500) 146,282 (53,218)
----------- -------- ----------- --------- ---------- -----------
Net income...................... $ 1,781,613 $ 98,541 $ 1,880,154 $(283,959) $ $ 1,596,195
=========== ======== =========== ========= ========== ===========
Income per common share:
Basic......................... $ 0.29 $ $ 0.29 $ $ $ 0.16
=========== ======== =========== ========= ========== ===========
Diluted....................... $ 0.26 $ $ 0.27 $ $ $ 0.16
=========== ======== =========== ========= ========== ===========
Weighted average shares
outstanding:
Basic......................... 6,224,241 6,224,241 6,224,241
=========== ======== =========== ========= ========== ===========
Diluted....................... 6,916,241 7,201,954 10,248,091
=========== ======== =========== ========= ========== ===========
Ratio of earnings to fixed
charges....................... 2.213 1.289
=========== ===========
</TABLE>
F-4
<PAGE> 51
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
BASIC AND DILUTED
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DIAGNOSTICS WITH DIAGNOSTICS DIAGNOSTICS PREFERRED WITH ALL
BASIC EARNINGS HISTORICAL COMPANY COMPANY ONLY CO. L.P. FOR CASH TRANSACTIONS
-------------- ---------- ----------- ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net income....................... $ 107,389 $ (3,004) $ 104,385 $ (160,947) $ (56,562)
Less: Preferred stock
dividends...................... (25,714) (25,714) (43,153) (231,000) (299,867)
---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders................... 107,389a (28,718) 78,671a (204,100) (231,000) (356,429)a
---------- ---------- ---------- ---------- ---------- ----------
DILUTED EARNINGS
Add: Effect of convertible
bonds..........................
Effect of options..............
Preferred stock dividends*.....
---------- ---------- ---------- ---------- ---------- ----------
Income assuming conversions...... 107,389b (28,718) 78,671b (204,100) (231,000) (356,429)b
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding:
Basic.......................... 6,092,009a 6,092,009a 6,092,009a
---------- ---------- ---------- ---------- ---------- ----------
Effect of convertible bonds....
Effect of options.............. 44,798 44,798 44,798
Effect of preferred shares*....
---------- ---------- ---------- ---------- ---------- ----------
Diluted shares................. 6,136,807b 6,136,807b 6,136,807b
---------- ---------- ---------- ---------- ---------- ----------
Income per common share:
Basic.......................... $ 0.0176a $ 0.0129a $ (0.0585)a
========== ========== ========== ========== ========== ==========
Diluted........................ $ 0.0175b $ 0.0128b $ (0.0581)b
========== ========== ========== ========== ========== ==========
</TABLE>
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
BASIC AND DILUTED
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DIAGNOSTICS WITH DIAGNOSTICS DIAGNOSTICS PREFERRED WITH ALL
BASIC EARNINGS HISTORICAL COMPANY COMPANY ONLY CO. L.P. FOR CASH TRANSACTIONS
-------------- ---------- ----------- ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net income....................... $1,781,613 $ 98,541 $1,880,154 $ (283,959) $1,596,195
Less: Preferred stock
dividends...................... (51,428) (51,428) (86,305) (462,000) (599,733)
---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders................... 1,781,613a 47,113 1,828,726a (370,264) (462,000) 996,462a
---------- ---------- ---------- ---------- ---------- ----------
DILUTED EARNINGS ADD:
Effect of convertible bonds.... 35,200 35,200 35,200
Effect of options.............. 15,017 15,017 15,017
Preferred stock dividends...... 51,428 51,428 86,305 462,000 599,733
---------- ---------- ---------- ---------- ---------- ----------
Income assuming conversions...... 1,831,830b 98,541 1,930,371b (283,959) 1,646,412b
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding:
Basic.......................... 6,224,241a 6,224,241 6,224,241a 6,224,241 6,224,241 6,224,241a
========== ========== ========== ========== ========== ==========
Effect of convertible bonds.... 500,000 500,000 500,000
Effect of options.............. 192,000 192,000 192,000
Effect of preferred shares..... 285,713 285,713 479,473 2,566,664 3,331,850
---------- ---------- ---------- ---------- ---------- ----------
Diluted shares................. 6,916,241b 6,509,954 7,201,954b 6,703,714 8,790,905 10,248,091b
---------- ---------- ---------- ---------- ---------- ----------
Income per common share:
Basic.......................... $ 0.2862a $ 0.2938a $ 0.1601a
========== ========== ========== ========== ========== ==========
Diluted........................ $ 0.2649b $ 0.2680b $ 0.1607b
========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
* The preferred shares were not included in the computation because they would
be anti-dilutive.
F-5
<PAGE> 52
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined financial statements give effect to the
Mergers using the purchase method of accounting, after giving effect to the pro
forma adjustments and assumptions described in the accompanying notes. These
unaudited pro forma financial statements have been prepared as if the Mergers
had occurred on December 31, 1996.
NOTE 1. PRO FORMA ADJUSTMENTS FOR WENDT-BRISTOL DIAGNOSTICS COMPANY
The market value of the Wendt-Bristol Diagnostics Company 171,429 minority
common shares (approximately 14.5% of the total outstanding) was determined by
converting the 171,429 shares into 42,857 shares (4:1 ratio) of Wendt-Bristol
Health Services Preferred Stock with a stated value of $20 per share. The
difference between the purchase price of $857,140 and the amount due to the
minority shareholders of $414,680 results in an excess of cost over assets
acquired (goodwill) of $442,460 being recorded on the balance sheet of
Wendt-Bristol Health Services. Such amount is being amortized over fifteen
years.
The pro forma balance sheet includes adjustments for the payment of
preferred dividends at the annual rate of $1.20 per share. The pro forma
statements of operations include adjustments for depreciation, amortization of
goodwill, and the inclusion of the minority share of earnings, now included in
the consolidated statements of Wendt-Bristol Health Services Corporation.
NOTE 2. PRO FORMA ADJUSTMENTS FOR WENDT-BRISTOL DIAGNOSTICS COMPANY L.P.
The market value of the Wendt-Bristol Diagnostics Company L.P. 143,842
minority units was determined by converting the 143,842 units into 71,921 shares
(2:1 ratio) of Wendt-Bristol Health Services Preferred Stock with a stated value
of $20 per share. The difference between the purchase price of $1,438,420 and
the amount due from the minority unitholders of $206,282 results in a fair
market revaluation of fixed assets of $716,295 and an excess cost over assets
acquired (goodwill) of $442,460 being recorded on the balance sheet of
Wendt-Bristol Health Services. The fixed assets are depreciated over 10-40 years
and the goodwill is amortized over fifteen years.
The pro forma balance sheet includes adjustments for the payment of
preferred dividends at the annual rate of $1.20 per share and for partnership
distributions made in 1997. The pro forma statements of operations include
adjustments for depreciation, amortization of goodwill, and the inclusion of the
minority share of losses, net of tax, now included in the consolidated
statements of Wendt-Bristol Health Services Corporation.
NOTE 3. PRO FORMA ADJUSTMENTS FOR THE SALE OF PREFERRED SHARES FOR CASH
The pro forma balance sheet includes adjustments for the sale of 385,000
preferred shares for cash and for the payment of preferred dividends at the
annual rate of $1.20 per share.
NOTE 4. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was calculated assuming a sale of
100% of the preferred stock offered for cash that would result in an increase of
$7,700,000 of cash to the Company. Earnings related to the use of such cash have
not been provided herein. On an initial pro forma basis, exclusive of earnings
related to the utilization of the $7,700,000 cash, the earnings would be
inadequate to cover fixed charges for the six months ended June 30, 1998 by
approximately $511,000. Pro forma depreciation for this same period amounts to
approximately $404,000.
F-6
<PAGE> 53
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)
<S> <C> <C>
Current assets:
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
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
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.
F-7
<PAGE> 54
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.
F-8
<PAGE> 55
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
=========== ===========
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.
F-9
<PAGE> 56
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, INCLUDED HEREIN.
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 THREE MONTHS ENDED
JUNE 30, 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>
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
F-10
<PAGE> 57
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
<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.
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>
F-11
<PAGE> 58
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited financial information of the affiliates which are accounted for
by the equity method is summarized below:
Combined Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
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
========== ==========
</TABLE>
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.
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.
F-12
<PAGE> 59
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1 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.
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.
F-13
<PAGE> 60
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.
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
F-14
<PAGE> 61
($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.
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 30, 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.
F-15
<PAGE> 62
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.
F-16
<PAGE> 63
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, 1997 and 1996, 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, 1997. 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, 1997
and 1996 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, 1997 in conformity with generally accepted accounting principles.
/s/ HAUSSER + TAYLOR LLP
Columbus, Ohio
April 20, 1998
F-17
<PAGE> 64
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 625,609 $ 890,670
----------- -----------
Restricted cash (Note 3).................................. 221,120 381,025
----------- -----------
Receivables (Note 4):
Trade, net of allowance for doubtful accounts of
$201,000 in 1997 and $190,000 in 1996.................. 2,878,726 2,014,403
Notes receivable -- current............................. 3,236,900 120,613
Miscellaneous........................................... 1,650,664 890,655
----------- -----------
7,766,290 3,025,671
Inventories............................................... 202,951 482,930
Prepaid expenses and other current assets................. 148,825 250,947
----------- -----------
Total current assets............................... 8,964,795 5,031,243
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (NOTES 5 AND 7)............... 13,081,583 20,880,293
Less accumulated depreciation and amortization............ (4,742,587) (6,135,704)
----------- -----------
8,338,996 14,744,589
----------- -----------
INVESTMENTS AND OTHER ASSETS
Notes and other receivables, net of current portion....... 420,651 359,007
Notes receivable from officers and related parties (Notes
11B and 11C)............................................ 902,271 993,580
Life insurance premiums receivable (Note 11D)............. 972,451 865,299
Investment in unconsolidated affiliates (Note 6).......... 640,980
Advances to unconsolidated affiliates, net................ 451,110
Excess of cost over assets of businesses and subsidiaries
acquired, less accumulated amortization................. 355,439 621,629
Deferred charges.......................................... 691,158 956,795
Other assets.............................................. 258,668 345,963
----------- -----------
4,692,728 4,142,273
----------- -----------
Total assets....................................... $21,996,519 $23,918,105
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -- officer (Note 11E)....................... $ $ 55,000
Securitization program advances (Note 4).................. 392,287
Accounts payable.......................................... 3,307,082 2,729,021
Accrued expenses and other liabilities:
Salaries and wages...................................... 533,346 482,134
Workers' compensation................................... 50,197 380,502
Taxes, other than federal income taxes.................. 219,885 726,106
Interest................................................ 117,313 118,640
Stock purchase agreement payable (Note 2)............... 325,000
Other................................................... 824,617 841,643
Long-term obligations classified as current (Note 7)...... 986,148 750,758
Federal income taxes payable (Note 9)..................... 40,000
----------- -----------
Total current liabilities.......................... 6,078,588 6,801,091
----------- -----------
LONG-TERM OBLIGATIONS LESS AMOUNTS CLASSIFIED AS CURRENT
(NOTE 7).................................................. 9,151,637 12,080,856
----------- -----------
Total liabilities.................................. 15,230,225 18,881,947
----------- -----------
MINORITY INTERESTS.......................................... 321,168 294,128
----------- -----------
CONTINGENCIES AND COMMITMENTS (NOTES 4, 7, 8 AND 12)
STOCKHOLDERS' EQUITY (NOTES 2 AND 10)
Common stock, $.01 par, authorized 12,000,000 shares;
issued 8,248,480 shares in 1997 and 8,243,480 shares in
1996.................................................... 82,485 82,435
Capital in excess of par.................................. 10,244,805 10,238,750
Retained earnings (deficit)............................... (1,337,483) (3,119,096)
----------- -----------
8,989,807 7,202,089
Treasury stock, at cost, 2,067,254 shares in 1997 and
2,007,460 shares in 1996............................... (2,544,681) (2,460,059)
----------- -----------
6,445,126 4,742,030
----------- -----------
Total liabilities and stockholders' equity......... $21,996,519 $23,918,105
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 65
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Net sales......................................... $ 2,435,334 $ 2,816,386 $ 2,708,955
Service income.................................... 18,383,557 18,524,816 18,147,243
----------- ----------- -----------
20,818,891 21,341,202 20,856,198
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales..................................... 1,820,352 2,071,596 1,920,118
Selling, general and administrative expenses...... 17,167,393 17,518,394 16,667,723
----------- ----------- -----------
18,987,745 19,589,990 18,587,841
----------- ----------- -----------
OPERATING INCOME BEFORE DEPRECIATION................ 1,831,146 1,751,212 2,268,357
----------- ----------- -----------
DEPRECIATION........................................ 823,363 964,715 902,692
----------- ----------- -----------
OPERATING INCOME.................................... 1,007,783 786,497 1,365,665
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Minority interests in loss (earnings), net of
tax............................................ 176,888 (76,860) (171,701)
Interest expense, net (Notes 4 and 7)............. (1,264,878) (1,104,278) (1,050,226)
Equity in earnings of unconsolidated affiliates
(Note 6)....................................... 198,680
Gain on sale of nursing homes assets (Note 1B).... 1,778,007
Other, net........................................ 84,633 109,254 21,008
----------- ----------- -----------
973,330 (1,071,884) (1,200,919)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................... 1,981,113 (285,387) 164,746
INCOME TAX BENEFIT (EXPENSE) (NOTE 9)............... (199,500) 39,109 51,979
----------- ----------- -----------
NET INCOME (LOSS)................................... $ 1,781,613 $ (246,278) $ 216,725
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE (NOTE 1) Basic....... $ 0.29 $ (0.04) $ 0.04
=========== =========== ===========
Diluted........................................... $ 0.26 $ (0.04) $ 0.04
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic............................................. 6,224,241 5,825,686 6,131,770
=========== =========== ===========
Diluted........................................... 6,916,241 5,825,686 6,131,770
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 66
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED TREASURY
STOCK EXCESS OF PAR EARNINGS STOCK TOTAL
------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
Shares contributed to
Retirement Plan (6,306
shares)............... 1,730 7,728 9,458
Treasury stock acquired
(66,100 shares)....... (92,350) (92,350)
Stock options exercised
(5,000 shares)........ 50 4,325 4,375
Net income............... 1,781,613 1,781,613
------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1997..................... $82,485 $10,244,805 $(1,337,483) $(2,544,681) $ 6,445,126
======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE> 67
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 1,781,613 $ (246,278) $ 216,725
----------- ----------- -----------
Adjustments required to reconcile net income (loss) to net
cash provided by operating activities:
Amortization, depreciation and other, net............... 851,811 985,200 920,606
Provision for losses on notes and accounts receivable... 153,995 110,620 105,528
Gain on sale of nursing home assets..................... (1,778,007)
Gain on sale of other assets............................ (77,169)
Life insurance premium reserve.......................... (376,000)
Costs associated with acquisition of minority interest
in limited partnership................................. 151,950
Minority interest in earnings (losses) of consolidated
subsidiaries........................................... (176,888) 76,860 171,701
Equity in earnings of unconsolidated affiliates......... (198,680)
Changes in assets and liabilities:
Receivables:
Sale (purchase) of receivables...................... (607,229) 970,550 (1,354,048)
Other changes....................................... (429,771) (534,300) 314,009
Inventories........................................... 279,979 6,112 (29,350)
Prepaid expenses and other current assets............. 100,045 160,611 130,423
Accounts payable...................................... 578,061 (107,453) 3,693
Accrued expenses and other liabilities................ (1,581,208) (1,656,355) 716,346
Federal income taxes payable.......................... 40,000 (100,000) (220,000)
Deferred charges and other............................ 35,812 (236,455) 23,607
----------- ----------- -----------
Total adjustments................................... (2,809,249) (324,610) 558,465
----------- ----------- -----------
Net cash provided by (used in) operations........... (1,027,636) (570,888) 775,190
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of minority interest from limited partners....... (250,000)
Collection of miscellaneous receivable.................... 1,700,000
Advances to unconsolidated affiliates..................... (451,110)
Collection on sale of nursing homes assets................ 750,000
Proceeds from sale of other property, plant and equipment
and investments......................................... 115,500
Investment in unconsolidated affiliates................... (442,300)
Decrease (increase) in notes receivable................... (149,137) (33,788) 278,962
Disbursements to related parties and former affiliates,
net..................................................... (62,669) (232,575) (184,390)
Utilization of (deposit to) restricted cash............... (104,382) (70,113) 243,654
Capital expenditures...................................... (569,676) (544,866) (504,321)
----------- ----------- -----------
Net cash provided by (used in) investing
activities.......................................... (913,774) (881,342) 1,283,905
=========== =========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to limited partners, net.................... (143,842) (143,842)
Purchase of common stock of subsidiary.................... (92,230) (8,000) (2,000)
Proceeds from sale of treasury stock...................... 500,000
Treasury stock purchased.................................. (92,350)
Proceeds from officer obligation.......................... 90,000 360,000
Principal payments of officer obligation.................. (145,000) (305,000)
Proceeds from warrants and options exercised.............. 4,375 3,750
Principal payments on long-term obligations............... (1,157,251) (875,659) (1,589,240)
Proceeds from borrowing on long-term obligations.......... 3,604,934 2,243,447 4,520
Net advances from (payments to) securitization program.... (392,287) 392,287 (478,500)
----------- ----------- -----------
Net cash provided by (used in) financing
activities.......................................... 1,676,349 2,307,075 (2,205,312)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH............................. (265,061) 854,845 (146,217)
CASH -- BEGINNING OF PERIOD................................. 890,670 35,825 182,042
----------- ----------- -----------
CASH -- END OF PERIOD....................................... $ 625,609 $ 890,670 $ 35,825
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net of interest income.......................... $ 1,266,205 $ 1,039,873 $ 1,060,226
Income taxes.............................................. $ 43,816 $ 141,688 $ 252,593
Supplemental Disclosures of Noncash
Investing and Financing Activity (Note 15)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE> 68
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 (two disposed of at December
31, 1997), a home health care delivery service (ceased operations during 1997),
a diagnostics center featuring fixed-site magnetic resonance imaging ("MRI"), CT
Scan, Sonography and other modalities. Additionally, the Company operates a
retail pharmacy in Ohio and is the landlord of a non-related manufacturing
building (see Note 12A).
A subsidiary of W-B is a member in three limited liability companies. One
company operates a diagnostic center that features an open-field magnetic
resonance imaging device. The second company operates a radiation therapy
practice. The third company has acquired land for which it has commenced
construction (in 1998) of a medical complex, a significant portion of which
Company affiliates will rent and operate. Investments in affiliated companies,
owned 22 1/2% to 50% inclusive are stated at cost of investment plus the
Company's equity in undistributed net income since acquisition. The change in
the equity in net income of these companies is included in equity in earnings of
unconsolidated affiliates in the Consolidated Statements of Operations.
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, SIGNIFICANT ASSETS,
PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS
Effective at the close of business on December 31, 1997, the Company sold
all of the operating assets of two of its three nursing homes for a total
purchase price of approximately $9.9 million. This was financed with cash of
$750,000; assumption of mortgage debt of approximately $6.2 million and a note
receivable of approximately $2.9 million. The entire note is expected to be paid
in full on April 21, 1998. The following summarizes the operations of the two
nursing homes for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 (A) 1996 1995
-------- ------ ------
(IN 000'S)
<S> <C> <C> <C>
Revenues................................................ $9,123 $9,254 $8,508
Operating income........................................ 1,091 1,049 479
Net income.............................................. 495 110 (110)
</TABLE>
- ---------------
(A) Excludes gain on sale of nursing home assets. During December 1996, the
Wendt-Bristol Diagnostics Company ("Diagnostics") formed Wendt-Bristol
Crosswoods, Ltd. During January 1997, Diagnostics invested $325,000 for a
50% interest in this new entity. Such funds were used to acquire operating
assets, including an open field magnetic resonance imaging device.
Operations of this new diagnostics center began in January 1997 and has
expanded to include helical CT and additional modalities during 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 began during the fourth quarter 1997.
F-22
<PAGE> 69
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, Diagnostics acquired a 50% interest in Jasonway, Ltd., a
venture that was formed to construct and rent a medical and office complex.
Construction is anticipated to be completed by third quarter 1998.
During 1997, the Company ceased to operate its home health care delivery
services. Loss from operations approximated $91,000, $124,000, and $47,000 for
the years ended December 31, 1997, 1996, 1995, respectively, 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 common shares in addition to nominal subsequent activity
has increased the Company's ownership to approximately 86%. The acquisition cost
exceeded the underlying equity in net assets ("goodwill") by $146,700. See Note
1H for further discussion with respect to amortization.
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 1997, 1996 or 1995.
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.
This financing arrangement terminated through payment in March, 1997 (see Note
4).
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-23
<PAGE> 70
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. INVENTORIES
Inventories are stated at the lower of cost or market, determined on the
first-in, first-out basis. Inventories at December 31, 1997 and 1996 were
$202,951 and $482,930, respectively. These inventories consist of retail
pharmaceuticals, durable medical equipment and supplies.
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. During the fourth quarter of
1997, the Company deducted the remaining goodwill of approximately $189,000
associated to its interest in Health America against the gain on the sale of the
nursing homes. Amortization expense excluding this one-time adjustment for the
years ended December 31, 1997, 1996, and 1995, approximated $28,400, $20,500 and
$17,900, respectively. Accumulated amortization at December 31, 1997, 1996 and
1995, was $141,900, $163,000, and $141,200, respectively. Goodwill consists of
an amount applicable to the manufacturing real estate 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, 1997, 1996
and 1995.
I. DEFERRED CHARGES
The Company has included in deferred charges costs that are being amortized
over future periods ranging from 5 to 11 years. Deferred charges are
predominantly costs associated with financing, costs incurred for staff
training, opening new facilities 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 for basic which was adjusted for the effect of
dilutive potential common shares in the computation of diluted EPS. (See Note
10)
F-24
<PAGE> 71
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income taxes, and are measured using the
enacted tax rates and laws that will be in effect or expected to continue in
effect when the differences are expected to reverse. (See Note 9).
M. FINANCIAL INSTRUMENTS AND FAIR VALUE
The estimated fair value of amounts reported in the financial statements
have been determined using available market information and valuation
methodologies, as applicable (see Note 16).
The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. The Company does not enter into
financial instruments for trading or speculative purposes. Gains and losses
related to qualifying hedges of firm commitments are deferred and are recognized
as income or as adjustments of carrying amounts when the hedged transaction
occurs.
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. ACCOUNTING PRONOUNCEMENTS FOR 1998
The FASB has issued three pronouncements for fiscal years beginning after
December 15, 1997 -- SFAS No. 130 -- "Reporting of Comprehensive Income"; SFAS
No. 131 -- "Disclosures about Segments of an Enterprise and Related
Information", and SFAS No. 132 -- "Employers' Disclosures about Pensions and
Other Postretirement Benefits". The Company believes that the effect of the
adoption of the above will not be material to its financial position or results
of operations.
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 1997, 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.
F-25
<PAGE> 72
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. This resulted in 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 remaining 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.
At December 31, 1997, 1996 and 1995, the Company owns, through its wholly
owned subsidiary, approximately 86%, 83%, and 83%, respectively, in Diagnostics.
See above and Note 1B concerning Wendt-Bristol Company's acquisition of
approximately 29% additional shares of Diagnostics in 1995 and other subsequent
activity.
NOTE 3. RESTRICTED CASH
The Company has restricted cash of $221,120 and $381,025 at December 31,
1997 and 1996, respectively. The amounts in a bank trust account were $179,934
and $171,654 at December 31, 1997 and 1996, 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 cash in 1997 represents amounts
in a brokerage margin account that is maintained in conjunction with foreign
exchange futures contracts. The remainder of the restricted cash in 1996
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. See Note 1B concerning the sale of
the two HUD facilities.
F-26
<PAGE> 73
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RECEIVABLES
The following schedule states current receivables by specific groups as
indicated at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables:
Trade (net of allowance for doubtful accounts) -- (a)..... $2,878,726 $2,014,403
---------- ----------
Notes receivable -- current:
Nursing homes sales(b).................................... 2,923,794
Related parties(c)........................................ 60,760 67,822
Unconsolidated affiliates(d).............................. 180,000
Others.................................................... 72,346 52,791
---------- ----------
Total............................................. 3,236,900 120,613
---------- ----------
Miscellaneous receivables:
Nursing homes sale(b)..................................... 326,990
Securitization program reserves(e)........................ 232,131
Due from limited partners(f).............................. 440,000
Medicare settlements...................................... 259,202 215,561
Others -- (g)............................................. 624,472 442,963
---------- ----------
Total............................................. 1,650,664 890,655
---------- ----------
Total current receivables......................... $7,766,290 $3,025,671
========== ==========
</TABLE>
- ---------------
(a) During May, 1996, the Company and certain of its subsidiaries entered into
an agreement with a finance company to secure additional working capital
funds. 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% for the years ended December 31, 1997 and
1996, 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.
Additionally, the purchaser advanced funds that were in excess of purchased
receivables of which $392,287 was outstanding at December 31, 1996 and was
subsequently paid in 1997.
(b) At December 31, 1997, the Company sold two of its nursing homes assets. The
current note receivable was expected to be received in full on April 21,
1998. (See Note 1B) The miscellaneous receivables represent escrow balances
related to HUD financing for which the Company is anticipating reimbursement
in 1998.
(c) The balance consists of the current portion of notes receivable for the sale
of assets to a related party (See Notes 11B and 11C).
(d) The balance consists of notes receivable from unconsolidated affiliates.
(See Notes 1A and 6).
(e) 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.
(f) 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
F-27
<PAGE> 74
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
that all income reallocated during the current year totaling $440,000 will
be restored in 1998 as a result of the priorities established in the
partnership agreement.
(g) The balance consists mostly (approximately $400,000 and $367,000 in 1997 and
1996, respectively) of a receivable due from the former owner of two of the
nursing homes regarding final collection of the purchase price of the
transaction. (See Note 12B).
Total interest income for the years ended December 31, 1997, 1996 and 1995,
amounted to approximately $204,000, $193,000, and $134,000, respectively, and is
netted against interest expense in the accompanying Consolidated Statements of
Operations.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 and the
estimated useful lives used in computing depreciation are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------------- USEFUL LIVES
1997 1996 (IN YEARS)
----------- ----------- ------------
<S> <C> <C> <C>
Land and improvements........................ $ 1,385,529 $ 1,666,105 30
Buildings and improvements................... 4,910,500 11,941,568 3-40
Machinery and equipment...................... 6,785,554 7,272,620 3-14
----------- -----------
13,081,583 20,880,293
Accumulated depreciation and
amortization............................ (4,742,587) (6,135,704)
----------- -----------
$ 8,338,996 $14,744,589
=========== ===========
</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 were placed in service during the third quarter of 1997.
Included in property, plant and equipment at December 31, 1997 and 1996 are
land, buildings and improvements of $4,517,834 and $4,453,608 with accumulated
depreciation and amortization of $1,176,265 and $1,061,488, respectively, leased
to the purchaser of its former manufacturing division (see Note 12A).
Depreciation and amortization expense for the years ended December 31,
1997, 1996 and 1995 was $823,363, $964,715, and $902,692, respectively.
F-28
<PAGE> 75
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EQUITY IN UNCONSOLIDATED AFFILIATES
Audited financial information of the affiliates which are accounted for by
the equity method (See Note 1A) is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN 000'S)
<S> <C>
COMBINED BALANCE SHEETS
Current assets.............................................. $1,046,000
Property, plant and equipment, net of accumulated
depreciation.............................................. 5,340,000
Other non-current assets.................................... 380,000
----------
Total assets...................................... $6,766,000
==========
Liabilities................................................. $5,583,000
Equity...................................................... 1,183,000
----------
Total liabilities and equity...................... $6,766,000
==========
COMBINED STATEMENTS OF OPERATIONS
Service revenues............................................ $1,524,000
Operating income............................................ 381,000
Net income.................................................. 363,000
</TABLE>
A limited liability company in which the Company has a 50% interest with
assets of $875,000, liabilities of $840,000 and equity of $35,000 is unaudited
as of December 31, 1997. The limited liability company has acquired land for
which a medical facility is under construction, therefore, it has no operations.
As a result of the limited liability companies being taxed as partnerships
for Federal income tax purposes, there is no tax provided for earnings.
F-29
<PAGE> 76
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS
At December 31, 1997 and 1996, long-term obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
5.5% subordinated convertible bond, interest only payable
in quarterly installments, principal due December,
2001.................................................... $ 1,000,000 $ 1,000,000
5.0% bonds, denominated in Swiss francs, interest only
payable in quarterly installments, principal due
February, 2002.......................................... 3,416,934
8.875% mortgage, payable in monthly installments including
interest through December, 2034. Paid off as real estate
was sold on December 31, 1997........................... 3,166,432
9% mortgage, payable in monthly installments including
interest through June, 2027. Paid off as real estate was
sold on December 31, 1997............................... 2,931,243
9.41% mortgage, payable in monthly installments including
interest through April, 2016............................ 690,661 704,172
Variable rate mortgage -- interest at 11.50% and 11.25% at
December 31, 1997 and 1996, respectively, payable in
monthly installments including interest through April,
2001, with any remaining balance due May 1, 2001........ 1,546,509 1,646,649
Variable rate mortgage -- interest at 10.5% at December
31, 1996, payable in monthly installments through
December, 1997.......................................... 34,992
7.7% to 13% notes payable in monthly installments
including interest, through February, 2004,
collateralized by equipment............................. 3,483,681 3,195,597
12% notes payable in monthly installments including
interest................................................ 128,578
Capitalized lease obligations............................. 23,951
----------- -----------
10,137,785 12,831,614
Less: current installments................................ 986,148 750,758
----------- -----------
Long-term portion......................................... $ 9,151,637 $12,080,856
=========== ===========
</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: 1998 -- $986,148, 1999 -- $831,526,
2000 -- $938,203, 2001 -- $1,702,655, and thereafter -- $5,679,254.
All land and real estate is collateralized by the mortgages payable.
The Company incurred interest expense in the amount of $1,469,251,
$1,297,630, and $1,183,945 in 1997, 1996 and 1995, respectively.
Commitments
The Company, its subsidiaries, and a limited partnership have committed to
certain equipment acquisitions that will be financed through a combination of
current equipment financing relationships, vendor
F-30
<PAGE> 77
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
programs or newly available resources. The cost of such equipment currently on
order is approximately $2,500,000.
In April 1998, the Company secured with a finance company an equipment
lease line of credit for $1,000,000. The entire lease line is available.
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, the Company leases all of the locations used in its
businesses under leases expiring on dates ranging through July 2015.
As of December 31, 1997, minimum annual rental commitments under
noncancelable leases amount to:
<TABLE>
<S> <C>
OPERATING LEASES
1998..................................................... $ 590,619
1999..................................................... 549,156
2000..................................................... 478,409
2001..................................................... 366,901
2002..................................................... 344,302
Thereafter............................................... 4,120,816
----------
$6,450,203
==========
</TABLE>
In addition, the Company remains contingently liable for certain leases on
locations that have been sold. These contingent leases include payments
aggregating $104,000 over the next three years.
Rental expense included in the Consolidated Statements of Operations for
the years ended December 31, 1997, 1996 and 1995, was approximately $567,000,
$569,000, and $564,000, respectively, net of annual sublease income of $870,
$1,740, and $20,180, respectively. Amortization of assets recorded under capital
leases is included in depreciation expense.
F-31
<PAGE> 78
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES
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, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Assets:
Net operating loss carryforwards.......................... $781,700 $1,874,000
Investment tax credit carryforwards....................... 25,900 28,400
Bad debt allowance........................................ 51,300 47,600
Other..................................................... 3,000 3,000
-------- ----------
861,900 1,953,000
Less: valuation allowance................................. 200,000
-------- ----------
861,900 1,753,000
-------- ----------
Liabilities:
Depreciation and amortization............................. 109,300 604,500
Costs capitalized in connection with acquisitions......... 605,000 884,600
Other..................................................... 10,200 10,200
-------- ----------
724,500 1,499,300
-------- ----------
Net deferred tax asset...................................... $137,400 $ 253,700
======== ==========
</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 utilized approximately
$3.2 million of net operating loss carryforwards through the sale of two nursing
home assets in 1997. Additionally, the valuation allowance was reduced by
$200,000. These two factors combined to result in a deferred tax expense of
$116,300 in 1997. Management has recognized a deferred tax benefit of $84,300 in
1996 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/or sale/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/or sale/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, 1997 are approximately $2,300,000, expiring $645,000 in 2004, $935,000 in
2006, $335,000 in 2008 and $383,000 in 2009. Investment tax credits available
for tax purposes at December 31, 1997 are approximately $25,900 expiring at
various dates from 1998 to 2000. In 1997 and 1996 as a result of consolidated
taxable income the Company was able to utilize net operating losses of
$3,160,000 and $27,000, respectively, of which $730,000 and $27,000,
respectively, was pre-operating losses of an acquired subsidiary which was only
to be used to offset taxable income by that subsidiary.
F-32
<PAGE> 79
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As discussed in Note 2, 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. Diagnostics has no significant
temporary differences that give rise to deferred tax assets or liabilities at
December 31, 1997, 1996 and 1995.
During 1995, see Note 2, 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, 1997, 1996 and 1995 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>
NOT INCLUDING
DIAGNOSTICS
(PERCENTAGE)
-------------
<S> <C>
DECEMBER 31, 1997
Federal statutory rate...................................... 34.0
Minority interests.......................................... (3.7)
Equity in unconsolidated affiliates......................... (4.2)
State and local income taxes, net of federal tax benefit.... 1.1
Alternative minimum tax..................................... 2.5
Tax effect of permanent differences......................... (5.0)
Valuation allowance......................................... (12.4)
-----
Effective rate.............................................. 12.3
=====
DECEMBER 31, 1996
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>
DIAGNOSTICS
(PERCENTAGE)
-------------
<S> <C> <C>
DECEMBER 31, 1995
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
===== ====
</TABLE>
F-33
<PAGE> 80
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The expense (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal:
Consolidated
Current expense............................... $ 40,000 $ $
Deferred expense (benefit).................... 116,300 (84,300)
Without Diagnostics
Current expense...............................
Deferred benefit.............................. (74,540)
State:
Consolidated
Current expense............................... 43,200 45,191
Without Diagnostics
Current expense............................... 7,006
Diagnostics
Current expense............................... 15,555
-------- -------- --------
Total tax expense (benefit)........................ $199,500 $(39,109) $(51,979)
======== ======== ========
</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.
WARRANTS
A. At December 31, 1997, 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 has been extended to May 1,
1999, and the redemption feature has been removed.
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 has
been extended to May 2000, which enables the warrant holder upon
exercise of the Series II warrant to purchase 2 shares of common stock
at $3.00 per share.
F-34
<PAGE> 81
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 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.
The Board of Directors granted options for 10,000 shares to each outside
Director upon their election. All such options have expired except for one block
of options to purchase 10,000 shares at a price of $.375 with an expiration date
of February 1, 2000. 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, 1997, 17,000 options were issued to outside directors. The annual
expense for these outside directors using the fair value based method (SFAS No.
123) approximated $300.
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 of which 65,000
are outstanding at December 31, 1997. These options will expire on June 3, 1998.
In May, 1996 the Board granted options totaling 130,000 shares to certain
officers and key employees of which 110,000 are outstanding at December 31,
1997. Such options are exercisable at a price of $.875 per share and expire on
May 23, 2001.
In 1997, 5,000 options were exercised at $.875 per share for total proceeds
of $4,375. Additionally, 30,000 options with exercise prices of $.875 to $1.25
were terminated as the employees are no longer employed by the Company.
No options were exercised in 1996 or 1995. There were 192,000 stock options
outstanding at December 31, 1997 at prices ranging from $.375 to $1.4375 per
share. At December 31, 1997 and 1996, options available for grant were 53,000
and 19,000, respectively.
The Company utilizes the intrinsic value method under APB No. 25 to account
for employee stock options. The Company has utilized the Black Scholes option
pricing model for proforma footnote purposes with the following assumptions used
for grants in all years. Dividend yield of 0%, risk-free interest rate of 6%,
and expected option life of 5 years. Expected volatility was 74.6%. If the
Company had utilized the fair value based method under FASB No. 123, the impact
would not be significant to the financial statements.
F-35
<PAGE> 82
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted EPS for December
31, 1997. As noted below, basic and diluted EPS are the same for the years ended
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders...... $1,781,613 6,224,241 $.29
====
Effect of dilutive securities (net of tax)
5.5% convertible bond..................... 35,200 500,000
Options...................................... 15,017 192,000
---------- ---------
DILUTED EPS
Income available to common stockholders and
assumed conversions....................... $1,831,830 6,916,241 $.26
========== ========= ====
</TABLE>
At December 31, 1997 and 1995, 1,440,980 and 1,248,980 stock options and
warrants 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. At December 31, 1996, all potential common stock
would be anti-dilutive due to the net loss. At December 31, 1995, all
outstanding stock options and warrants were excluded from diluted EPS because
the exercise price was greater than the average market price of the common
shares.
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 the Company's 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.
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
a lounge and a 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.
F-36
<PAGE> 83
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 1997 and 1996, the notes receivable amounts due from MHK
Corp. approximate $730,000 and $800,000, respectively. Interest income totaling
$68,328 and $76,668 for the year ended December 31, 1997 and 1996, 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, 1997 and 1996, the President and CEO of the Company had
outstanding advances totaling approximately $213,000 and $243,000, 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 $25,000
annually in 1998 and subsequent years.
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 $972,471 and $865,299 at December 31, 1997 and
1996 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.
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
$375,500 at December 31, 1997, 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.
F-37
<PAGE> 84
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. NOTES PAYABLE TO OFFICER
In January 1996, the Company borrowed the sum of $300,000 from Marvin D.
Kantor, a director and the Chairman of the Board of the Company. In September
1996, the Company borrowed an additional $60,000 (the "Loans"). 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 was $55,000 and was repaid in full in 1997.
F. MANAGEMENT FEES FROM UNCONSOLIDATED AFFILIATES
A subsidiary of the Company, Diagnostics, which owns equity interests in
limited liability companies (See Note 1B), is the management agent for one of
the companies. Management fees totaling $67,600 were included in the
Consolidated Statements of Operations for the year ended December 31, 1997.
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.
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 $56,000, $50,000, and $61,000 related to the clean-up during the
years ended December 31, 1997, 1996 and 1995, 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 3 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
F-38
<PAGE> 85
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1997
totaling $400,000 (see Note 4(e)) 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.
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 $1,775,000 for medical
equipment that is currently in or will be placed in service by entities that a
subsidiary, Wendt-Bristol Diagnostics Company ("Diagnostics"), has ownership
interests varying from 22.5% to 50%. In addition, the Company is contingently
liable for $3,500,000 as guarantor of debt on the construction of a medical and
office complex that Diagnostics has a 50% ownership interest in.
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.
NOTE 13. INDUSTRY SEGMENT DATA
Industry segment data for years ended December 31, 1997, 1996 and 1995
included in Item 1 ("Industry Segments") of this report is an integral part of
these financial statements.
F-39
<PAGE> 86
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 1997, 1996 and 1995, the
Company contributed 6,306, 16,262, and 21,764 shares, and recorded an expense of
$9,458, $8,733, and $9,900, respectively.
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITY
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITY Note receivable from officers
and related parties was reduced by assigning a
non-related party note receivable
Increase in notes receivable....................... $ 105,000
Decrease in notes receivable from officers and
related parties................................. (46,826)
Decrease in accrued interest payable............... (58,174)
A subsidiary of the Company is a general partner in a
limited partnership. Capital was reallocated from
the general partner to the limited partners
resulting in a receivable from the limited partners
Increase in miscellaneous receivables.............. $ 440,000
Increase in minority interests..................... (440,000)
A Partnership, which the Company is the general
partner, transferred equipment, at net book value
to an unconsolidated affiliate
Increase in advances to unconsolidated affiliate... $ 40,000
Decrease in property, plant and equipment, net..... (40,000)
Two subsidiaries of the Company sold nursing home
assets. Additionally, HUD replacement reserves are
to be returned as part of the sale
Increase in notes receivable, current.............. $ 2,923,794
Increase in miscellaneous receivables.............. 261,327
Decrease in restricted cash........................ (264,287)
Decrease in prepaid expenses....................... (11,535)
Decrease in property, plant and equipment, net..... (7,064,636)
Decrease in excess of cost over assets of
businesses and subsidiaries acquired............ (189,096)
Decrease in deferred charges and other assets...... (317,120)
Increase in accrued expenses....................... (394,367)
Decrease in debt................................... 6,083,927
Gain on sale of nursing home assets, net of cash
proceeds ($750,000)............................. (1,028,007)
</TABLE>
F-40
<PAGE> 87
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
A subsidiary and 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.................... $ 942,415 $ 875,626
Increase in long-term obligations.................. (942,415) (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
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)
</TABLE>
F-41
<PAGE> 88
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
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.......... $
Increase in long-term obligations.................. (166,826)
Increase in prepaid expenses and other current
assets.......................................... 45,116
Decrease in accounts payable....................... 121,710
</TABLE>
NOTE 16. 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, 1997 and 1996, 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.
At December 31, 1997, the Company had outstanding multiples of three month
foreign exchange futures contracts that were to expire March, 1998. Management's
intent is to continue to repurchase these contracts (currently holding June 1998
expirations) as a hedge against the Swiss Franc on 5,000,000 Swiss Franc 5%
bonds payable in February, 2002. As these futures contracts are not for trading
or speculative purposes, the Company has deferred the current loss of
approximately $104,000 at December 31, 1997 until 2002 when the bond becomes due
and a determination of the cumulative gain or loss is known.
F-42
<PAGE> 89
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.
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 two of
its three 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 enhancing the operations and profits at its diagnostic
and radiology centers. The previous statements regarding cost savings and profit
enhancement are forward-looking statements that are subject to competitive and
market influences that cannot be accurately predicted.
Working capital increased approximately $4,656,000 during the year ended
December 31, 1997. Current assets increased $3,934,000 while current liabilities
decreased $722,000 at December 31, 1997 as compared to December 31, 1996. The
increase in current assets was due mostly from increases in notes receivable
(total $3,116,000 of which $2,924,000 is related to the sale of the two nursing
homes), accounts receivable trade ($864,000) and miscellaneous receivables
($760,000), offset by declines in cash and inventories. Accounts receivable
trade increased in 1997 over the prior year due mostly to the Company
terminating its accounts receivable securitization program during the first
quarter of 1997 and buying back all of the accounts receivable that were
previously sold. Current liabilities decreased approximately $722,000 due mostly
from decreases in securitization program advances ($392,000), accrued workers'
compensation expenses ($330,000), accrued taxes other than federal income taxes
($506,000), and stock purchase agreement payable ($325,000) offset by increases
in accounts payable ($578,000) and current portion of long-term debt ($235,000).
The issuance of the long-term bonds (see below) allowed the Company to terminate
the accounts receivable securitization program and reduce the amount of current
liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the year in a much stronger liquidity position due to
several significant events that occurred in 1997. During February 1997, the
Company issued 5% long-term bonds totaling 5,000,000 swiss francs ($3,417,000)
to a group of European investors pursuant to Regulation S of the Securities Act
of 1933. The proceeds from this issuance were used to repay its higher-interest
accounts receivable securitization program advances (totaling approximately
$1,462,000) with the remainder of the funds used toward general working capital
requirements and expansion into new ventures in the diagnostic and radiology
fields.
At December 31, 1997 the Company, in two simultaneous and interdependent
transactions, sold the assets of its two Columbus, Ohio nursing homes. Terms of
the sale provided for a combined purchase price of $9,880,000 which resulted in
a gain on the sale of approximately $1,778,000 (see note 1B). The buyers paid
$750,000 at the time of closing, assumed mortgages and accrued interest totaling
$6,206,000, and issued personally guaranteed notes for the balance of
$2,924,000. These notes are anticipated to be collected in full on April 21,
1998.
In April 1998 the Company secured with a finance company an equipment lease
line of credit for $1,000,000. As of the issuance of this report, no draws have
been made against this lease line.
The Company and its subsidiaries, limited partnership and newly-formed
(1997) limited liability companies, have committed to certain equipment upgrades
that will be financed either through current equipment financing relationships
or vendor programs. In addition, the limited partnership, in which a subsidiary
of the Company is the general partner, is planning to expand its facility by
adding approximately
F-43
<PAGE> 90
7,500 square feet. The adjoining addition is anticipated to cost approximately
$800,000 and will be used to facilitate a women's health center.
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.
RESULTS OF OPERATIONS 1997-1996
Consolidated revenues from operations for the year ended December 31, 1997
decreased approximately $522,000 or 2.4% from the previous year. Net sales
declined $381,000 or 13.5% while service revenues decreased $141,000 or .8% from
the comparable period in 1996. The decline in sales was due to the Company
selling two of its retail pharmacies during 1997 while most of the decrease in
service revenue was due to the decline in visits in the home health care
subsidiary which ceased operations in April, 1997.
Cost of sales decreased approximately $251,000 or 12.1% for the year as
compared to 1996. Gross margin for the year ended December 31, 1997 was 25.3% as
compared to 26.4% for the comparable period in 1996. The decline is attributable
to pricing pressures in the competitive retail pharmacy markets and price
reductions at the locations that closed during the year.
Selling, general and administrative expenses decreased approximately
$351,000 or 2.0% for the year ended December 31, 1997 as compared to 1996. The
decrease is mostly due from decreased visits in the home health care agency
offset by small increases elsewhere.
Interest expense increased approximately $160,000 or 14.5% for the year
ended December 31, 1997 as compared to 1996. In 1996 the Company did not have a
working capital line of credit in place until late May and therefore, incurred
interest expense relating only to equipment and mortgages for the first five
months of 1996. The 1997 amounts includes the accounts receivable securitization
program interest costs through the middle of March and the interest attributable
to the convertible subordinated and Series I bonds (see note 7).
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 has
been significant.
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.
F-44
<PAGE> 91
THE WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,087 $ 156,289
Receivables:
Trade, net of allowance for doubtful accounts of
$122,000 and $101,000 (1998 and 1997)................. 1,597,326 1,333,822
Notes receivable, current portion...................... 177,046 600,387
Miscellaneous receivables.............................. 721,869 713,883
----------- -----------
2,496,241 2,648,092
----------- -----------
Prepaid expenses and other................................ 89,864 83,757
----------- -----------
Total current assets.............................. 2,587,192 2,888,138
----------- -----------
Property, plant and equipment, at cost...................... 8,979,842 7,711,144
Less: Accumulated depreciation and amortization........... (3,354,207) (3,093,219)
----------- -----------
5,625,635 4,617,925
----------- -----------
Investments and other assets:
Notes and other receivables, net of current portion....... 152,578 162,702
Investment in unconsolidated affiliates................... 627,043 640,980
Advances to affiliates, net............................... 451,982 698,118
Deferred charges.......................................... 568,976 486,658
Other assets.............................................. 102,603 54,118
----------- -----------
Total investments and other assets................ 1,903,182 2,042,576
----------- -----------
$10,116,009 $ 9,548,639
=========== ===========
LIABILITIES
Current liabilities:
Long-term obligations classified as current............... $ 839,856 $ 762,126
Accounts payable.......................................... 1,169,411 1,084,862
Accrued expenses and other liabilities
Salaries and wages..................................... 37,061 157,707
Taxes, other than federal income taxes................. 66,948 80,934
Interest............................................... 52,401 42,149
Other.................................................. 173,743 409,960
----------- -----------
Total current liabilities......................... 2,339,420 2,537,738
----------- -----------
Long-term debt and capital lease obligations, less current
portion................................................... 3,939,703 3,234,503
Advances due unconsolidated affiliates...................... 5,080 25,756
----------- -----------
Total liabilities................................. 6,284,203 5,797,997
----------- -----------
Stockholders' Equity
Common stock, $.01 par, authorized 2,000,000 shares,
issued and outstanding, 1,184,991 shares............... 11,850 11,850
Capital in excess of par.................................. 812,700 812,700
Retained earnings......................................... 3,007,256 2,926,092
----------- -----------
3,831,806 3,750,642
----------- -----------
$10,116,009 $ 9,548,639
=========== ===========
</TABLE>
F-45
<PAGE> 92
THE WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE 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:
Service income................................ $2,737,173 $3,937,207 $1,496,157 $2,001,843
Cost and expenses:
Selling, general and administrative........... 2,316,471 2,923,524 1,242,022 1,484,273
---------- ---------- ---------- ----------
Operating income before depreciation............ 420,702 1,013,683 254,135 517,570
Depreciation.................................... 286,781 330,689 136,436 189,261
---------- ---------- ---------- ----------
Operating income................................ 133,921 682,994 117,699 328,309
Other income (expense):
Interest expense, net......................... (215,716) (314,323) (132,399) (157,271)
Equity in earnings (losses) of unconsolidated
affiliates................................. (18,937) 134,103 (21,519) 46,545
Minority interest in losses, net of tax....... 181,201 64,777 93,762 70,251
Other, net.................................... (1,205) 19,822 (1,242) 18,826
---------- ---------- ---------- ----------
(54,657) (95,621) (61,398) (21,649)
Income before income taxes...................... 79,264 587,373 56,301 306,660
Income tax benefit (expense).................... 1,900 (10,400) (900) (4,600)
---------- ---------- ---------- ----------
Net income (loss)............................... $ 81,164 $ 576,973 $ 55,401 $ 302,060
========== ========== ========== ==========
Income per common share......................... $ 0.07 $ 0.49 $ 0.05 $ 0.25
========== ========== ========== ==========
Weighted average shares outstanding............. 1,184,991 1,184,991 1,184,991 1,184,991
========== ========== ========== ==========
</TABLE>
F-46
<PAGE> 93
THE WENDT-BRISTOL DIAGNOSTICS COMPANY 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................................................ $ 81,164 $ 576,973
----------- ----------
Adjustments required to reconcile net income to net cash
used by operating activities:
Depreciation and amortization.......................... 286,781 333,317
Minority interest in loss of consolidated subsidiary
and partnership....................................... (181,201) (64,777)
Equity in net losses (earnings) of unconsolidated
affiliates............................................ 18,937 (134,103)
Gain on sale of assets................................. (18,621)
Changes in assets and liabilities:
Accounts Receivable:
Sale (purchase) of accounts receivable............ (356,871)
Other changes..................................... (271,490) (213,058)
Prepaid expenses and other current assets............ (6,107) 10,251
Accounts payable..................................... 84,548 (140,791)
Accrued expenses and other liabilities............... (360,597) (201,418)
Deferred charges and other........................... 50,398 (68,321)
----------- ----------
Total adjustments................................. (378,731) (854,392)
----------- ----------
Net cash used in operating activities........... (297,567) (277,419)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated affiliates................... (5,000) (457,300)
(Increase) decrease in notes receivable................... 433,465 (141,309)
Deposit to restricted cash................................ (20,387)
Capital expenditures...................................... (88,871) (40,768)
----------- ----------
Net cash provided by (used in) investing
activities...................................... 339,594 (659,764)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partners......................... (143,842)
Principal payments of long-term obligations............... (422,689) (378,158)
Receipts from (advances to) affiliates, net............... 246,136 1,495,560
Advances to unconsolidated affiliates, net................ (20,676)
----------- ----------
Net cash provided by (used in) financing
activities...................................... (197,229) 973,560
----------- ----------
Net increase (decrease) in cash............................. (155,202) 36,377
Cash at beginning of period................................. 156,289 2,338
----------- ----------
Cash at end of period....................................... $ 1,087 $ 38,715
=========== ==========
CASH PAID DURING THE THREE MONTHS FOR:
Interest, net of interest income.......................... $ 205,464 $ 314,494
----------- ----------
Income taxes.............................................. $ $ 4,150
----------- ----------
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 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.
F-47
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MANAGEMENT'S REPRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal adjustments and
recurring accruals) necessary to present fairly the Wendt-Bristol Diagnostics
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 Diagnostics Company 1997 audit report.
F-48
<PAGE> 95
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
Management has positioned the Company to focus on continuing the expansion
of its Diagnostic and Radiology business. On December 31, 1997, the Company sold
its 75-bed nursing home, the Wendt-Bristol Center for Alzheimer's and related
disorders, and will use the cash from this sale to further expand into
additional diagnostic/radiology and radiation therapy centers. In February 1998
the Company 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.
The next medical center scheduled to open is the two-building, 31,000
square foot complex on Jasonway Road in Columbus, Ohio, scheduled for completion
in the fourth quarter of 1998 (see below). This facility will have advanced
diagnostic imaging including the first Positron Emission Tomography (PET)
scanning unit in central Ohio. In July 1998 the Company broke ground on its
Women's Health Center on Kenny Road in Columbus, Ohio. 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 $103,000 from $350,000 at December
31, 1997 to $248,000 at June 30, 1998. Current assets decreased approximately
$301,000, due mostly from decreases in cash ($155,000) and receivables
($152,000) while current liabilities decreased $198,000, due mostly from a
decrease in other accrued expenses ($236,000) which were primarily related to
the nursing home that was sold.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity remains good during the first half of the year. 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 line.
The Company, its 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.
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 (PET), and a
therapy and rehab center. 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 Company also has a 50%
interest in the land and buildings associated to the new center. As previously
indicated, the Company is planning to expand one of its facilities by adding
approximately 7,500 square feet. The cost of this expansion is anticipated to be
approximately $800,000 and will be financed with a commitment from a local bank.
Management believes the present resources will meet anticipated
requirements for operations of the business. There are no further material
commitments for capital expenditures.
RESULTS OF OPERATIONS 1998-1997
Revenues for the six and three months ended June 30, 1998 decreased
approximately $1,200,000 or 30.5% and $506,000 or 25.3%, respectively, over the
same periods in 1997 due to the sale of the nursing home at December 31, 1997.
Exclusive of the nursing home, revenues for the first half of 1998 were up 31.4%
over the same period last year due mostly to the revenues from the new location
in Granville, Ohio.
F-49
<PAGE> 96
Selling, general and administrative expenses decreased approximately
$607,000 or 20.8% for the six months and $242,000 or 16.3% for the three months
ended June 30, 1998 as compared to the same periods in 1997. The decrease is
mostly due to the reduction in expenses caused by the sale of the nursing home
($1,470,000) and a workers' compensation refund 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
$99,000 or 31.4% and $25,000 or 15.8% respectively, over the same periods in
1997. The decrease is due to the reduced debt from the mortgage on the sold
nursing home offset by additional interest expense on equipment purchases at the
new location and at the Kenny Road location.
RESULTS OF OPERATIONS 1997-1996
Revenues for the year ended December 31, 1997 increased approximately
$243,000 or 3.2% over the same period in 1996. Lower net revenues, due to
increased pricing pressures, at the diagnostic center offset a revenue increase
of 7% at the nursing home.
Selling, general and administrative expenses increased approximately
$288,000 or 4.9% for the year ended December 31, 1997 as compared to the 1996.
The increase is attributable to costs at the diagnostic center associated with
additional modalities (angiography), which began in 1997 and have not yet met
their anticipated volumes.
Interest expense for year ended December 31, 1997 increased $114,000 or
20.3% over the same period in 1996. This was due to additional equipment and
upgrades placed in service at the diagnostic center during 1997 along with a
full year of interest expense in 1997 on a major equipment re-financing as
compared to only nine months of expense in 1996.
RESULTS OF OPERATIONS 1996-1995
Revenues for the year ended December 31, 1996 increased approximately
$778,000 or 11.3% over the same period in 1995 due to a 22.9% increase in
revenues at the nursing home and an increase of 3.2% at the diagnostic center.
Selling, general and administrative expenses increased approximately
$513,000 or 9.6% for the year ended December 31, 1996 as compared to 1995. The
increase is attributable to costs associated with the increase in the volume of
diagnostic procedures performed at the diagnostic center and increased staffing
costs at the nursing home.
Interest expense for year ended December 31, 1996 increased $88,000 or
18.5% over the same period in 1995. Most of the increase was attributable to the
diagnostic center where the equipment was refinanced in March 1996 and the
building refinanced in April 1996. In addition, the Company entered into an
accounts receivable securitization program during May of the current year,
financing the receivables for working capital needs.
F-50
<PAGE> 97
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Wendt-Bristol Diagnostics Company
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of
Wendt-Bristol Diagnostics Company and Subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Wendt-Bristol
Diagnostics Company and Subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ HAUSSER + TAYLOR LLP
Columbus, Ohio
April 20, 1998, except for Note 15 as
to which the date is June 23, 1998
F-51
<PAGE> 98
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Current Assets
Cash...................................................... $ 156,289 $ 2,338
Restricted cash (Note 2).................................. 81,546
Receivables: (Notes 1, 3 and 4)
Trade, net of allowance for doubtful accounts of
$101,000............................................... 1,333,822 700,785
Miscellaneous........................................... 713,883 167,718
Notes receivable -- current............................. 600,387 22,906
---------- -----------
2,648,092 891,409
Prepaid expenses and other current assets................. 83,757 105,881
Escrow accounts (Note 5).................................. 35,674
---------- -----------
Total current assets............................... 2,888,138 1,116,848
---------- -----------
Property, Plant and Equipment (Notes 1 and 6)............... 7,711,144 10,659,698
Less accumulated depreciation............................. 3,093,219 3,237,844
---------- -----------
4,617,925 7,421,854
---------- -----------
Investments and Other Assets
Notes receivable, net of current portion (Notes 3 and
4)...................................................... 162,702 181,816
Investment in unconsolidated affiliates (Note 7).......... 640,980
Advances to affiliates, net (Note 12)..................... 698,118 1,954,282
Excess of cost over assets of subsidiary acquired, less
accumulated amortization (Note 1G)...................... 194,352
Deferred charges (Note 1H)................................ 486,658 653,922
Other assets.............................................. 54,118 18,432
---------- -----------
2,042,576 3,002,804
---------- -----------
$9,548,639 $11,541,506
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable (Notes 3 and 8).............................. $ $ 125,493
Long-term obligations classified as current (Note 9)...... 762,126 537,742
Accounts payable.......................................... 1,084,862 749,666
Accrued expenses and other liabilities:
Salaries and wages...................................... 157,707 121,088
Taxes, other than federal income taxes.................. 80,934 210,789
Interest................................................ 42,149 68,119
Other................................................... 409,960 374,278
Deferred income (Note 1K)................................. 91,698
---------- -----------
Total current liabilities.......................... 2,537,738 2,278,873
Long-Term Obligations Less Amounts Classified as Current
(Note 9).................................................. 3,234,503 6,262,576
Advances Due Unconsolidated Affiliates...................... 25,756
---------- -----------
Total liabilities.................................. 5,797,997 8,541,449
---------- -----------
Minority Interests (Note 11)
Contingencies and Commitments (Notes 9 and 14)
Stockholders' Equity
Common stock, $.01 par, authorized 2,000,000 shares,
issued and outstanding 1,184,991 shares................. 11,850 11,850
Capital in excess of par.................................. 812,700 812,700
Retained earnings......................................... 2,926,092 2,175,507
---------- -----------
3,750,642 3,000,057
---------- -----------
$9,548,639 $11,541,506
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 99
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES
Net service income........................................ $7,932,358 $7,689,035
---------- ----------
COSTS AND EXPENSES
Selling, general and administrative expenses.............. 6,163,506 5,875,348
Depreciation and amortization............................. 638,321 680,316
---------- ----------
6,801,827 6,555,664
---------- ----------
OPERATING INCOME............................................ 1,130,531 1,133,371
---------- ----------
OTHER INCOME (EXPENSE)
Interest expense, net (Notes 8 and 9)..................... (678,048) (563,620)
Loss on sale of nursing home assets (Note 1B)............. (264,739)
Equity in earnings of unconsolidated affiliates (Note
1B).................................................... 198,680
Minority interest in losses, net of tax................... 304,926 20,448
Other, net................................................ 77,335 12,736
---------- ----------
(361,846) (530,436)
---------- ----------
INCOME BEFORE TAXES......................................... 768,685 602,935
INCOME TAX EXPENSE (Note 11)................................ 18,100 14,391
---------- ----------
NET INCOME........................................ $ 750,585 $ 588,544
========== ==========
INCOME PER COMMON SHARE -- BASIC AND DILUTED (Note 1M)...... $ 0.63 $ 0.50
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 1,184,991 1,814,991
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 100
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED
STOCK EXCESS OF PAR EARNINGS TOTAL
------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1995................ $11,850 $812,700 $1,586,963 $2,411,513
Net income................................ 588,544 588,544
------- -------- ---------- ----------
BALANCE -- DECEMBER 31, 1996................ 11,850 812,700 2,175,507 3,000,057
Net income................................ 750,585 750,585
------- -------- ---------- ----------
BALANCE -- DECEMBER 31, 1997................ $11,850 $812,700 $2,926,092 $3,750,642
======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 101
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 750,585 $ 588,544
---------- ---------
Adjustments required to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 638,321 680,316
Minority interest in loss of consolidated subsidiary
and partnership....................................... (304,926) (20,448)
Equity in earnings on unconsolidated affiliates........ (198,680)
Loss on sale of nursing home assets.................... 264,739
Gain on sale of other assets........................... (18,621)
Changes in assets and liabilities:
Accounts receivable:
Sale (purchase) of accounts receivable............ (338,053) 476,362
Other changes..................................... (230,099) (354,167)
Prepaid expenses and other current assets............ 10,445 (15,424)
Accounts payable..................................... 335,196 (355,499)
Accrued expenses and other liabilities............... (305,587) (325,526)
Federal income taxes payable......................... (100,000)
Deferred charges and other........................... (186,698) (138,057)
---------- ---------
Total adjustments................................. (333,963) (152,443)
---------- ---------
Net cash provided by operating activities......... 416,622 436,101
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from notes receivable............................ 21,774 23,913
Investment in unconsolidated affiliates................... (442,300)
Note receivable due form unconsolidated affiliates........ (155,000)
Repurchase of limited partner units....................... (6,500)
Deposit to restricted cash................................ (43,631) (40,773)
Capital expenditures...................................... (265,266) (353,416)
---------- ---------
Net cash used in investing activities............. (890,923) (370,276)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to limited partners......................... (143,842)
Principal payments on long-term obligations............... (624,333) (419,775)
Proceeds from long-term debt.............................. 50,000 727,908
Advances (payments) on note payable....................... (125,493) 125,493
Receipts from (advances to) affiliates, net............... 1,256,164 (511,119)
Advances from unconsolidated affiliates, net.............. 65,756
Partial collection on sale of nursing home assets......... 150,000
---------- ---------
Net cash provided by (used in) financing
activities...................................... 628,252 (77,493)
---------- ---------
NET INCREASE (DECREASE) IN CASH............................. 153,951 (11,668)
CASH -- Beginning of period................................. 2,338 14,006
---------- ---------
CASH -- End of period....................................... $ 156,289 $ 2,338
========== =========
</TABLE>
F-55
<PAGE> 102
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest............................................... $ 678,048 $ 541,993
Income taxes........................................... 105,098
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY
The Company is a general partner in a limited partnership.
Capital was reallocated from the general partner to the
limited partners resulting in a receivable from the
limited partners
Increase in miscellaneous receivables.................. $ 440,000 $
Increase in minority interests......................... (440,000)
A Partnership, which the Company is the general partner,
transferred equipment, at net book value to an
unconsolidated affiliate
Increase in advances to unconsolidated affiliate....... $ 40,000 $
Decrease in property, plant and equipment, net......... (21,379)
Gain on sale of property, plant and equipment.......... (18,621)
A subsidiary of the Company sold nursing home assets.
Additionally, HUD replacement reserves are to be
returned as part of the sale.
Increase in notes receivable, current.................. $ 425,141 $
Increase in miscellaneous receivables.................. 171,050
Decrease in restricted cash............................ (125,177)
Decrease in prepaid expenses and escrow accounts....... (47,353)
Decrease in property, plant and equipment, net......... (3,440,197)
Decrease in excess cost over assets of businesses and
subsidiaries acquired................................. (189,096)
Decrease in deferred charges and other assets.......... (250,513)
Increase in accrued expenses........................... (130,365)
Decrease in debt....................................... 3,171,771
Loss on sale of nursing home assets, net of cash
proceeds ($150,000)................................... (414,739)
Purchase of equipment with notes payable:
Increase in property, plant and equipment.............. $ 942,415 $ 875,626
Increase in long-term obligations...................... (942,415) (875,626)
Sale of equipment to a related party for advance from
affiliate:
Increase in property, plant and equipment.............. $ $ 9,709
Decrease in advances to affiliates, net................ (9,709)
Transfer of equipment and related debt from a related
party for advance to affiliate:
Increase in property, plant and equipment.............. $ $ 33,252
Increase in long-term obligations...................... (25,859)
Decrease in advances to affiliates, net................ (7,393)
Sale of trade accounts receivable, a portion of which was
used for certain related fees:
Increase in deferred costs............................. $ $ 11,825
Increase in advances to affiliates..................... 15,675
Increase in miscellaneous accounts receivable.......... 88,917
Decrease in accounts receivable -- sold................ (116,417)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 103
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
A. PRINCIPALS OF CONSOLIDATION
The primary business of Wendt-Bristol Diagnostics Company, an Ohio
corporation, and its subsidiaries (the "Company") is to provide health care
services. Health America, Inc. ("Wendt-Bristol Center"), a wholly owned
subsidiary, operated a nursing home specializing in the care of persons with
Alzheimer's and related syndromes (sold at December 31, 1997)(Note 14).
Additionally, the Company is the general partner in Wendt-Bristol Diagnostics
Company L.P., a limited partnership, ("Diagnostics L.P."), which owns and
operates an outpatient medical diagnostics imaging and radiology center.
The Company is a member in three limited liability companies. One company
operates a diagnostic center that features an open-field magnetic resonance
imaging device. The second company operates a radiation therapy practice. The
third company has acquired land for which it has commenced construction (in
1998) of a medical complex, a significant portion of which Company affiliates
will rent and operate. Investments in affiliated companies, owned 22 1/2% to 50%
inclusive, are stated at cost of investment plus the Company's equity in
undistributed net income since acquisition. The change in the equity in net
income of these companies is included in equity in earnings of unconsolidated
affiliates in the Consolidated Statements of Operations.
The consolidated financial statements include the accounts of all companies
of which Wendt-Bristol Diagnostics Company has majority ownership or management
control (see Note II). All material intercompany transactions have been
eliminated in consolidation.
The Company is a majority-owned subsidiary of The Wendt-Bristol Company
("W-B Company"), a Delaware Corporation, which is wholly-owned by The Wendt
Bristol Health Services Corporation, a Delaware Corporation that trades on the
American Stock Exchange ("WMD"). At December 31, 1997 and 1996, W-B company owns
approximately 86% and 83%, respectively, of the outstanding common stock.
B. ACQUISITIONS AND DISPOSITIONS OF OWNERSHIP INTERESTS AND SIGNIFICANT ASSETS
Effective at the close of business on December 31, 1997, the Company sold
all of the operating assets of its nursing home for a total purchase price of
approximately $3.8 million. This was financed with cash of $150,000; assumption
of mortgage debt of approximately $3.2 million and a note receivable of
approximately $425,000. The entire note is expected to be paid in full on April
21, 1998. The following summarizes the operations of the nursing home for the
years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997(A) 1996
------- ------
(IN 000'S)
<S> <C> <C>
Revenues.................................................... $3,712 $3,471
Operating income............................................ 728 289
Net income (loss)........................................... 422 (24)
</TABLE>
- ---------------
(A) Excludes loss on sale of nursing home assets
During December 1996, the Company formed Wendt-Bristol Crosswood Ltd.
During January 1997, the Company invested $325,000 for a 50% interest in this
new entity. Such funds were used to acquire operating assets, including an open
field magnetic resonance imaging device. Operations of this new diagnostics
center began in January 1997 and has expanded to include helical CT and
additional modalities during 1997.
During 1997, the Company 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 began during the fourth quarter 1997.
F-57
<PAGE> 104
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, the Company acquired a 50% interest in Jasonway, Ltd., a
venture that was formed to construct a medical facility for long-term leasing to
operators, including affiliates. Construction is anticipated to be completed by
third quarter 1998.
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 1997 or 1996.
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
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 home is related
to services provided to Medicaid patients. The income reported for the nursing
home is based on cost reports filed with the State of Ohio and such reports are
subject to audit and adjustment by Medicaid auditors.
F. 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. 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.
G. EXCESS OF COST OVER ASSETS OF SUBSIDIARY ACQUIRED
Costs of the acquired subsidiary in excess of the value of net assets (i.e.
goodwill) are amortized over a forty year period. At December 31, 1997, the
Company included the remaining goodwill of approximately $189,000 associated to
its interest in Health America in the loss on the sale of the nursing home
assets. Amortization expense excluding this one-time adjustment for the years
ended December 31, 1997 and 1996 was $5,256. Accumulated amortization at
December 31, 1997 and 1996 was $-0- and $15,768, respectively.
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, 1997 and
1996.
H. 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
Wendt-Bristol Center; and pre-opening costs associated with a remodeled suite to
accommodate an angiography/fluoroscopy unit at
F-58
<PAGE> 105
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Diagnostics L.P. Deferred charges associated with the Wendt-Bristol Center for
mortgage financing and pre-opening costs approximating $250,000 were included as
cost of the sale of nursing home assets. Additionally, a negative minority
interest for the limited partners' interest in Diagnostic L.P. at December 31,
1997 and 1996 of $221,550 and $206,282, respectively (see Note 11) is included.
The negative minority interest is created by the initial allocation of offering
costs, the earnings allocation between the general and limited partners, and
cash distributions to the limited partners.
L. MINORITY INTEREST
The Company is the general partner for Wendt-Bristol Diagnostics Company,
L.P. For financial reporting purposes, the Partnership's assets, liabilities and
earnings are consolidated with those of the Company and the limited partners'
interest in Diagnostic L.P. is included in the Company's financial statements as
minority interest (see Note 1H).
J. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income taxes, and are measured using the
enacted tax rates and laws that will be in effect or expected to continue in
effect when the differences are expected to reverse (see Note 11).
K. DEFERRED INCOME
Deferred income represents patient service income (related to the nursing
home sold December 31, 1997) and received before the service has been completed
and earned.
L. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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.
M. INCOME PER SHARE
Per share amounts were computed using the weighted average number of shares
outstanding during each period. The Company has no common stock equivalents
outstanding at December 31, 1997 or 1996, therefore, basic and diluted earnings
per share are equal.
N. FAIR VALUE
The Company utilizes 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. 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
non-current notes receivable and notes payable, the Company believes the
carrying value will approximate their fair value based on the Company's
incremental borrowing rates for similar types of borrowings. Advances due
unconsolidated affiliates, net, does not accrue interest as the Company has
typically incurred charges for various services of the unconsolidated
affiliates.
F-59
<PAGE> 106
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. ACCOUNTING PRONOUNCEMENTS FOR 1998
The FASB has issued three pronouncements for fiscal years beginning after
December 15, 1997 -- SFAS No. 130 "Reporting of Comprehensive Income;" SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information", and
SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The Company believes that the effect of the adoption of the above
will not be material to its financial position or results of operations.
The American Institute of Certified Public Accountants has issued a
pronouncement for fiscal years beginning after December 15, 1998, with early
application permitted, entitled "Reporting on the Costs of Start-Up Activities."
Effective January 1, 1999, Diagnostics L.P. will record a change in accounting
principle for all start-up costs recorded on the balance sheet at December 31,
1998. At December 31, 1997, start-up costs totaling approximately $108,000 have
been capitalized net of accumulated amortization of approximately $4,000.
Effective January 1, 1999, the unamortized balance of approximately $78,000 will
be recorded as an expense in the Statements of Operations entitled "Change in
Accounting Principle."
NOTE 2. RESTRICTED CASH
The Company had restricted cash of $-0- and $81,546 at December 31, 1997
and 1996, respectively, representing an escrow for "replacement" reserves
maintained at the mortgage agent for the U.S. Department of Housing and Urban
Development ("HUD") for HUD insured financed skilled nursing facilities (see
Note 9). These deposits are included in Miscellaneous Receivables due to the
sale of the nursing home assets on December 31, 1997 (see Note 3).
NOTE 3. RECEIVABLES
The following schedule summarizes current receivables by specific groups as
indicated at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Receivables:
Trade (net of allowances for doubtful accounts) -- (A).... $1,333,822 $700,785
Miscellaneous receivables:
Nursing home sales (B).................................... 163,479
Securitization program reserves (D)....................... 166,368
Due from limited partners (E)............................. 440,000
Medicare settlements...................................... 30,012
Others.................................................... 80,392 1,350
---------- --------
Total............................................. 713,883 167,718
---------- --------
Notes receivable -- current:
Nursing home sales (B).................................... 425,141
Unconsolidated affiliates (C)............................. 155,000
Others.................................................... 20,246 22,906
---------- --------
Total............................................. 600,387 22,906
---------- --------
Total current receivables......................... $2,648,092 $891,409
========== ========
</TABLE>
- ---------------
A. During May, 1996, the Company and its subsidiary entered into an agreement
with a finance company to secure additional working capital funds. 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 $2,540,000 in 1996. Uncollected sold receivable
balances approximated $484,000 at December 31, 1996.
F-60
<PAGE> 107
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Program fees and costs are included in "interest expense, net" and "selling,
general and administrative" approximating 16% for the years ended December
31, 1997 and 1996, 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.
Additionally, the purchaser advanced funds that were in excess of purchased
receivables of which $125,493 was outstanding at December 31, 1996 and was
subsequently paid in 1997.
B. At December 31, 1997, the Company sold its nursing home assets. The current
note receivable is anticipated to be collected in full on April 21, 1998.
(See Note 1B) The miscellaneous receivables represent escrow balances
related to HUD financing for which the Company is anticipating reimbursement
in 1998.
C. The balance consists of notes receivable from unconsolidated affiliates.
(See Notes 1A, 7 and 12).
D. 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.
E. 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 during the current year totaling $440,000 will be
restored in 1998 as a result of the priorities established in the
partnership agreement.
Total interest income including related party (see Note 12) for the years
ended December 31, 1997 and 1996, amounted to approximately $38,000 and
$89,000, respectively, and is netted against interest expense in the
accompanying Consolidated Statements of Operations.
NOTE 4. NOTES RECEIVABLE
Notes receivable (all due in monthly installments) at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Notes receivable............................................ $763,089 $204,722
Less current installments................................... 600,387 22,906
-------- --------
Long-term portion................................. $162,702 $181,816
======== ========
</TABLE>
Notes receivable due from third parties which originated with the sale of
assets by related entities of the General Partner totaling $182,948 and
$204,722, at December 31, 1997 and 1996, respectively, are collateralized by the
assets sold. If the notes receivable are not timely paid to the Partnership, the
related company and the Wendt-Bristol Health Services Corporation, as parent,
guarantees payment. The notes receivable are due between 1998 through 2007, with
interest rates ranging from 8% to 10%.
Approximately $425,000 of the note receivable is due from the sale of the
nursing home assets (see Note 3).
NOTE 5. ESCROW ACCOUNTS
Escrow accounts represent funded reserves maintained under the terms of an
agreement with the Federal Housing Administration ("FHA"). The escrow balances
at December 31, 1997 and 1996 were $-0- and $35,674, respectively. The balances
consist of escrows for real estate taxes, property insurance and mortgage
insurance protection. These deposits are included in Miscellaneous Receivables
at December 31, 1997 due to the sale of the nursing home assets on December 31,
1997 (see Notes 1B and 3).
F-61
<PAGE> 108
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 and the
estimated useful lives used in computing depreciation are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1997 1996 (IN YEARS)
---------- ----------- ------------
<S> <C> <C> <C>
Land and improvements......................... $ 312,765 $ 473,841 30
Buildings and improvements.................... 1,256,694 4,249,374 3 - 40
Machinery and equipment....................... 6,141,685 5,936,483 3 - 14
---------- -----------
7,711,144 10,659,698
Accumulated depreciation and amortization..... 3,093,219 3,237,844
---------- -----------
$4,617,925 $ 7,421,854
========== ===========
</TABLE>
Depreciation and amortization expense for property, plant and equipment for
the year ended December 31, 1997 and 1996 was $550,034 and $601,756,
respectively, see Note 1F.
NOTE 7. EQUITY IN UNCONSOLIDATED AFFILIATES
Audited financial information of the affiliates which are accounted for by
the equity method (See Note 1A) is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
COMBINED BALANCE SHEETS
Current assets.............................................. $1,046,000
Property, plant and equipment, net of accumulated
depreciation.............................................. 5,340,000
Other non-current assets.................................... 380,000
----------
Total assets...................................... $6,766,000
==========
Liabilities................................................. $5,583,000
Equity...................................................... 1,183,000
----------
Total liabilities and equity...................... $6,766,000
==========
COMBINED STATEMENTS OF OPERATIONS
Service revenues............................................ $1,524,000
Operating income............................................ 381,000
Net income.................................................. 363,000
</TABLE>
A limited liability company in which the Company has a 50% interest with
assets of $875,000, liabilities of $840,000 and equity of $35,000 is unaudited
as of December 31, 1997. The limited liability company has acquired land for
which a medical facility is under construction; therefore, it has no operations.
As a result of the limited liability companies being taxed as partnerships
for Federal income tax purposes, there is no tax provided for earnings.
NOTE 8. NOTE PAYABLE
Advances, in the form of an unsecured note payable, bear interest at 12%
per annum with an additional servicing fee approximating 4% per annum, were
outstanding at December 31, 1996 totaling $125,493. The note payable was paid in
full subsequent to year end (see Note 3).
F-62
<PAGE> 109
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. LONG-TERM OBLIGATIONS
At December 31, 1997 and 1996, long-term obligations are as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
8.875% mortgage, payable in monthly installments of $24,261,
including interest, through December, 2034. Paid off as
real estate was sold on December 31, 1997................. $ $3,166,432
Variable rate mortgage, interest at 10.5% payable in monthly
installments through December 31, 1997.................... 34,995
Equipment note payable -- interest at 10.5% payable in
monthly installments of $13,412, including interest,
through December, 2002, collateralized by equipment....... 633,938 723,787
9.41% mortgage, payable in monthly installments of $6,600
plus interest through April, 2016......................... 690,661 704,172
Equipment notes payable -- interest varying from 7.68% to
12.98%, payable in monthly installments totaling $14,284,
including interest, through February, 2004, collateralized
by equipment.............................................. 771,578 871,302
Equipment notes payable -- interest varying from 10.55% to
12.9%, payable in monthly installments totaling $16,605,
including interest, through December, 2002, collateralized
by equipment.............................................. 866,493
Note payable -- interest at 12.59% payable in monthly
installments of $29,391, including interest, through
March, 2002, collateralized by equipment.................. 936,808 1,156,318
Note payable -- interest at 12.59% payable in monthly
installments of $3,034, including interest, through
February, 2002, collateralized by equipment............... 97,151 119,361
Capitalized lease obligations............................... 23,951
---------- ----------
3,996,629 6,800,318
Less current installments................................... 762,126 537,742
---------- ----------
$3,234,503 $6,262,576
========== ==========
</TABLE>
All land and real estate serve as collateral to the mortgages payable.
Aggregate future principal payments of long-term debt at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
TOTAL
----------
<S> <C>
1998..................................................... $ 762,126
1999..................................................... 675,778
2000..................................................... 764,748
2001..................................................... 537,275
2002..................................................... 429,085
Thereafter............................................... 827,617
----------
$3,996,629
==========
</TABLE>
Interest expense for 1997 and 1996 for long-term debt and capital lease
obligations was $756,313 and $652,658, respectively.
Commitments
The Company, its subsidiaries, and a limited partnership have committed to
certain equipment acquisitions that will be financed through a combination of
current equipment financing relationships, vendor programs or newly available
resources. The cost of such equipment currently on order is approximately
F-63
<PAGE> 110
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$2,500,000. The Wendt-Bristol Health Services Corporation has guaranteed
$263,000 of these commitments at December 31, 1997.
See Commitments and Contingencies Note 14 for debt guarantees made by the
Company for entities which the Company has equity ownership interests.
NOTE 10. LEASE COMMITMENTS
The Company and its two Diagnostic Centers have several noncancelable lease
agreements, accounted for as operating leases, expiring through 2007. As of
December 31, 1997, the minimum rental payments due under such leases are as
follows:
<TABLE>
<S> <C>
1998...................................................... $121,663
1999...................................................... 120,048
2000...................................................... 109,661
2001...................................................... 82,657
2002...................................................... 60,058
Thereafter................................................ 280,835
--------
$774,922
========
</TABLE>
Rent expense for 1997 and 1996 was $30,187 and $33,520, respectively.
NOTE 11. INCOME TAXES
The Company has recorded a deferred tax liability and a deferred tax asset.
The components of these deferred tax items, at 34%, at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets:
Net operating loss carryforwards.......................... $ $21,000
Bad debt allowance........................................ 34,000 34,000
------- -------
34,000 55,000
Less: valuation allowance................................. 29,000
------- -------
$ 5,000 $55,000
======= =======
Liabilities:
Property and equipment basis.............................. $ 5,000 $55,000
======= =======
</TABLE>
The deferred tax assets and liabilities have been offset for balance sheet
presentation. Net operating losses of the consolidated group have been allocated
to the Company to eliminate any deferred taxes otherwise required.
Consolidated net operating losses available for tax purposes at December
31, 1997 are approximately $2,300,000, expiring $645,000 in 2004, $935,000 in
2006, $335,000 in 2008 and $383,000 in 2009. Investment tax credits available
for tax purposes at December 31, 1997 are approximately $25,900 expiring at
various dates from 1998 to 2000. In 1997 and 1996 as a result of consolidated
taxable income the Company was able to utilize net operating losses of
$3,160,000 and $27,000, respectively, of which $730,000 and $27,000,
respectively was pre-operating losses of an acquired subsidiary, which was only
able to be used to offset taxable income of that subsidiary.
The principal differences between the income reported for financial
reporting purposes and the income or loss reported for federal income tax
purposes and direct write-off method for bad debts for tax purposes versus the
reserve method for accounting purposes.
F-64
<PAGE> 111
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective rate for the provision for income taxes is less than the
federal statutory rate primarily due to the utilization of available
current-year net operating losses of other members of its consolidated tax
group.
The components of income tax expense for the years ended December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Federal:
Current................................................... $ 257,000 $ 220,000
Benefit of net operating losses........................... (257,000) (220,000)
--------- ---------
State and Local:
Current................................................... 18,100 14,391
--------- ---------
Total tax expense................................. $ 18,100 $ 14,391
========= =========
</TABLE>
For the years ended December 31, 1997 and 1996 a reconciliation of the
statutory rate and effective rate for the provision for income taxes consists of
the following:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Federal statutory rate...................................... 34.0% 34.0%
Minority interests.......................................... 22.5 1.4
State and local income taxes, net of federal tax benefit.... 1.3 0.8
Tax effect of permanent differences......................... 14.1 4.1
Tax credits and other....................................... (47.8) (37.8)
Change in valuation allowance............................... (20.2)
----- -----
3.9% 2.5%
===== =====
</TABLE>
NOTE 12. RELATED PARTY TRANSACTIONS
A. PARTNERSHIP OWNERSHIP
Certain officers and directors of The Wendt-Bristol Health Services
Corporation own, in the aggregate, approximately 6% of the outstanding limited
partnership interests of Diagnostics L.P.
B. MANAGEMENT FEES
W-B Company provides various management services to the Company related to
Diagnostics L.P. for a contractual fee that amounted to $160,691 and $164,341
for the years ended December 31, 1997 and 1996, respectively.
A subsidiary of The Wendt-Bristol Health Services Corporation provided
various management services related to the Wendt-Bristol Center for a
contractual fee that amounted to $72,544 for the years ending December 31, 1997
and 1996.
The Company, which owns equity interest in limited liability companies (see
Note 1A), is the management agent for one of the companies. Management fees
totaling $67,600 were included in the Consolidated Statements of Operations for
the year ended December 31, 1997.
C. ADVANCES
During the years ended December 1997 and 1996, Diagnostics L.P. advanced
funds to various entities controlled by W-B Company in excess of defined
management fees and permitted distributions. At December 31, 1996, the related
party receivable balance including interest due to the Partnership was $936,427.
At December 31, 1997, there was a related party payable balance totaling
$27,428. The related party
F-65
<PAGE> 112
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
balance was reduced through a combination of payments, credits for management
fees and permitted distributions to the partners.
D. OTHER
Diagnostics L.P. sold medical equipment to an unconsolidated affiliate of
the general partner which resulted in a gain on sale of property and equipment
totaling $18,621 and reduced advances from unconsolidated affiliates by $40,000
which is included in the consolidated statement of operations.
The Company advanced funds to an unconsolidated affiliate (Wendt-Bristol at
Park Oncology Center, Ltd.) through a note receivable accruing interest at 8%
for $155,000. The entire balance outstanding at December 31, 1997 approximated
$161,000. It is anticipated that the principle and interest will be received in
1998 when the unconsolidated affiliate obtains a permanent loan.
The Company advanced funds to an unconsolidated affiliate (Wendt-Bristol at
Crosswoods, Ltd.) through a non-interest bearing note receivable for $20,000. It
is anticipated that the balance will be received in 1998.
NOTE 13. RETIREMENT PLAN
Wendt-Bristol Health Services Corporation 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 Wendt-Bristol Health Services Corporation common stock. During 1997 and
1996, the Company contributed 1,360 and 2,595 shares of Wendt-Bristol Health
Services Corporation common stock, respectively, and recorded an expense of
$2,039 and 1,395, respectively for the transfer of these shares to the plan.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company or The Wendt-Bristol Health Services Corporation ("WBHSC") is
contingently liable as a guarantor of long-term debt and capital lease
obligations totaling $1,775,000 for medical equipment that will be placed in
service by entities the Company has ownership interests varying from 22.5% to
50%. In addition, the Company is contingently liable for $3,500,000 as guarantor
of debt on the construction of a medical facility that the Company has a 50%
ownership interest.
Additionally, the Company and WBHSC 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 the Company has a 22.5% ownership interest. The Company and
WBHSC are currently 100% contingently liable for the two year lease and purchase
price.
NOTE 15. PROPOSED PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON STOCK
The Wendt-Bristol Health Services Corporation ("WBHSC") announced on June
23, 1998 that it is proceeding with plans to acquire the approximate 15% of the
outstanding shares of Wendt-Bristol Diagnostics Company that it does not already
own through a subsidiary (Wendt-Bristol Company). WBHSC has approved (subject to
the satisfactory completion of the appropriate filings with the Securities and
Exchange Commission and any other required approvals) the issuance of authorized
but unissued convertible Preferred Stock with a stated value of $20 per share
with cumulative dividends at $1.20 per share, payable quarterly to accomplish
the acquisition of the common stock that is not held by Wendt-Bristol Company. A
special meeting of the common stockholders is expected in the fourth quarter of
1998 for purposes of approving the transaction.
F-66
<PAGE> 113
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION
Though there is no specific provision made for indemnification in the case
of Security Act of 1933 liability, the Company's governing documents do provide
for the indemnification of certain individuals under certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or other persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed by
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Merger Agreement by and among The Wendt-Bristol Health
Services Corporation, Wendt-Bristol Acquisition, Inc. and
Wendt-Bristol Diagnostics Company
2.2 Merger Agreement by and among The Wendt-Bristol Health
Services Corporation, Wendt-Bristol Acquisition LLC and
Wendt-Bristol Diagnostics Company, L.P.
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)
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 The Wendt-Bristol Health Services Corporation Terms of
Series 1 Cumulative Dividend Convertible Preferred Stock
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)
</TABLE>
II-1
<PAGE> 114
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.2 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
financial. 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)
10.3 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)
10.4 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)
10.5 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)
10.6 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)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
</TABLE>
II-2
<PAGE> 115
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.13 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)
10.14 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)
10.15 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)
10.16 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)
10.17 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)
10.18 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)
12 Statement regarding computation of ratios
13 Annual Statement
21 Subsidiaries of Registrant
23.1 Consent of Hausser + Taylor LLP Relating to The
Wendt-Bristol Health Services Corporation
23.2 Consent of Hausser + Taylor LLP Relating to Wendt-Bristol
Diagnostics Company
24 Power of attorneys
27 EDGAR Financial Data Schedule
</TABLE>
(b) Financial Statement Schedules
Condensed Financial Information.........................................S-1
Valuation and Qualifying Accounts.......................................S-2
(c) Reports
Independent Auditors' Report............................................R-1
II-3
<PAGE> 116
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant undertakes as follows:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 (sec.230.415 of this chapter), will be filed
as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of an included
in the registration statement when it became effective.
II-4
<PAGE> 117
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus, State of Ohio,
on September 25, 1998.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
(Registrant)
By: /s/ MARVIN D. KANTOR
------------------------------------
Marvin D. Kantor, Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<C> <S>
/s/ MARVIN D. KANTOR Chairman of the Board; Director
- --------------------------------------------------------
Marvin D. Kantor
/s/ SHELDON A. GOLD President (Principal Executive Officer);
- -------------------------------------------------------- Director
Sheldon A. Gold
/s/ HAROLD T. KANTOR Vice Chairman of the Board; Director
- --------------------------------------------------------
Harold D. Kantor
/s/ REED A. MARTIN Executive Vice President; Chief Operating
- -------------------------------------------------------- Officer; Director
Reed A. Martin
/s/ PAUL H. LEVINE Director
- --------------------------------------------------------
Paul H. Levine
/s/ CLEMENTE DEL PONTE Director
- --------------------------------------------------------
Clemente Del Ponte
/s/ CHARLES R. CICERCHI Vice President of Finance; Principal
- -------------------------------------------------------- Financial and Accounting Officer
Charles R. Cicerchi
/s/ GERALD M. PENN Director
- --------------------------------------------------------
Gerald M. Penn
</TABLE>
II-5
<PAGE> 118
WENDT-BRISTOL HEALTH SERVICES CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31,
ENDED ---------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 5,471 $ 20,819 $ 21,341 $ 20,856 $ 19,487 $ 19,488
Income (loss from continuing
operations).......................... $ 107 $ 1,782 $ (246) $ 217 $ 204 $ (238)
Income (loss from continuing operations
per common share)(A)................. $ 0.02 $ 0.26 $ (0.04) $ 0.04 $ 0.03 $ (0.03)
Cash dividends declared per common
share................................ $ -- $ -- $ -- $ -- $ -- $ --
Ratio of earnings to fixed charges..... 1.248 2.213 0.810 1.183 1.141 0.815
BALANCE SHEET DATA:
Book value per common share............ $ 1.05 $ 1.04 $ 0.76 $ 0.79 $ 0.88 $ 0.86
Total assets........................... $ 21,556 $ 21,997 $ 23,918 $ 22,807 $ 26,508 $ 23,920
Long-term debt......................... $ 9,781 $ 9,152 $ 12,081 $ 7,881 $ 7,965 $ 9,249
Redeemable preferred stock............. $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity (deficit)......... $ 6,330 $ 6,445 $ 4,742 $ 4,543 $ 7,200 $ 6,964
Shares outstanding at end of period.... 6,023,479 6,181,226 6,236,020 5,719,758 8,195,244 8,141,796
</TABLE>
- ---------------
(A) Calculated on a diluted share basis
WENDT-BRISTOL DIAGNOSTICS COMPANY
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- ----------------------------------------
Revenues.............................. $ 2,737 $ 7,932 $ 7,689 $ 6,911 $ 3,998 $ 3,821
Income (loss from continuing
operations)......................... $ 81 $ 751 $ 589 $ 362 $ 183 $ 464
Income (loss from continuing
operations per common share)(A)..... $ 0.07 $ 0.63 $ 0.50 $ 0.31 $ 0.15 $ 0.40
Cash dividends declared per common
share............................... $ -- $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Book value per common share........... $ 3.23 $ 3.17 $ 2.53 $ 2.04 $ 1.73 $ 1.61
Total assets.......................... $ 10,116 $ 9,549 $ 11,542 $ 10,399 $ 9,441 $ 7,146
Long-term debt........................ $ 3,940 $ 3,235 $ 6,263 $ 4,673 $ 4,731 $ 3,439
Redeemable preferred stock............ $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity (deficit)........ $ 3,832 $ 3,751 $ 3,000 $ 2,412 $ 2,050 $ 1,885
Shares outstanding at end of period... 1,184,991 1,184,991 1,184,991 1,184,991 1,184,991 1,167,613
</TABLE>
S-1
<PAGE> 119
SCHEDULES S-2
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1997
Reserve deducted from asset to which it
applies:
Allowance for doubtful trade
accounts.......................... $190,000 $146,000 $135,000(a) $201,000
======== ======== ======== ========
Valuation allowance for deferred tax
assets.............................. $200,000 $ -- $200,000 $ --
======== ======== ======== ========
December 31, 1996
Reserve deducted from asset to which it
applies:
Allowance for doubtful trade
accounts.......................... $340,000 $114,620 $264,620(a) $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
accounts.......................... $250,000 $105,528 $ 15,528(a)(b) $340,000
======== ======== ======== ========
Valuation allowance for deferred tax
assets.............................. $400,000 $ -- $100,000 $300,000
======== ======== ======== ========
</TABLE>
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 accounts receivable.
S-2
<PAGE> 120
WENDT-BRISTOL DIAGNOSTICS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1997
Reserve deducted from asset to which it applies:
Allowance for doubtful trade accounts.............. $101,000 $91,188 $91,188(a) $101,000
======== ======= ======= ========
December 31, 1996
Reserve deducted from asset to which it applies:
Allowance for doubtful trade accounts.............. $ 80,300 $50,256 $29,556(a) $101,000
======== ======= ======= ========
December 31, 1995
Reserve deducted from asset to which it applies:
Allowance for doubtful trade accounts.............. $130,000 $45,992 $95,692(a) $ 80,300
======== ======= ======= ========
</TABLE>
- ---------------
Notes: (a) Write-off of uncollectible amounts
S-2
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wendt-Bristol Diagnostics Company
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of
Wendt-Bristol Diagnostics Company and Subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Wendt-Bristol
Diagnostics Company and Subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ HAUSSER + TAYLOR LLP
Columbus, Ohio
April 20, 1998, except for Note 15 as
to which the date is June 23, 1998
R-1
<PAGE> 122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
------------------------
EXHIBITS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE IN
MANUALLY
SIGNED
EXHIBIT ORIGINAL
- ------- --------
<S> <C> <C>
2.1 Merger Agreement by and among The Wendt-Bristol Health 1
Services Corporation, Wendt-Bristol Acquisition, Inc. and
Wendt-Bristol Diagnostics Company...........................
2.2 Merger Agreement by and among The Wendt-Bristol Health 13
Services Corporation, Wendt-Bristol Acquisition LLC and
Wendt-Bristol Diagnostics Company, L.P......................
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)....
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 The Wendt-Bristol Health Services Corporation Terms of 25
Series 1 Cumulative Dividend Convertible Preferred Stock....
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 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
financial. 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)....
10.3 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).....................................
10.4 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)...........................
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
PAGE IN
MANUALLY
SIGNED
EXHIBIT ORIGINAL
- ------- --------
<S> <C> <C>
10.5 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)....
10.6 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)....
10.7 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)......................................................
10.8 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).................................................
10.9 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).....................................
10.10 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).....................................
10.11 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).................
10.12 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)...........................
10.13 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)......................................................
10.14 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).....................................
10.15 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)......................................................
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
PAGE IN
MANUALLY
SIGNED
EXHIBIT ORIGINAL
- ------- --------
<S> <C> <C>
10.16 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)...........................
10.17 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)...........................
10.18 Loan and Security Agreement, dated March 27, 1996, between 31
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)........................
12 Statement regarding computation of ratios................... 32
13 Annual Report............................................... 96
21 Subsidiaries of Registrant.................................. --
23.1 Consent of Hausser + Taylor LLP relating to The 99
Wendt-Bristol Health Services Corporation...................
23.2 Consent of Hausser + Taylor LLP relating to Wendt-Bristol 100
Diagnostics Company.........................................
24 Power of attorneys.......................................... 101
27 EDGAR Financial Data Schedule............................... --
</TABLE>
<PAGE> 1
EXHIBIT 2.1
MERGER AGREEMENT
<PAGE> 2
- --------------------------------------------------------------------------------
MERGER AGREEMENT
AMONG
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION,
WENDT-BRISTOL ACQUISITION, INC.
AND
WENDT-BRISTOL DIAGNOSTICS COMPANY
SEPTEMBER 25, 1998
- --------------------------------------------------------------------------------
<PAGE> 3
<TABLE>
<S> <C>
1. Definitions.............................................................................................. 1
(a) "Buyer-owned Share" ............................................................................ 1
(b) "Dissenting Share" ............................................................................. 1
(c) "Ohio General Corporation Law" ................................................................. 1
(d) "Person" ....................................................................................... 1
(e) "Preferred Shares" ............................................................................. 1
(f) "Prospectus" ................................................................................... 1
(g) "Requisite Stockholder Approval" ............................................................... 1
(h) "SEC" .......................................................................................... 1
(i) "Securities Act" ............................................................................... 1
(j) "Securities Exchange Act" ...................................................................... 2
(k) "Target Share" ................................................................................. 2
(l) "Target Stockholder" ........................................................................... 2
2. Basic Transaction........................................................................................ 2
(a) The Merger...................................................................................... 2
(b) Closing......................................................................................... 2
(c) Actions at the Closing.......................................................................... 2
(d) Effect of Merger................................................................................ 2
(i) General. .............................................................................. 2
(ii) Articles of Incorporation. ............................................................ 2
(iii) Code of Regulations. .................................................................. 3
(iv) Directors and Officers. ............................................................... 3
(v) Conversion of Target Shares. .......................................................... 3
(vi) Conversion of Capital Stock of the Transitory Subsidiary. ............................. 3
(e) Procedure for Payment........................................................................... 3
(f) Closing of Transfer Records. ................................................................... 4
3. Covenants. .............................................................................................. 4
(a) General. ....................................................................................... 4
(b) Notices and Consents. .......................................................................... 4
(c) Regulatory Matters and Approvals. .............................................................. 4
(i) Securities Act, Securities Exchange Act, and State
Securities Laws. ..................................................................... 4
(ii) Ohio General Corporation Law. ......................................................... 4
4. Conditions to Obligation to Close........................................................................ 5
(a) Conditions to Obligation of the Buyer and the Transitory Subsidiary.
............................................................................................... 5
(b) Conditions to Obligation of the Target. ........................................................ 5
5. Termination. ............................................................................................ 6
(a) Termination of Agreement. ...................................................................... 6
(b) Effect of Termination. ......................................................................... 6
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C>
6. Miscellaneous............................................................................................ 6
(a) No Third-Party Beneficiaries. .................................................................. 6
(b) Entire Agreement. .............................................................................. 6
(c) Succession and Assignment. ..................................................................... 6
(d) Counterparts. .................................................................................. 6
(e) Headings. ...................................................................................... 6
(f) Notices. ....................................................................................... 7
(g) Governing Law. ................................................................................. 7
(h) Amendments and Waivers. ........................................................................ 7
(i) Severability. .................................................................................. 8
</TABLE>
-ii-
<PAGE> 5
MERGER AGREEMENT
This Agreement is entered into effective the 25th day of September, 1998,
by and among The Wendt-Bristol Health Services Corporation, a Delaware
corporation ( "BUYER"), Wendt-Bristol Acquisition, Inc., an Ohio corporation and
a wholly-owned Subsidiary of the Buyer ("TRANSITORY SUBSIDIARY"), and
Wendt-Bristol Diagnostics Company, an Ohio corporation ("TARGET"). Buyer,
Transitory Subsidiary, and Target are referred to collectively herein as the
"PARTIES."
This Agreement contemplates a transaction in which the Buyer (or its
wholly owned Subsidiary) will acquire all of the outstanding capital stock of
the Target for the Preferred Shares through a reverse subsidiary merger of the
Transitory Subsidiary with and into the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
(a) "BUYER-OWNED SHARE" means any Target Share that the Buyer or the
Transitory Subsidiary owns beneficially.
(b) "DISSENTING SHARE" means any Target Share which any stockholder
who or which has exercised his or its appraisal rights under the Ohio General
Corporation Law holds of record.
(c) "OHIO GENERAL CORPORATION LAW" means the General Corporation Law
of the State of Ohio, as amended.
(d) "PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
(e) "PREFERRED SHARES" means The Series 1 preferred shares of the
Buyer.
(f) "PROSPECTUS" means the final prospectus relating to the
registration of the Preferred Shares under the Securities Act.
(g) "REQUISITE STOCKHOLDER APPROVAL" means the affirmative vote of the
holders of a majority of the Target Shares in favor of this Agreement and the
Merger.
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES ACT" means the Securities Act of 1933, as amended.
<PAGE> 6
(j) "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(k) "TARGET SHARE" means any share of the Common Stock of the Target.
(l) "TARGET STOCKHOLDER" means any Person who or which holds any
Target Shares.
2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of
this Agreement, Transitory Subsidiary will merge with and into the Target
("MERGER") at the Effective Time. The Target shall be the corporation surviving
the Merger ("SURVIVING CORPORATION").
(b) CLOSING. The closing of the transactions contemplated by this
Agreement ("CLOSING") shall take place at the offices of Schottenstein, Zox &
Dunn Co., L.P.A. in Columbus, Ohio, commencing at 9:00 a.m. local time on the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Parties may mutually
determine ("CLOSING DATE").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) Target and
Transitory Subsidiary will file with the Secretary of State of the State of Ohio
a Certificate of Merger ("CERTIFICATE OF MERGER"), and (ii) the Buyer will cause
the Surviving Corporation to deliver the Preferred Shares to the Exchange Agent
in the manner provided below in this Section 2.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time ("EFFECTIVE
TIME") the Target and the Transitory Subsidiary file the Certificate of
Merger with the Secretary of State of the State of Ohio. The Merger shall
have the effect set forth in the Ohio General Corporation Law. The
Surviving Corporation may, at any time after the Effective Time, take any
action (including executing and delivering any document) in the name and on
behalf of either the Target or the Transitory Subsidiary in order to carry
out and effectuate the transactions contemplated by this Agreement.
(ii) ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Surviving Corporation as in effect immediately prior to the Effective Time
shall remain unchanged.
2
<PAGE> 7
(iii) CODE OF REGULATIONS. The Code of Regulations of the Surviving
Corporation as in effect immediately prior to the Effective Time shall
remain unchanged.
(iv) DIRECTORS AND OFFICERS. The directors and officers of Target
shall continue as the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions and
terms of office).
(v) CONVERSION OF TARGET SHARES. At and as of the Effective Time, (A)
the Target Stockholders (other than any Dissenting Share or Buyer-owned
Share) shall have the right to receive 1 Preferred Share ("Conversion
Ratio") for each four (4) Target Shares (the "Merger Consideration"), (B)
each Dissenting Share shall be converted into the right to receive payment
from the Surviving Corporation with respect thereto in accordance with the
provisions of the Ohio General Corporation Law, and (C) each Buyer-owned
Share shall be cancelled; provided, however, that the Merger Consideration
shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change in the number of
Target Shares outstanding. No Target Share shall be deemed to be
outstanding or to have any rights other than those set forth above in this
Section2(d)(v) after the Effective Time. No fractional Preferred Shares
shall be issued and, in lieu thereof, cash shall be paid to such Target
Stockholders at the rate of $5.00 per Target Share.
(vi) CONVERSION OF CAPITAL STOCK OF THE TRANSITORY SUBSIDIARY. At and
as of the Effective Time, each share of Common Stock of the Transitory
Subsidiary shall be cancelled.
(e) PROCEDURE FOR PAYMENT.
(i) Immediately after the Effective Time, (A) the Buyer will furnish
to an exchange agent selected by it ("EXCHANGE AGENT") a stock certificate
(issued in the name of the Exchange Agent or its nominee) representing that
number of Preferred Shares equal to the product of (I) the Conversion Ratio
times (II) the number of outstanding Target Shares (other than any
Dissenting Shares and Buyer-owned Shares) and (B) the Buyer will mail a
letter of transmittal (with instructions for its use) each record holder of
outstanding Target Shares for the holder to use in surrendering the
certificates which represented his or its Target Shares in exchange for a
certificate representing the number of Buyer Shares to which he or it is
entitled.
(ii) The Buyer will not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Target Shares until the holder surrenders for
exchange his or its certificates which represented Target Shares. The Buyer
instead will pay the dividend
3
<PAGE> 8
or make the distribution to the Exchange Agent in trust for the benefit
of the holder pending surrender and exchange.
(iii) The Buyer may cause the Exchange Agent to return any Buyer
Shares and dividends and distributions thereon remaining unclaimed 180 days
after the Effective Time, and thereafter each remaining record holder of
outstanding Target Shares shall be entitled to look to the Buyer (subject
to abandoned property, escheat, and other similar laws) as a general
creditor thereof with respect to the Buyer Shares and dividends and
distributions thereon to which he or it is entitled upon surrender of his
or its certificates.
(f) CLOSING OF TRANSFER RECORDS. After the close of business on
the Closing Date, transfers of Target Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Corporation.
3. COVENANTS. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 4 below).
(b) NOTICES AND CONSENTS. The Target will give any notices to
third parties, and will use its reasonable efforts to obtain any third party
consents, that the Buyer reasonably may request.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will
give any notices to, make any filings with, and use its reasonable efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies. Without limiting the generality of the foregoing:
(i) FEDERAL AND STATE SECURITIES LAWS. The Buyer will prepare and file
with the SEC a registration statement under the Securities Act relating to
the offering and issuance of the Preferred Shares (the "REGISTRATION
STATEMENT") and may make certain associated filings as may be required
under state law. The filing Party in each instance will use its reasonable
efforts to respond to the comments of the SEC or state securities agency,
as the case may be, thereon and will make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper, or advisable.
(ii) OHIO GENERAL CORPORATION LAW. The Target will call a special
meeting of its stockholders (the "SPECIAL MEETING"), as soon as reasonably
practicable in order that the stockholders may consider and vote upon the
adoption
4
<PAGE> 9
of this Agreement and the approval of the Merger in accordance with the
Ohio General Corporation Law.
4. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER AND THE TRANSITORY
SUBSIDIARY. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer and the Transitory Subsidiary.
The Buyer and the Transitory Subsidiary may waive any condition specified
in this Section 4(a) if they execute a writing so stating at or prior to the
Closing.
(b) CONDITIONS TO OBLIGATION OF THE TARGET. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) this Agreement and the Merger shall have received the Requisite
Stockholder Approval; and
(iii) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target.
The Target may waive any condition specified in this Section 4(b) if it
executes a writing so stating at or prior to the Closing.
5. TERMINATION.
5
<PAGE> 10
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate
this Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time; or
(ii) any Party may terminate this Agreement by giving written notice
to the other Parties at any time after the Special Meeting in the event
this Agreement and the Merger fail to receive the Requisite Stockholder
Approval.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section5(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
6. MISCELLANEOUS.
(a) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that the
provisions in Section 2 above concerning payment of the Merger Consideration are
intended for the benefit of the Target Stockholders.
(b) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after)
6
<PAGE> 11
it is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
If to the Target: Wendt-Bristol Diagnostics Company
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
If to the Buyer: The Wendt-Bristol Health Services Corporation
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
If to the Transitory Wendt-Bristol Acquisition, Inc.
Subsidiary: Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Ohio without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Ohio or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Ohio.
(h) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Ohio General Corporation Law. No amendment
of any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any
7
<PAGE> 12
rights arising by virtue of any prior or subsequent such occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective the date first above written.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
By:/s/ Sheldon A. Gold
---------------------------------
Sheldon A. Gold, President
WENDT-BRISTOL ACQUISITION, INC.
By:/s/ Sheldon A. Gold
---------------------------------
Sheldon A. Gold, President
WENDT-BRISTOL DIAGNOSTICS COMPANY
By:/s/ Sheldon A. Gold
---------------------------------
Sheldon A. Gold, President
8
<PAGE> 1
EXHIBIT 2.2
MERGER AGREEMENT
<PAGE> 2
- --------------------------------------------------------------------------------
MERGER AGREEMENT
AMONG
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION,
WENDT-BRISTOL ACQUISITION LLC
AND
WENDT-BRISTOL DIAGNOSTICS COMPANY L.P.
SEPTEMBER 25, 1998
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions............................................................................................... 1
(a) "Buyer-owned Units" ............................................................................. 1
(b) "Partnership Agreement".......................................................................... 1
(c) "Person" ........................................................................................ 1
(d) "Preferred Shares" .............................................................................. 1
(e) "Prospectus" .................................................................................... 1
(f) "Requisite Unitholder Approval" ................................................................. 1
(g) "SEC" ........................................................................................... 1
(h) "Securities Act" ................................................................................ 1
(i) "Target Unit" ................................................................................... 1
(j) "Target Unitholder" ............................................................................. 2
2. Basic Transaction......................................................................................... 2
(a) The Merger....................................................................................... 2
(b) Closing.......................................................................................... 2
(c) Actions at the Closing........................................................................... 2
(d) Effect of Merger................................................................................. 2
(i) General. ............................................................................... 2
(ii) Partnership Agreement. ................................................................. 2
(iii) General Partner......................................................................... 2
(iv) Conversion of Target Units. ............................................................ 2
(v) Conversion of Membership Interest of the Transitory
Subsidiary.............................................................................. 3
(e) Procedure for Payment............................................................................ 3
(f) Closing of Transfer Records. .................................................................... 4
3. Covenants. ............................................................................................... 4
(a) General. ........................................................................................ 4
(b) Notices and Consents. ........................................................................... 4
(c) Regulatory Matters and Approvals. ............................................................... 4
(i) Federal and State Securities Laws. .................................................... 4
(ii) Partnership Agreement. ................................................................. 4
4. Conditions to Obligation to Close......................................................................... 4
(a) Conditions to Obligation of the Buyer and the Transitory
Subsidiary....................................................................................... 4
(b) Conditions to Obligation of the Target. ......................................................... 5
5. Termination............................................................................................... 5
(a) Termination of Agreement. ....................................................................... 5
(b) Effect of Termination. .......................................................................... 6
6. Miscellaneous............................................................................................. 6
(a) No Third-Party Beneficiaries. ................................................................... 6
(b) Entire Agreement. ............................................................................... 6
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
(c) Succession and Assignment. ...................................................................... 6
(d) Counterparts. ................................................................................... 6
(e) Headings. ....................................................................................... 6
(f) Notices. ........................................................................................ 6
(g) Governing Law. .................................................................................. 7
(h) Amendments and Waivers. ......................................................................... 7
(i) Severability. ................................................................................... 7
</TABLE>
-ii-
<PAGE> 5
MERGER AGREEMENT
This Agreement is entered into effective the 25th day of September, 1998,
by and among The Wendt-Bristol Health Services Corporation, a Delaware
corporation ( "BUYER"), Wendt-Bristol Acquisition LLC, a Delaware limited
liability company and a wholly-owned subsidiary of the Buyer ("TRANSITORY
SUBSIDIARY"), and Wendt-Bristol Diagnostics Company L.P., a Delaware limited
partnership ("TARGET"). Buyer, Transitory Subsidiary, and Target are referred to
collectively herein as the "PARTIES."
This Agreement contemplates a transaction in which the Buyer (or its wholly
owned Subsidiary) will acquire all of the outstanding limited partnership units
of the Target for the Preferred Shares through a merger of the Transitory
Subsidiary with and into the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
(a) "BUYER-OWNED UNITS" means any Target Unit that the Buyer, the
Transitory Subsidiary, or any of their affiliates own beneficially.
(b) "PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement
and Certificate of Limited Partnership of Wendt-Bristol Diagnostics Company L.P.
(c) "PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
(d) "PREFERRED SHARES" means the Series 1 preferred stock of the
Buyer.
(e) "PROSPECTUS" means the final prospectus relating to the
registration of the Preferred Shares under the Securities Act.
(f) "REQUISITE UNITHOLDER APPROVAL" means the affirmative vote of the
holders of a majority of the Target Units in favor of this Agreement and the
Merger.
(g) "SEC" means the Securities and Exchange Commission.
(h) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(i) "TARGET UNIT" means any Depository Unit of the Target.
(j) "TARGET UNITHOLDER" means any Person who or which holds any Target
Units.
<PAGE> 6
2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, Transitory Subsidiary will merge with and into the Target ("MERGER")
at the Effective Time. The Target shall be the entity surviving the Merger
("SURVIVING ENTITY").
(b) CLOSING. The closing of the transactions contemplated by this
Agreement ("CLOSING") shall take place at the offices of Schottenstein, Zox &
Dunn Co., L.P.A. in Columbus, Ohio, commencing at 9:00 a.m. local time on the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Parties may mutually
determine ("CLOSING DATE").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) Target and Transitory
Subsidiary will file with the Secretary of State of the State of Delaware a
Certificate of Merger ("CERTIFICATE OF MERGER"), and (ii) the Buyer will cause
the Surviving Entity to deliver the Preferred Shares to the Exchange Agent in
the manner provided below in this Section2.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
("EFFECTIVE TIME") the Target and the Transitory Subsidiary file the
Certificate of Merger with the Secretary of State of the State of
Delaware. The Merger shall have the effect set forth under Delaware
law. The Surviving Entity may, at any time after the Effective Time,
take any action (including executing and delivering any document) in
the name and on behalf of either the Target or the Transitory
Subsidiary in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) PARTNERSHIP AGREEMENT. The Partnership Agreement of the
Surviving Entity as in effect immediately prior to the Effective Time
shall remain unchanged.
(iii) GENERAL PARTNER. The general partner of Target shall
continue as the general partner of the Surviving Entity at and as of
the Effective Time (retaining their respective positions and terms of
office).
(iv) CONVERSION OF TARGET UNITS. At and as of the Effective
Time, (A) the Target Unitholders (other than any Buyer-owned Unit)
shall have the right to receive 1 Preferred Share ("Conversion Ratio")
for each two (2) Target Units (the "Merger Consideration"), and (B)
each Buyer-owned Unit shall be cancelled; provided, however, that the
Merger Consideration shall be subject to equitable adjustment in the
event of any split, distribution, or other change in the number of
Target Units outstanding. No Target Unit shall be deemed to be
outstanding or to
2
<PAGE> 7
have any rights other than those set forth above in this
Section 2(d)(iv) after the Effective Time. No fractional Preferred
Shares shall be issued and, in lieu thereof, cash shall be paid to such
Target Unitholders at the rate of $10.00 per Target Unit.
(v) CONVERSION OF MEMBERSHIP INTEREST OF THE TRANSITORY
SUBSIDIARY. At and as of the Effective Time, the Membership Interests
of the Transitory Subsidiary shall be cancelled.
(e) PROCEDURE FOR PAYMENT.
(i) Immediately after the Effective Time, (A) the Buyer will
furnish to an exchange agent selected by it ("EXCHANGE AGENT") a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing that number of Preferred Shares equal to the product of
(I) the Conversion Ratio times (II) the number of outstanding Target
Units (other than any Buyer-owned Units) and (B) the Buyer will mail a
letter of transmittal (with instructions for its use) each record
holder of outstanding Target Units for the holder to use in
surrendering the certificates which represented his or its Target
Units in exchange for a certificate representing the number of
Preferred Shares to which he or it is entitled.
(ii) The Buyer will not pay any dividend or make any
distribution on Preferred Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Target Units until
the holder surrenders for exchange his or its certificates which
represented Target Units. The Buyer instead will pay the dividend or
make the distribution to the Exchange Agent in trust for the benefit
of the holder pending surrender and exchange.
(iii) The Buyer may cause the Exchange Agent to return any
Preferred Shares and dividends and distributions thereon remaining
unclaimed 180 days after the Effective Time, and thereafter each
remaining record holder of outstanding Target Units shall be entitled
to look to the Buyer (subject to abandoned property, escheat, and
other similar laws) as a general creditor thereof with respect to the
Buyer Shares and dividends and distributions thereon to which he or it
is entitled upon surrender of his or its certificates.
(f) CLOSING OF TRANSFER RECORDS. After the close of business on
the Closing Date, transfers of Target Units outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Entity.
3. COVENANTS. The Parties agree as follows with respect to the period from
and after the execution of this Agreement:
(a) GENERAL. Each of the Parties will use its reasonable efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make
3
<PAGE> 8
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section4
below).
(b) NOTICES AND CONSENTS. The Target will give any notices to third
parties, and will use its reasonable efforts to obtain any third party consents,
that the Buyer reasonably may request.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will give
any notices to, make any filings with, and use its reasonable efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies. Without limiting the generality of the foregoing:
(i) FEDERAL AND STATE SECURITIES LAWS. The Buyer will
prepare and file with the SEC a registration statement under the
Securities Act relating to the offering and issuance of the Preferred
Shares (the "REGISTRATION STATEMENT") and may make certain associated
filings as may be required under state law. The filing Party in each
instance will use its reasonable efforts to respond to the comments of
the SEC or state securities agency, as the case may be, thereon and
will make any further filings (including amendments and supplements)
in connection therewith that may be necessary, proper, or advisable.
(ii) PARTNERSHIP AGREEMENT. The Target will call a special
meeting of its Target Unitholders (the "SPECIAL MEETING"), as soon as
reasonably practicable in order that the Target Unitholders may
consider and vote upon the adoption of this Agreement and the approval
of the Merger in accordance with the Partnership Agreement and
Delaware law.
4. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER AND THE TRANSITORY
SUBSIDIARY. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective
under the Securities Act;
(ii) all actions to be taken by the Target in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer and the Transitory
Subsidiary.
4
<PAGE> 9
The Buyer and the Transitory Subsidiary may waive any condition
specified in this Section 4(a) if they execute a writing so stating at or prior
to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TARGET. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective
under the Securities Act;
(ii) this Agreement and the Merger shall have received the
Requisite Unitholder Approval; and
(iii) all actions to be taken by the Buyer and the
Transitory Subsidiary in connection with consummation of the
transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to the Target.
The Target may waive any condition specified in this Section4(b) if it
executes a writing so stating at or prior to the Closing.
5. TERMINATION.
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate this
Agreement with the prior authorization of its manager, general partner or board
of directors, as the case may be (whether before or after the Requisite
Unitholder Approval), as provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time; or
(ii) any Party may terminate this Agreement by giving
written notice to the other Parties at any time after the Special
Meeting in the event this Agreement and the Merger fail to receive the
Requisite Unitholder Approval.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 5(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
6. MISCELLANEOUS.
(a) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors
5
<PAGE> 10
and permitted assigns; provided, however, that the provisions in Section 2 above
concerning payment of the Merger Consideration are intended for the benefit of
the Target Unitholders.
(b) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Target: Wendt-Bristol Diagnostics Company L.P.
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
If to the Buyer: The Wendt-Bristol Health Services Corporation
Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
If to the Transitory Wendt-Bristol Acquisition LLC
Subsidiary: Two Nationwide Plaza
280 North High Street, Suite 760
Columbus, Ohio 43215
Attn: Sheldon A. Gold, President
6
<PAGE> 11
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
(h) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors, general partner or
manager, as the case may be; provided, however, that any amendment effected
subsequent to stockholder approval will be subject to the restrictions contained
in Delaware law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective the date first above written.
THE WENDT-BRISTOL HEALTH SERVICES
CORPORATION
By: /s/ Sheldon A. Gold
---------------------------------
Sheldon A. Gold, President
7
<PAGE> 12
WENDT-BRISTOL ACQUISITION LLC
By: /s/ Sheldon A. Gold
--------------------------------
Sheldon A. Gold, Manager
By: WENDT-BRISTOL DIAGNOSTICS COMPANY L.P.
Its: General Partner
By: /s/ Sheldon A. Gold
--------------------------------
Sheldon A. Gold, President
8
<PAGE> 1
EXHIBIT 4
TERMS OF PREFERRED SHARES
<PAGE> 2
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
TERMS OF SERIES 1 CUMULATIVE DIVIDEND CONVERTIBLE PREFERRED STOCK
Resolved, that pursuant to the authority vested in the board of directors
of The Wendt-Bristol Health Services Corporation by its Certificate of
Incorporation, as amended, the board of directors hereby assigns the attributes
of previously authorized preferred stock, a series of preferred stock designated
as Series 1 Cumulative Dividend Convertible Preferred Stock ("Series"),
consisting of 500,000 shares, $1 par value each, with a stated value of $20.00
per share, of which the preferences and other special rights and the
qualifications, limitations, or restrictions on such preferences and rights
shall be as follows:
DIVIDENDS
The holders of record of shares of this Series shall be entitled to
receive, when and as declared by the board of directors out of funds legally
available therefor, cash dividends at the rate of $1.20 per share per annum,
payable quarterly on such dates as may from time to time be determined by the
board of di rectors, in preference to and in priority over dividends upon the
Common Stock of the Corporation and all other shares of Preferred Stock of the
Corporation that are by their terms expressly made junior as to dividends to
this Series. The holders of shares of this Series shall not be entitled to any
dividends other than the cash dividends provided for in this Section. No
dividends shall be declared or paid on the Common Stock of the Corporation
during any period when the Corporation has failed to pay a quarter-annual
dividend on this Series for any preceding quarter.
LIQUIDATION
In the event of a liquidation, dissolution, or winding up of the
Corporation, the holders of shares of this Series shall be entitled to receive
out of the assets of the Corporation an amount equal to $20 per share, plus any
accrued and unpaid dividends thereon to the date fixed for distribution, in
preference to and in priority over any such distribution upon the Common Stock
of the Corporation and all other shares of Preferred Stock of the Corporation
that are by their terms expressly made junior as to liquidation preferences to
this Series. If the assets of the Corporation are not sufficient to pay such
amounts in full to the holders of this Series and all other Series of Preferred
Stock of the Corporation ranking equally as to liquidation preferences with the
shares of this Series, the holders of this Series and of all such other Series
shall share ratably in any such distribution of assets in accordance with the
amounts that would be payable on such distribution if the amounts to which the
holders of this and all such other Series are entitled were paid in full.
REDEMPTION
This Series may be redeemed, in whole or in part, at the option of the
Corporation by resolution of its board of directors, at any time and from time
to time, at the redemption price per share of $24 plus any accrued and unpaid
dividends thereon to the date fixed for redemption.
In the event that less than the entire number of the shares of this Series
outstanding is at any one time redeemed by the Corporation, the shares to be
redeemed shall be selected by lot in a manner determined by the board of
directors of the Corporation.
Not less than thirty nor more than sixty days prior to the date fixed for
any redemption of this Series or any part thereof, a notice specifying the time
and place of such redemption shall be given by first-
<PAGE> 3
class mail, postage prepaid, to the holders of record of the shares of this
Series selected for redemption at their respective addresses as the same shall
appear on the books of the Corporation, but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for redemption. Any notice that was mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the holder receives the notice.
After the giving of any notice of voluntary redemption and prior to the
close of business on the date fixed for such redemption, the holders of shares
of this Series called for redemption may convert such stock into Common Stock of
the Corporation in accordance with the conversion privileges set forth below in
"Conversion Privilege and Price." After the date fixed for the redemption of
shares of this Series by the Corporation, the holders of shares selected for
redemption shall cease to be stockholders with respect to such shares and shall
have no interest in or claims against the Corporation by virtue thereof and
shall have no other rights with respect to such shares, except the right to
receive the moneys payable upon such redemption from the Corporation, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. The Corporation may, at its option, at any
time after a notice of redemption has been given, deposit the redemption price
for all shares of this Series designated for redemption and not yet redeemed,
plus any accrued and unpaid dividends thereon to the date fixed for redemption,
with the transfer agent or agents for this Series, as a trust fund for the
benefit of the holders of the shares of this Series designated for redemption.
From and after the making of such deposit, the holders of the shares
designated for redemption shall cease to be stockholders with respect to such
shares and shall have no interest in or claim against the Corporation by virtue
thereof and shall have no other rights with respect to such shares, except the
right to receive from such trust fund the moneys payable upon such redemption,
without interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. Such deposit shall not impair the right of
conversion provided for herein. Any moneys deposited by the Corporation pursuant
to this Section for the redemption of shares thereafter converted into Common
Stock shall be returned to the Corporation forthwith upon their conversion, and
any balance of such moneys remaining unclaimed at the end of the five years
commencing on the date fixed for redemption shall be repaid to the Corporation
upon its request expressed in a resolution of its board of directors, subject to
applicable escheat laws.
NON-VOTING
Except as otherwise expressly provided below or as required by Law, this
Series shall be non-voting.
CHANGES IN PREFERRED STOCK TERMS
The Corporation may, by resolution of its board of directors or as
otherwise permitted by law, from time to time alter or change the preferences,
rights, or powers of this Series. However, no such alteration or change shall be
made that adversely affects the preferences, rights, or powers of the shares of
all outstanding Series of Preferred Stock of the Corporation without the
affirmative vote or the written consent as provided by law of the holders of at
least two thirds of the outstanding shares of all Series of Preferred Stock,
voting as a single class. No alteration or change shall be made that adversely
affects the preferences, rights, or powers of this but not all outstanding
Series of Preferred Stock of the Corporation, without the affirmative vote or
written consent as provided by law of the holders of at least two thirds of the
Page 2 of 5
<PAGE> 4
outstanding shares of this and any other Series so affected by such alteration
or change, voting as a single class. The holders of this Series shall not be
entitled to participate in any such class vote if, at or prior to the time when
any such alteration or change is to take effect, provision is made pursuant to
"Redemption" above for the redemption of all shares of this Series at the time
outstanding. Nothing in this paragraph shall require a class vote or consent in
connection with the authorization, designation, increase, or issuance of any
shares of any class or series of stock (including additional shares of this
Series) that ranks junior to or on a parity with shares of this Series as to
dividends and liquidation rights, or in connection with the authorization,
designation, increase, or issuance of any bonds, mortgages, debentures, or other
obligations of the Corporation.
CONVERSION PRIVILEGE AND PRICE
The holders of shares of this Series shall have the right, at their option,
to convert such shares into full-paid and nonassessable shares of Common Stock
of the Corporation. Each share of this Series shall be convertible into 6 and
2/3rds share of Common Stock. See Adjustment of Conversion Ratio below.
In case shares of this Series are called for redemption by the Corporation
pursuant to "Redemption" above, the right to convert such shares shall cease and
terminate at the close of business on the date fixed for redemption by the
Corporation.
CONVERSION PROCEDURE
In order to convert shares of this Series into Common Stock, the holder
shall surrender at the office of any transfer agent for this Series designated
for that purpose by the board of directors, or at any such other office as may
be designated by the board of directors, the certificate or certificates
therefor, duly endorsed or assigned to the Corporation or in blank, and shall
give written notice to the Corporation at said office that he elects to convert
such shares. No payment or adjustment shall be made upon any conversion on
account of any dividends accrued on the shares of this Series surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
Shares of this Series shall be deemed to have been converted immediately
prior to the close of business on the day of the surrender of such shares for
conversion in accordance with the foregoing provisions and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at said office a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conver sion, together with a payment in lieu of any fraction of a share, as
hereafter provided, to the person or persons entitled to receive the same.
No fractional shares of Common Stock shall be issued upon conversion, but,
instead of any fraction of a share that would otherwise be issuable, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the market price per share of Common Stock at the
close of business on the day of conversion. The market value of a share of
Common Stock shall be the last reported sale price on the American Stock
Exchange on the last business day prior to the conversion date when the American
Stock Exchange is open, or, if there is no reported sale on such day, the last
reported closing bid price on the American Stock Exchange at the close of
trading on that day. If the Common Stock is not then listed on the American
Stock Exchange, the market value shall be the prevailing
Page 3 of 5
<PAGE> 5
market value of the Common Stock on any other securities exchange or in the open
market, as determined by the Corporation, which determination shall be
conclusive.
The Corporation will pay any and all documentary, stamp, or similar taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of shares of this Series. The Corporation shall not,
however, be required to pay any such tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of this Series so converted were registered,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any such tax, or
has established, to the satisfaction of the Corporation, that such tax has been
paid.
The Corporation shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock (or held in
treasury), for the purpose of effecting the conversion of the shares of this
Series, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of this Series then outstanding.
ADJUSTMENT OF CONVERSION RATIO
If the Corporation subdivides or combines in a larger or smaller number of
shares its outstanding shares of Common Stock, then the number of shares of
Common Stock issuable upon the conversion of this Series shall be proportionally
increased in the case of a subdivision and decreased in the case of a
combination, effective in either case at the close of business on the date that
the subdivision or combination becomes effective.
If the Corporation is recapitalized, is consolidated with or merged into
any other corporation, or sells or conveys to any other corporation all or
substantially all of its property as an entity, provision shall be made as part
of the terms of the recapitalization, consolidation, merger, sale, or conveyance
so that the holders of this Series may receive, in lieu of the Common Stock
otherwise issuable to them upon conversion of this Series, at the same
conversion ratio, the same kind and amount or securities or assets as may be
distributable upon the recapitalization, consolidation, merger, sale, or
conveyance with respect to the Common Stock.
If the Corporation at any time pays to the holders of its Common Stock a
dividend in Common Stock, the number of shares of common stock issuable upon the
conversion of Preferred Stock shall be proportionally increased, effective at
the close of business on the record date for determination of the holders of the
Common Stock entitled to the dividend.
If the Corporation at any time pays any dividend or makes any distribution
on its Common Stock in property (other than cash or Common Stock of the
Corporation), then the number of shares of Common Stock issuable upon the
conversion of this Series shall be equitably adjusted at the close of business
on the record date for determination of the holders of the Common Stock entitled
to said dividend or distribution.
These adjustments shall be made successively if more than one of these
events occurs. However, no adjustment in the conversion ratio of this Series
into Common Stock shall be made by reason of:
(a) the payment of a cash dividend on the Common Stock or on any other
class of stock of the Corporation;
Page 4 of 5
<PAGE> 6
(b) the purchase, acquisition, redemption, or retirement by the
Corporation of any shares of common stock or of any other class of stock of the
Corporation, except as provided above in connection with a subdivision or
combination of the outstanding Common Stock of the Corporation;
(c) the issuance, other than as provided above, of any shares of
Common Stock, or of any securities of the Corporation convertible into common
stock or into other securities of the Corporation, or of any rights, warrants or
options to subscribe for or purchase shares of Common Stock or other securities
of the Corporation.
NOTICE TO HOLDERS OF CERTAIN TRANSACTIONS
The Corporation shall cause a notice to be mailed to the transfer
agent or agents for this Series, and to the holders of record of shares of this
Series at their respective addresses as the same shall appear on the books of
the Corporation, in case of any transaction which would result in a change in
the conversion formula.
NO OTHER RIGHTS
The shares of this Series shall not have any relative, participating,
optional, or other special rights or powers other than as set forth above and in
the Certificate of Incorporation of the Corporation, as amended.
Page 5 of 5
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
<PAGE> 2
STATEMENT REGARDING COMPUTATION OF RATIOS
The ratio of earnings to fixed charges was calculated assuming a sale of
100% of the preferred stock offered for cash that would result in an increase of
$7,700,000 of cash to the Company. Earnings related to the use of such cash have
not been provided herein. On an initial pro forma basis, exclusive of earnings
related to the utilization of the $7,700,000 cash, the earnings would be
inadequate to cover fixed charges for the six months ended June 30, 1998 by
approximately $511,000. Pro forma depreciation for this same period amounts to
approximately $404,000.
2
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT
<PAGE> 2
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
<TABLE>
<S> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-11656
</TABLE>
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1807533
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
TWO NATIONWIDE PLAZA, SUITE 760
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NO.: (614) 221-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
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
</TABLE>
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, 1998, the aggregate market value of the voting stock
of The Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $5,397,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,116,726 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> 3
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 *
PART I
ITEM 1. BUSINESS
The Company, through its 100% subsidiary The Wendt-Bristol
Company ("W-B") which was originally incorporated in 1903, has
evolved through the years as an outpatient health care
provider. During 1997, the Company's operations consisted of
ownership and operation of three nursing homes, three retail
pharmacies, a Medicare-certified, JCAHO home health agency,
and as managing partner of two multi-disciplinary diagnostic
and radiology centers. These centers provide state of the art
diagnostic imaging techniques, including magnetic resonance
imaging (MRI), CT Scans, ultra-sound, x-ray, bone
densitometry, mammography, fluoroscopy and out-patient
angiography. A third diagnostic center, wholly owned, was
opened in February 1998. Additionally, in the fourth quarter
of 1997, the Company opened a radiation therapy center in
which it is the managing partner.
In 1997, the Company sold two of its three nursing homes, two
of its three retail pharmacies and ceased operations of its
Medicare-certified home health agency.
During 1998, the Company 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 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.
Where the Company is the managing partner it receives a fee (a
percentage of collected revenues) for its services.
Additionally, in 1998 the Company has launched a major mobile
mammography operation, currently three units.
The Company also plans to break ground in the second quarter
of 1998 on previously acquired land adjacent to its Kenny Road
diagnostic and radiology facility, with a major Womens Center
dedicated to the early detection of breast disease including
an ambulatory surgery unit for breast surgery.
The Company plans to selectively and aggressively expand its
diagnostics business activity.
The Company's primary activities are currently located in
Central Ohio.
NURSING HOMES. The Company owned and operated two nursing
homes in Columbus, Ohio (147 beds and 75 beds) until December
31, 1997 and leases the premises and operates the one
remaining nursing home in Springfield, Ohio (100 beds). The
nursing home provides skilled care. The Medicaid reimbursement
program of the State of Ohio is applicable to costs incurred
by some of the persons receiving care in the facility.
--------------------------------
* 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> 4
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 which was sold on December 31, 1997.
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.
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. During 1997, the Company ceased
operations of this business. The Company also provides a
physical therapy clinic in its Springfield facility serving
residents and outpatients which by year-end had ceased
operations on an out-patient basis.
PHARMACIES. The Company operates one retail pharmacy in a
downtown Columbus department store. The pharmacy sells
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. During 1997, the Company sold two of its retail
pharmacies, one located in Columbus and the other in Canal
Winchester.
I-2
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
EMPLOYEES: LABOR RELATIONS. The Company has approximately 170
employees at February 28, 1998. Non-professional employees of
one of its nursing homes located in Columbus, Ohio, had been
covered by a collective bargaining agreement until its sale on
December 31, 1997. The Company considers its relations with
its employees 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, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues/sales to unaffiliated
customers:
Nursing homes $ 13,428,624 $ 13,147,964 $ 12,604,828
Medical services and other 7,390,267 8,193,238 8,251,370
Operating income or (loss):
Nursing homes 1,560,091 865,837 857,040
Medical services and other (552,308) (79,340) 508,625
Equity in earnings of unconsolidated
affiliates
Nursing homes - - -
Medical services and other 198,680 - -
Identifiable assets:
Nursing homes 9,291,623 13,311,345 12,353,302
Medical services and other 12,704,896 10,606,760 10,454,023
Investment in net assets of
unconsolidated affiliates
Nursing homes - - -
Medical services and other 640,980 - -
Depreciation expense:
Nursing homes 209,502 354,152 365,780
Medical services and other 613,861 610,563 536,912
Capital expenditures:
Nursing homes 278,606 184,143 178,880
Medical services and other 1,233,485 1,236,352 968,133
</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> 6
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, 1999.
New health care facilities, including diagnostic imaging
centers, located in metropolitan statistical areas are
required to be licensed beginning March 31, 1996, but do not
need to obtain a CON. Diagnostic imaging centers located in
rural areas required a CON until May 1, 1997 and thereafter
require a license. 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 certain new health care
facilities.
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 was 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.
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.
I-4
<PAGE> 7
ITEM 1. BUSINESS (CONTINUED)
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.
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.
I-5
<PAGE> 8
ITEM 1. BUSINESS (CONTINUED)
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 $1,078,000 related to
environmental matters in New Jersey, of which $241,000 was
spent in the five fiscal (calendar) years ended December 31,
1997. 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 4 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.
The pharmacy operated by W-B is located in a leased premises
in Columbus, Ohio (3,300 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
pharmacy. The Company closed two pharmacies during 1997. One
leased premises in Columbus, Ohio (4,000 square feet) and one
leased in Canal Winchester (4,000 square feet).
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 $688,000 at
March 1, 1998.
In February 1998, a subsidiary of the Company opened a 3,200
square feet diagnostic center in Granville, Ohio. This one
story center, Wendt-Bristol Erinwood, operates on leased
premises.
I-6
<PAGE> 9
ITEM 2. PROPERTIES (CONTINUED)
The nursing homes of the Company operated during 1997 consist
of one owned 147-bed home in Columbus, Ohio, (sold at December
31, 1997), one owned 75-bed Alzheimer's and related syndromes
center (sold at December 31, 1997) and one 100-bed home with
leased facilities 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 not subject to any mortgage
indebtedness at December 31, 1997.
The present aggregate annual rentals of all property leases
referred to are approximately $528,000 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 1998, 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.
Both cases are currently scheduled for different trial
dates during 1998.
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 1997, no matters were submitted
to a vote of security holders.
I-7
<PAGE> 10
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
---- ------------ --------
1997 HIGH LOW HIGH LOW
---- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1st Quarter 1 5/8 1 1/4 1 3/4
2nd Quarter 1 7/16 1 11/16 1/2
3rd Quarter 1 1/2 1 7/8 3/4
4th Quarter 1 7/16 1 1/16 3/4 5/8
<CAPTION>
1996
----
<S> <C> <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
</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 13, 1998 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") 1,054
Common Stock Purchase Warrants 197
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> 11
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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net sales $ 2,435 $ 2,816 $ 2,709 $ 3,694 $ 3,686
Service income 18,384 18,525 18,147 15,793 15,802
---------- ---------- ---------- ---------- ----------
20,819 21,341 20,856 19,487 19,488
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 1,820 2,072 1,920 2,554 2,630
Selling, general and administrative expenses, net 17,168 17,518 16,668 15,085 14,930
---------- ---------- ---------- ---------- ----------
18,988 19,590 18,588 17,639 17,560
---------- ---------- ---------- ---------- ----------
Operating income before depreciation 1,831 1,751 2,268 1,848 1,928
---------- ---------- ---------- ---------- ----------
Depreciation 823 965 902 1,143 1,142
---------- ---------- ---------- ---------- ----------
Operating income 1,008 786 1,366 705 786
---------- ---------- ---------- ---------- ----------
Other income (expense):
Minority interest in earnings of
consolidated subsidiary and limited
partnerships, net 177 (76) (172) (53) (31)
Equity in earnings of unconsolidated affiliates 198 - - - -
Interest expense (1,265) (1,104) (1,050) (1,390) (1,210)
Gain on sale of stock of subsidiaries - - - 135 355
Gain on sale of assets 1,778 - - 726 71
Other, net 85 109 21 136 38
---------- ---------- ---------- ---------- ----------
973 (1,071) (1,201) (446) (777)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 1,981 (285) 165 259 9
(Provision) benefit for income taxes (199) 39 52 (55) (247)
---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 1,782 $ (246) $ 217 $ 204 $ (238)
========== ========== ========== ========== ==========
Per share data - Income (Loss)
Basic $ 0.29 $ (0.04) $ 0.04 $ 0.03 $ (0.03)
========== ========== ========== ========== ==========
Diluted $ 0.26 $ (0.04) $ 0.04 $ 0.03 $ (0.03)
========== ========== ========== ========== ==========
Weighted average shares
Basic 6,224,241 5,825,686 6,131,770 8,153,382 7,889,512
Diluted 6,916,241 5,825,686 6,131,770 8,153,382 7,889,512
BALANCE SHEET DATA (at year end)
Working capital (deficiency) $ 2,886 $ (1,770) $ (5,340) $ (4,236) $ (2,145)
Total assets 21,997 23,918 22,807 26,508 23,920
Long-term debt and lease obligations, net of
current portion 9,152 12,081 7,881 7,965 9,249
Stockholders' equity 6,445 4,742 4,543 7,200 6,964
</TABLE>
II-2
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
OPERATIONS (In thousands, except per share data)
----------
<S> <C> <C> <C>
Revenues:
Net sales $ 2,435 $ 2,816 $ 2,709
Service income 18,384 18,525 18,147
-------- -------- --------
Total revenues $ 20,819 $ 21,341 $ 20,856
======== ======== ========
Operating income $ 1,008 $ 786 $ 1,366
Percent of revenues 4.8 3.7 6.5
Net income (loss) $ 1,782 $ (246) $ 217
Percent of revenues 8.6 (1.2) 1.0
Per common share - basic $ .29 $ (.04) $ .04
Per common share - diluted $ .26 $ (.04) $ .04
</TABLE>
NOTE: Reference should be made to the Notes to Consolidated
Financial Statements herein.
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 two of its three 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
enhancing the operations and profits at its diagnostic and
radiology centers. The previous statements regarding cost
savings and profit enhancement are forward-looking statements
that are subject to competitive and market influences that
cannot be accurately predicted.
Working capital increased approximately $4,656,000 during the
year ended December 31, 1997. Current assets increased
$3,934,000 while current liabilities decreased $722,000 at
December 31, 1997 as compared to December 31, 1996. The
increase in current assets was due mostly from increases in
notes receivable (total $3,116,000 of which $2,924,000 is
related to the sale of the two nursing homes), accounts
receivable trade ($864,000) and miscellaneous receivables
($760,000), offset by declines in cash and inventories.
Accounts receivable trade increased in 1997 over the prior
year due mostly to the Company terminating its accounts
receivable securitization program during the first quarter of
1997 and buying back all of the accounts receivable that were
previously sold. Current liabilities decreased approximately
$722,000 due mostly from decreases in securitization program
advances ($392,000), accrued workers' compensation expenses
($330,000), accrued taxes other than federal income taxes
($506,000), and stock purchase agreement payable ($325,000)
offset by increases in accounts payable ($578,000) and current
portion of long-term debt ($235,000). The issuance of the
long-term bonds (see below) allowed the Company to terminate
the accounts receivable securitization program and reduce the
amount of current liabilities.
II-3
<PAGE> 13
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
1997. During February 1997, the Company issued 5% long-term
bonds totaling 5,000,000 swiss francs ($3,417,000) to a group
of European investors pursuant to Regulation S of the
Securities Act of 1933. The proceeds from this issuance were
used to repay its higher-interest accounts receivable
securitization program advances (totaling approximately
$1,462,000) with the remainder of the funds used toward
general working capital requirements and expansion into new
ventures in the diagnostic and radiology fields.
At December 31, 1997 the Company, in two simultaneous and
interdependent transactions, sold the assets of its two
Columbus, Ohio nursing homes. Terms of the sale provided for a
combined purchase price of $9,880,000 which resulted in a gain
on the sale of approximately $1,778,000 (see note 1B). The
buyers paid $750,000 at the time of closing, assumed mortgages
and accrued interest totaling $6,206,000, and issued
personally guaranteed notes for the balance of $2,924,000.
These notes are anticipated to be collected in full on April
21, 1998.
In April 1998 the Company secured with a finance company an
equipment lease line of credit for $1,000,000. As of the
issuance of this report, no draws have been made against this
lease line.
The Company and its subsidiaries, limited partnership and
newly-formed (1997) limited liability companies, have
committed to certain equipment upgrades that will be financed
either through current equipment financing relationships or
vendor programs. In addition, the limited partnership, in
which a subsidiary of the Company is the general partner, is
planning to expand its facility by adding approximately 7,500
square feet. The adjoining addition is anticipated to cost
approximately $800,000 and will be used to facilitate a
women's health center.
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.
RESULTS OF OPERATIONS 1997-1996
Consolidated revenues from operations for the year ended
December 31, 1997 decreased approximately $522,000 or 2.4%
from the previous year. Net sales declined $381,000 or 13.5%
while service revenues decreased $141,000 or .8% from the
comparable period in 1996. The decline in sales was due to the
Company selling two of its retail pharmacies during 1997 while
most of the decrease in service revenue was due to the decline
in visits in the home health care subsidiary which ceased
operations in April, 1997.
Cost of sales decreased approximately $251,000 or 12.1% for
the year as compared to 1996. Gross margin for the year ended
December 31, 1997 was 25.3% as compared to 26.4% for the
comparable period in 1996. The decline is attributable to
pricing pressures in the competitive retail pharmacy markets
and price reductions at the locations that closed during the
year.
Selling, general and administrative expenses decreased
approximately $351,000 or 2.0% for the year ended December 31,
1997 as compared to 1996. The decrease is mostly due from
decreased visits in the home health care agency offset by
small increases elsewhere.
II-4
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1997-1996
--------------------------------
Interest expense increased approximately $160,000 or 14.5% for
the year ended December 31, 1997 as compared to 1996. In 1996
the Company did not have a working capital line of credit in
place until late May and therefore, incurred interest expense
relating only to equipment and mortgages for the first five
months of 1996. The 1997 amounts includes the accounts
receivable securitization program interest costs through the
middle of March and the interest attributable to the
convertible subordinated and Series I bonds (see note 7).
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 has been
significant.
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.
II-5
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
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> 16
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, 1997 and 1996, 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, 1997. 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, 1997
and 1996 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, 1997 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 LLP
Columbus, Ohio
April 20, 1998
II-7
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 625,609 $ 890,670
------------ ------------
Restricted cash (Note 3) 221,120 381,025
------------ ------------
Receivables (Note 4):
Trade, net of allowance for doubtful accounts of
$201,000 in 1997 and $190,000 in 1996 2,878,726 2,014,403
Notes receivable - current 3,236,900 120,613
Miscellaneous 1,650,664 890,655
------------ ------------
7,766,290 3,025,671
Inventories 202,951 482,930
Prepaid expenses and other current assets 148,825 250,947
------------ ------------
Total current assets 8,964,795 5,031,243
------------ ------------
PROPERTY, PLANT AND EQUIPMENT (NOTES 5 AND 7) 13,081,583 20,880,293
Less accumulated depreciation and amortization (4,742,587) (6,135,704)
------------ ------------
8,338,996 14,744,589
------------ ------------
INVESTMENTS AND OTHER ASSETS
Notes and other receivables, net of current portion 420,651 359,007
Notes receivable from officers and related parties (Notes 11B and 11C) 902,271 993,580
Life insurance premiums receivable (Note 11D) 972,451 865,299
Investment in unconsolidated affiliates (Note 6) 640,980 -
Advances to unconsolidated affiliates, net 451,110 -
Excess of cost over assets of businesses and subsidiaries
acquired, less accumulated amortization 355,439 621,629
Deferred charges 691,158 956,795
Other assets 258,668 345,963
------------ ------------
4,692,728 4,142,273
------------ ------------
Total assets $ 21,996,519 $ 23,918,105
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-8
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - officer (Note 11E) $ - $ 55,000
Securitization program advances (Note 4) - 392,287
Accounts payable 3,307,082 2,729,021
Accrued expenses and other liabilities:
Salaries and wages 533,346 482,134
Workers' compensation 50,197 380,502
Taxes, other than federal income taxes 219,885 726,106
Interest 117,313 118,640
Stock purchase agreement payable (Note 2) - 325,000
Other 824,617 841,643
Long-term obligations classified as current (Note 7) 986,148 750,758
Federal income taxes payable (Note 9) 40,000 -
------------ ------------
Total current liabilities 6,078,588 6,801,091
------------ ------------
LONG-TERM OBLIGATIONS LESS AMOUNTS
CLASSIFIED AS CURRENT (NOTE 7) 9,151,637 12,080,856
------------ ------------
Total liabilities 15,230,225 18,881,947
------------ ------------
MINORITY INTERESTS 321,168 294,128
------------ ------------
CONTINGENCIES AND COMMITMENTS (NOTES 4, 7, 8 AND 12)
STOCKHOLDERS' EQUITY (NOTES 2 AND 10)
Common stock, $.01 par, authorized 12,000,000 shares;
issued 8,248,480 shares in 1997 and 8,243,480 shares
in 1996 82,485 82,435
Capital in excess of par 10,244,805 10,238,750
Retained earnings (deficit) (1,337,483) (3,119,096)
------------ ------------
8,989,807 7,202,089
Treasury stock, at cost, 2,067,254 shares in 1997 and
2,007,460 shares in 1996 (2,544,681) (2,460,059)
------------ ------------
6,445,126 4,742,030
------------ ------------
Total liabilities and stockholders' equity $ 21,996,519 $ 23,918,105
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-9
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net sales $ 2,435,334 $ 2,816,386 $ 2,708,955
Service income 18,383,557 18,524,816 18,147,243
------------ ------------ ------------
20,818,891 21,341,202 20,856,198
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 1,820,352 2,071,596 1,920,118
Selling, general and administrative expenses 17,167,393 17,518,394 16,667,723
------------ ------------ ------------
18,987,745 19,589,990 18,587,841
------------ ------------ ------------
OPERATING INCOME BEFORE
DEPRECIATION 1,831,146 1,751,212 2,268,357
------------ ------------ ------------
DEPRECIATION 823,363 964,715 902,692
------------ ------------ ------------
OPERATING INCOME 1,007,783 786,497 1,365,665
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Minority interests in loss (earnings), net of tax 176,888 (76,860) (171,701)
Interest expense, net (Notes 4 and 7) (1,264,878) (1,104,278) (1,050,226)
Equity in earnings of unconsolidated affiliates (Note 6) 198,680 - -
Gain on sale of nursing homes assets (Note 1B) 1,778,007 - -
Other, net 84,633 109,254 21,008
------------ ------------ ------------
973,330 (1,071,884) (1,200,919)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,981,113 (285,387) 164,746
INCOME TAX BENEFIT (EXPENSE) (NOTE 9) (199,500) 39,109 51,979
------------ ------------ ------------
NET INCOME (LOSS) $ 1,781,613 $ (246,278) $ 216,725
============ ============ ============
INCOME (LOSS) PER COMMON SHARE (NOTE 1)
Basic $ 0.29 $ (0.04) $ 0.04
============ ============ ============
Diluted $ 0.26 $ (0.04) $ 0.04
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 6,224,241 5,825,686 6,131,770
============ ============ ============
Diluted 6,916,241 5,825,686 6,131,770
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-10
<PAGE> 20
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED TREASURY
STOCK EXCESS OF PAR EARNINGS STOCK TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
Shares contributed to Retirement Plan
(6,306 shares) 1,730 7,728 9,458
Treasury stock acquired (66,100 shares) (92,350) (92,350)
Stock options exercised (5,000 shares) 50 4,325 4,375
Net income 1,781,613 1,781,613
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 $ 82,485 $10,244,805 $(1,337,483) $(2,544,681) $ 6,445,126
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-11
<PAGE> 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,781,613 $ (246,278) $ 216,725
----------- ----------- -----------
Adjustments required to reconcile net income
(loss) to net cash provided by operating
activities:
Amortization, depreciation and other, net 851,811 985,200 920,606
Provision for losses on notes and accounts
receivable 153,995 110,620 105,528
Gain on sale of nursing home assets (1,778,007) - -
Gain on sale of other assets (77,169) - -
Life insurance premium reserve - - (376,000)
Costs associated with acquisition of minority
interest in limited partnership - - 151,950
Minority interest in earnings (losses) of
consolidated subsidiaries (176,888) 76,860 171,701
Equity in earnings of unconsolidated affiliates (198,680) - -
Changes in assets and liabilities:
Receivables:
Sale (purchase) of receivables (607,229) 970,550 (1,354,048)
Other changes (429,771) (534,300) 314,009
Inventories 279,979 6,112 (29,350)
Prepaid expenses and other current assets 100,045 160,611 130,423
Accounts payable 578,061 (107,453) 3,693
Accrued expenses and other liabilities (1,581,208) (1,656,355) 716,346
Federal income taxes payable 40,000 (100,000) (220,000)
Deferred charges and other 35,812 (236,455) 23,607
----------- ----------- -----------
Total adjustments (2,809,249) (324,610) 558,465
----------- ----------- -----------
Net cash provided by (used in) operations (1,027,636) (570,888) 775,190
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of minority interest from limited partners - - (250,000)
Collection of miscellaneous receivable - - 1,700,000
Advances to unconsolidated affiliates (451,110) - -
Collection on sale of nursing homes assets 750,000 - -
Proceeds from sale of other property, plant and
equipment and investments 115,500 - -
Investment in unconsolidated affiliates (442,300) - -
Decrease (increase) in notes receivable (149,137) (33,788) 278,962
Disbursements to related parties and
former affiliates, net (62,669) (232,575) (184,390)
Utilization of (deposit to) restricted cash (104,382) (70,113) 243,654
Capital expenditures (569,676) (544,866) (504,321)
----------- ----------- -----------
Net cash provided by (used in) investing
activities (913,774) (881,342) 1,283,905
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-12
<PAGE> 22
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
--------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Distributions to limited partners, net (143,842) - (143,842)
Purchase of common stock of subsidiary (92,230) (8,000) (2,000)
Proceeds from sale of treasury stock - 500,000 -
Treasury stock purchased (92,350) - -
Proceeds from officer obligation 90,000 360,000 -
Principal payments of officer obligation (145,000) (305,000) -
Proceeds from warrants and options exercised 4,375 - 3,750
Principal payments on long-term obligations (1,157,251) (875,659) (1,589,240)
Proceeds from borrowing on long-term obligations 3,604,934 2,243,447 4,520
Net advances from (payments to)
securitization program (392,287) 392,287 (478,500)
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,676,349 2,307,075 (2,205,312)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (265,061) 854,845 (146,217)
CASH - BEGINNING OF PERIOD 890,670 35,825 182,042
----------- ----------- -----------
CASH - END OF PERIOD $ 625,609 $ 890,670 $ 35,825
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net of interest income $ 1,266,205 $ 1,039,873 $ 1,060,226
Income taxes $ 43,816 $ 141,688 $ 252,593
Supplemental Disclosures of Noncash
Investing and Financing Activity (Note 15)
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-13
<PAGE> 23
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 (two disposed of at
December 31, 1997), a home health care delivery service
(ceased operations during 1997), a diagnostics center
featuring fixed-site magnetic resonance imaging ("MRI"), CT
Scan, Sonography and other modalities. Additionally, the
Company operates a retail pharmacy in Ohio and is the landlord
of a non-related manufacturing building (see Note 12A).
A subsidiary of W-B is a member in three limited liability
companies. One company operates a diagnostic center that
features an open-field magnetic resonance imaging device. The
second company operates a radiation therapy practice. The
third company has acquired land for which it has commenced
construction (in 1998) of a medical complex, a significant
portion of which Company affiliates will rent and operate.
Investments in affiliated companies, owned 22-1/2% to 50%
inclusive are stated at cost of investment plus the Company's
equity in undistributed net income since acquisition. The
change in the equity in net income of these companies is
included in equity in earnings of unconsolidated affiliates in
the Consolidated Statements of Operations.
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, SIGNIFICANT
----------------------------------------------------------
ASSETS, PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS
----------------------------------------------------
Effective at the close of business on December 31, 1997, the
Company sold all of the operating assets of two of its three
nursing homes for a total purchase price of approximately $9.9
million. This was financed with cash of $750,000; assumption
of mortgage debt of approximately $6.2 million and a note
receivable of approximately $2.9 million. The entire note is
expected to be paid in full on April 21, 1998. The following
summarizes the operations of the two nursing homes for the
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(IN 000'S)
1997 (A) 1996 1995
-------- ---- ----
<S> <C> <C> <C>
Revenues $ 9,123 $ 9,254 $ 8,508
Operating income 1,091 1,049 479
Net income 495 110 (110)
</TABLE>
(A) Excludes gain on sale of nursing home assets
During December 1996, the Wendt-Bristol Diagnostics Company
("Diagnostics") formed Wendt-Bristol Crosswoods, Ltd. During
January 1997, Diagnostics invested $325,000 for a 50% interest
in this new entity. Such funds were used to acquire operating
assets, including an open field magnetic resonance imaging
device. Operations of this new diagnostics center began in
January 1997 and has expanded to include helical CT and
additional modalities during 1997.
II-14
<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)
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, PARTNERSHIP
----------------------------------------------------------
INTERESTS OR OWNERSHIP INTERESTS (CONTINUED)
--------------------------------------------
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 began during the fourth quarter 1997.
During 1997, Diagnostics acquired a 50% interest in Jasonway,
Ltd., a venture that was formed to construct and rent a
medical and office complex. Construction is anticipated to be
completed by third quarter 1998.
During 1997, the Company ceased to operate its home health
care delivery services. Loss from operations approximated
$91,000, $124,000, and $47,000 for the years ended December
31, 1997, 1996, 1995, respectively, 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 common shares in
addition to nominal subsequent activity has increased the
Company's ownership to approximately 86%. The acquisition cost
exceeded the underlying equity in net assets ("goodwill") by
$146,700. See Note 1H for further discussion with respect to
amortization.
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 1997, 1996 or 1995.
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. This financing arrangement
terminated through payment in March, 1997 (see Note 4).
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.
II-15
<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)
E. ACCOUNTS RECEIVABLE (CONTINUED)
-------------------------------
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, 1997 and 1996 were $202,951 and $482,930,
respectively. These inventories consist of retail
pharmaceuticals, durable medical equipment and supplies.
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. During the fourth
quarter of 1997, the Company deducted the remaining goodwill
of approximately $189,000 associated to its interest in Health
America against the gain on the sale of the nursing homes.
Amortization expense excluding this one-time adjustment for
the years ended December 31, 1997, 1996, and 1995,
approximated $28,400, $20,500 and $17,900, respectively.
Accumulated amortization at December 31, 1997, 1996 and 1995,
was $141,900, $163,000, and $141,200, respectively. Goodwill
consists of an amount applicable to the manufacturing real
estate 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, 1997, 1996 and 1995.
II-16
<PAGE> 26
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
I. DEFERRED CHARGES
----------------
The Company has included in deferred charges costs that are
being amortized over future periods ranging from 5 to 11
years. Deferred charges are predominantly costs associated
with financing, costs incurred for staff training, opening new
facilities 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 for basic
which was adjusted for the effect of dilutive potential common
shares in the computation of diluted EPS. (See Note 10)
L. INCOME TAXES
------------
The Company utilizes the liability method of accounting for
income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income taxes, and are measured using the
enacted tax rates and laws that will be in effect or expected
to continue in effect when the differences are expected to
reverse. (See Note 9).
M. FINANCIAL INSTRUMENTS AND FAIR VALUE
------------------------------------
The estimated fair value of amounts reported in the financial
statements have been determined using available market
information and valuation methodologies, as applicable (see
Note 16).
The Company enters into foreign currency contracts in order to
reduce the impact of certain foreign currency fluctuations.
The Company does not enter into financial instruments for
trading or speculative purposes. Gains and losses related to
qualifying hedges of firm commitments are deferred and are
recognized as income or as adjustments of carrying amounts
when the hedged transaction occurs.
II-17
<PAGE> 27
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
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. ACCOUNTING PRONOUNCEMENTS FOR 1998
----------------------------------
The FASB has issued three pronouncements for fiscal years
beginning after December 15, 1997 -- SFAS No. 130 --
"Reporting of Comprehensive Income"; SFAS No. 131 --
"Disclosures about Segments of an Enterprise and Related
Information", and SFAS No. 132 -- "Employers' Disclosures
about Pensions and Other Postretirement Benefits". The Company
believes that the effect of the adoption of the above will not
be material to its financial position or results of
operations.
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 1997, 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. This
resulted in 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 remaining 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.
II-18
<PAGE> 28
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. PRIVATE COMMON STOCK TRANSACTIONS (CONTINUED)
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.
At December 31, 1997, 1996 and 1995, the Company owns, through
its wholly owned subsidiary, approximately 86%, 83%, and 83%,
respectively, in Diagnostics. See above and Note 1B concerning
Wendt-Bristol Company's acquisition of approximately 29%
additional shares of Diagnostics in 1995 and other subsequent
activity.
NOTE 3. RESTRICTED CASH
The Company has restricted cash of $221,120 and $381,025 at
December 31, 1997 and 1996, respectively. The amounts in a
bank trust account were $179,934 and $171,654 at December 31,
1997 and 1996, 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 cash in 1997 represents amounts in a
brokerage margin account that is maintained in conjunction
with foreign exchange futures contracts. The remainder of the
restricted cash in 1996 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. See Note 1B
concerning the sale of the two HUD facilities.
NOTE 4. RECEIVABLES
The following schedule states current receivables by specific
groups as indicated at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables:
Trade (net of allowance for doubtful
accounts) - (a) $2,878,726 $2,014,403
---------- ----------
Notes receivable - current:
Nursing homes sales (b) 2,923,794 -
Related parties (c) 60,760 67,822
Unconsolidated affiliates (d) 180,000 -
Others 72,346 52,791
---------- ----------
Total 3,236,900 120,613
---------- ----------
Miscellaneous receivables:
Nursing homes sale (b) 326,990 -
Securitization program reserves (e) - 232,131
Due from limited partners (f) 440,000 -
Medicare settlements 259,202 215,561
Others - (g) 624,472 442,963
---------- ----------
Total 1,650,664 890,655
---------- ----------
Total current receivables $7,766,290 $3,025,671
========== ==========
</TABLE>
II-19
<PAGE> 29
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RECEIVABLES (CONTINUED)
(a) During May, 1996, the Company and certain of its
subsidiaries entered into an agreement with a finance
company to secure additional working capital funds.
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% for the years ended
December 31, 1997 and 1996, 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.
Additionally, the purchaser advanced funds that were
in excess of purchased receivables of which $392,287
was outstanding at December 31, 1996 and was
subsequently paid in 1997.
(b) At December 31, 1997, the Company sold two of its
nursing homes assets. The current note receivable was
expected to be received in full on April 21, 1998.
(See Note 1B) The miscellaneous receivables represent
escrow balances related to HUD financing for which
the Company is anticipating reimbursement in 1998.
(c) The balance consists of the current portion of notes
receivable for the sale of assets to a related party
(See Notes 11B and 11C).
(d) The balance consists of notes receivable from
unconsolidated affiliates. (See Notes 1A and 6).
(e) 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.
(f) 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 during the current year
totaling $440,000 will be restored in 1998 as a
result of the priorities established in the
partnership agreement.
(g) The balance consists mostly (approximately $400,000
and $367,000 in 1997 and 1996, respectively) of a
receivable due from the former owner of two of the
nursing homes regarding final collection of the
purchase price of the transaction. (See Note 12B).
Total interest income for the years ended December 31, 1997,
1996 and 1995, amounted to approximately $204,000, $193,000,
and $134,000, respectively, and is netted against interest
expense in the accompanying Consolidated Statements of
Operations.
II-20
<PAGE> 30
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996
and the estimated useful lives used in computing depreciation
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------ USEFUL LIVES
1997 1996 (IN YEARS)
---- ---- ----------
<S> <C> <C> <C>
Land and improvements $ 1,385,529 $ 1,666,105 30
Buildings and improvements 4,910,500 11,941,568 3-40
Machinery and equipment 6,785,554 7,272,620 3-14
------------ ------------
13,081,583 20,880,293
Accumulated depreciation
and amortization (4,742,587) (6,135,704)
------------ ------------
$ 8,338,996 $ 14,744,589
============ ============
</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 were
placed in service during the third quarter of 1997.
Included in property, plant and equipment at December 31, 1997
and 1996 are land, buildings and improvements of $4,517,834
and $4,453,608 with accumulated depreciation and amortization
of $1,176,265 and $1,061,488, respectively, leased to the
purchaser of its former manufacturing division (see Note 12A).
Depreciation and amortization expense for the years ended
December 31, 1997, 1996 and 1995 was $823,363, $964,715, and
$902,692, respectively.
NOTE 6. EQUITY IN UNCONSOLIDATED AFFILIATES
Audited financial information of the affiliates which are
accounted for by the equity method (See Note 1A) is summarized
below:
<TABLE>
<CAPTION>
(IN 000'S)
DECEMBER 31, 1997
-----------------
COMBINED BALANCE SHEETS
<S> <C>
Current assets $1,046,000
Property, plant and equipment, net of accumulated
depreciation 5,340,000
Other non-current assets 380,000
----------
Total assets $6,766,000
==========
Liabilities $5,583,000
Equity 1,183,000
----------
Total liabilities and equity $6,766,000
==========
COMBINED STATEMENTS OF OPERATIONS
Service revenues $1,524,000
Operating income 381,000
Net income 363,000
</TABLE>
A limited liability company in which the Company has a 50%
interest with assets of $875,000, liabilities of $840,000 and
equity of $35,000 is unaudited as of December 31, 1997. The
limited liability company has acquired land for which a
medical facility is under construction, therefore, it has no
operations.
II-21
<PAGE> 31
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EQUITY IN UNCONSOLIDATED AFFILIATES (CONTINUED)
As a result of the limited liability companies being taxed as
partnerships for Federal income tax purposes, there is no tax
provided for earnings.
NOTE 7. LONG-TERM OBLIGATIONS
At December 31, 1997 and 1996, long-term obligations are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
5.5% subordinated convertible bond,
interest only payable in quarterly
installments, principal due December, 2001 $1,000,000 $1,000,000
5.0% bonds, denominated in Swiss francs,
interest only payable in quarterly
installments, principal due February, 2002 3,416,934 -
8.875% mortgage, payable in monthly
installments including interest through
December, 2034. Paid off as real estate was
sold on December 31, 1997 - 3,166,432
9% mortgage, payable in monthly installments
including interest through June, 2027. Paid
off as real estate was sold on December 31, - 2,931,243
1997
9.41% mortgage, payable in monthly installments
including interest through April, 2016 690,661 704,172
Variable rate mortgage - interest at 11.50% and
11.25% at December 31, 1997 and 1996, respectively,
payable in monthly installments including interest
through April, 2001, with any remaining balance due
May 1, 2001 1,546,509 1,646,649
Variable rate mortgage - interest at 10.5% at
December 31, 1996, payable in monthly
installments through December, 1997 - 34,992
7.7% to 13% notes payable in monthly
installments including interest, through
February, 2004, collateralized by equipment 3,483,681 3,195,597
12% notes payable in monthly installments
including interest - 128,578
</TABLE>
II-22
<PAGE> 32
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Capitalized lease obligations - 23,951
----------- -----------
10,137,785 12,831,614
Less: current installments 986,148 750,758
----------- -----------
Long-term portion $ 9,151,637 $12,080,856
=========== ===========
</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: 1998- $986,148, 1999
- $831,526, 2000 - $938,203, 2001 - $1,702,655, and thereafter
- $5,679,254.
All land and real estate is collateralized by the mortgages
payable.
The Company incurred interest expense in the amount of
$1,469,251, $1,297,630, and $1,183,945 in 1997, 1996 and 1995,
respectively.
COMMITMENTS
-----------
The Company, its subsidiaries, and a limited partnership have
committed to certain equipment acquisitions that will be
financed through a combination of current equipment financing
relationships, vendor programs or newly available resources.
The cost of such equipment currently on order is approximately
$2,500,000.
In April 1998, the Company secured with a finance company an
equipment lease line of credit for $1,000,000. The entire
lease line is available.
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, the Company leases all of the
locations used in its businesses under leases expiring on
dates ranging through July 2015.
II-23
<PAGE> 33
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. LEASE COMMITMENTS (CONTINUED)
As of December 31, 1997, minimum annual rental commitments under
noncancelable leases amount to: OPERATING LEASES
1998 $ 590,619
1999 549,156
2000 478,409
2001 366,901
2002 344,302
Thereafter 4,120,816
------------
$ 6,450,203
============
In addition, the Company remains contingently liable for certain
leases on locations that have been sold. These contingent leases
include payments aggregating $104,000 over the next three years.
Rental expense included in the Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995, was
approximately $567,000, $569,000, and $564,000, respectively, net of
annual sublease income of $870, $1,740, and $20,180, respectively.
Amortization of assets recorded under capital leases is included in
depreciation expense.
NOTE 9. INCOME TAXES
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,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets:
<S> <C> <C>
Net operating loss carryforwards $ 781,700 $1,874,000
Investment tax credit carryforwards 25,900 28,400
Bad debt allowance 51,300 47,600
Other 3,000 3,000
------- ---------
861,900 1,953,000
Less: valuation allowance - 200,000
------- ---------
861,900 1,753,000
======= =========
</TABLE>
II-24
<PAGE> 34
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Liabilities:
Depreciation and amortization 109,300 604,500
Costs capitalized in connection
with acquisitions 605,000 884,600
Other 10,200 10,200
---------- ----------
724,500 1,499,300
Net deferred tax asset $ 137,400 $ 253,700
========== ==========
</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 utilized approximately $3.2 million of net operating
loss carryforwards through the sale of two nursing home assets in
1997. Additionally, the valuation allowance was reduced by $200,000.
These two factors combined to result in a deferred tax expense of
$116,300 in 1997. Management has recognized a deferred tax benefit of
$84,300 in 1996 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/or sale/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/or sale/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, 1997 are approximately $2,300,000, expiring $645,000 in
2004, $935,000 in 2006, $335,000 in 2008 and $383,000 in 2009.
Investment tax credits available for tax purposes at December 31,
1997 are approximately $25,900 expiring at various dates from 1998 to
2000. In 1997 and 1996 as a result of consolidated taxable income the
Company was able to utilize net operating losses of $3,160,000 and
$27,000, respectively, of which $730,000 and $27,000, respectively,
was pre-operating losses of an acquired subsidiary which was only to
be used to offset taxable income by that subsidiary.
As discussed in Note 2, 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. Diagnostics
has no significant temporary differences that give rise to deferred
tax assets or liabilities at December 31, 1997, 1996 and 1995.
II-25
<PAGE> 35
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
During 1995, see Note 2, 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, 1997, 1996 and 1995 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>
NOT INCLUDING
DIAGNOSTICS
(PERCENTAGE)
------------
<S> <C>
DECEMBER 31, 1997
-----------------
Federal statutory rate 34.0
Minority interests (3.7)
Equity in unconsolidated affiliates (4.2)
State and local income taxes, net of federal
tax benefit 1.1
Alternative minimum tax 2.5
Tax effect of permanent differences (5.0)
Valuation allowance (12.4)
-----
Effective rate 12.3
=====
DECEMBER 31, 1996
-----------------
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>
DIAGNOSTICS
(PERCENTAGE)
------------
<S> <C> <C>
DECEMBER 31, 1995
-----------------
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
===== ====
</TABLE>
II-26
<PAGE> 36
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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal:
Consolidated
Current expense $ 40,000 $ - $ -
Deferred expense (benefit) 116,300 (84,300) -
Without Diagnostics
Current expense - - -
Deferred benefit - - (74,540)
State:
Consolidated
Current expense 43,200 45,191 -
Without Diagnostics
Current expense - - 7,006
Diagnostics
Current expense - - 15,555
-------- -------- --------
Total tax expense (benefit) $199,500 $(39,109) $(51,979)
======== ======== ========
</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-27
<PAGE> 37
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
A. At December 31, 1997, 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 has been extended
to May 1, 1999, and the redemption feature has been removed.
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 has been
extended to May 2000, 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, 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.
The Board of Directors granted options for 10,000 shares to each
outside Director upon their election. All such options have expired
except for one block of options to purchase 10,000 shares at a price
of $.375 with an expiration date of February 1, 2000. 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,
1997, 17,000 options were issued to outside directors. The annual
expense for these outside directors using the fair value based method
(SFAS No. 123) approximated $300.
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 of which 65,000 are outstanding at December 31, 1997. These
options will expire on June 3, 1998.
In May, 1996 the Board granted options totaling 130,000 shares to
certain officers and key employees of which 110,000 are outstanding
at December 31, 1997. Such options are exercisable at a price of
$.875 per share and expire on May 23, 2001.
II-28
<PAGE> 38
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
In 1997, 5,000 options were exercised at $.875 per share for total
proceeds of $4,375. Additionally, 30,000 options with exercise prices
of $.875 to $1.25 were terminated as the employees are no longer
employed by the Company.
No options were exercised in 1996 or 1995. There were 192,000 stock
options outstanding at December 31, 1997 at prices ranging from $.375
to $1.4375 per share. At December 31, 1997 and 1996, options
available for grant were 53,000 and 19,000, respectively.
The Company utilizes the intrinsic value method under APB No. 25 to
account for employee stock options. The Company has utilized the
Black Scholes option pricing model for proforma footnote purposes
with the following assumptions used for grants in all years. Dividend
yield of 0%, risk-free interest rate of 6%, and expected option life
of 5 years. Expected volatility was 74.6%. If the Company had
utilized the fair value based method under FASB No. 123, the impact
would not be significant to the financial statements.
EARNINGS PER SHARE
The following is a reconciliation of the basic and diluted EPS for
December 31, 1997. As noted below, basic and diluted EPS are the same
for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
BASIC EPS
---------
Income available to
common stockholders $1,781,613 6,224,241 $ .29
=======
Effect of dilutive
securities (net of tax)
5.5% convertible bond 35,200 500,000
Options 15,017 192,000
------ -------
DILUTED EPS
-----------
Income available to
common stockholders and
assumed conversions $1,831,830 6,916,241 $ .26
========== ========= =======
</TABLE>
At December 31, 1997 and 1995, 1,440,980 and 1,248,980 stock options
and warrants 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. At December 31,
1996, all potential common stock would be anti-dilutive due to the
net loss. At December 31, 1995, all outstanding stock options and
warrants were excluded from diluted EPS because the exercise price
was greater than the average market price of the common shares.
II-29
<PAGE> 39
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 the Company's 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.
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 a lounge and a 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.
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, 1997 and 1996, the notes receivable amounts due from
MHK Corp. approximate $730,000 and $800,000, respectively. Interest
income totaling $68,328 and $76,668 for the year ended December 31,
1997 and 1996, 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, 1997 and 1996, the President and CEO of the Company
had outstanding advances totaling approximately $213,000 and
$243,000, 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 $25,000 annually
in 1998 and subsequent years.
II-30
<PAGE> 40
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
C. NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES (CONTINUED)
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 $972,471 and $865,299 at December 31, 1997
and 1996 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.
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 $375,500 at
December 31, 1997, 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 from Marvin
D. Kantor, a director and the Chairman of the Board of the Company.
In September 1996, the Company borrowed an additional $60,000 (the
"Loans"). 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 was $55,000 and was repaid in full in 1997.
II-31
<PAGE> 41
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
F. MANAGEMENT FEES FROM UNCONSOLIDATED AFFILIATES
A subsidiary of the Company, Diagnostics, which owns equity interests
in limited liability companies (See Note 1B), is the management agent
for one of the companies. Management fees totaling $67,600 were
included in the Consolidated Statements of Operations for the year
ended December 31, 1997.
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.
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
$56,000, $50,000, and $61,000 related to the clean-up during the
years ended December 31, 1997, 1996 and 1995, 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 3 regarding
restricted cash set aside to satisfy the New Jersey Department of
Environmental Protection and Energy.
II-32
<PAGE> 42
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 1997 totaling $400,000 (see Note 4(e)) 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.
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.
II-33
<PAGE> 43
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
D. DEBT GUARANTEES
The Company or its subsidiaries is contingently liable as a guarantor
of long-term debt and capital lease obligations totaling $1,775,000
for medical equipment that is currently in or will be placed in
service by entities that a subsidiary, Wendt-Bristol Diagnostics
Company ("Diagnostics"), has ownership interests varying from 22.5%
to 50%. In addition, the Company is contingently liable for
$3,500,000 as guarantor of debt on the construction of a medical and
office complex that Diagnostics has a 50% ownership interest in.
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.
NOTE 13. INDUSTRY SEGMENT DATA
Industry segment data for years ended December 31, 1997, 1996 and
1995 included in Item 1 ("Industry Segments") of this report is an
integral part of these financial statements.
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 1997, 1996 and 1995, the Company
contributed 6,306, 16,262, and 21,764 shares, and recorded an expense
of $9,458, $8,733, and $9,900, respectively.
II-34
<PAGE> 44
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITY
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITY Note receivable from officers and
related parties was reduced by assigning a non-related
party note receivable
Increase in notes receivable $105,000
Decrease in notes receivable from
officers and related parties (46,826)
Decrease in accrued interest payable (58,174)
A subsidiary of the Company is a general partner in a
limited partnership. Capital was reallocated from the
general partner to the limited partners resulting in a
receivable from the limited partners
Increase in miscellaneous receivables $440,000
Increase in minority interests (440,000)
A Partnership, which the Company is the general partner,
transferred equipment,
at net book value to an unconsolidated
affiliate
Increase in advances to unconsolidated
affiliate $40,000
Decrease in property, plant and
equipment, net (40,000)
Two subsidiaries of the Company sold nursing home assets
Additionally, HUD replacement reserves are to be returned
as part of the sale
Increase in notes receivable, current $2,923,794
Increase in miscellaneous receivables 261,327
Decrease in restricted cash (264,287)
Decrease in prepaid expenses (11,535)
Decrease in property, plant and
equipment, net (7,064,636)
Decrease in excess of cost over assets
of businesses and subsidiaries (189,096)
acquired
Decrease in deferred charges and other
assets (317,120)
Increase in accrued expenses (394,367)
Decrease in debt 6,083,927
Gain on sale of nursing home assets,
net of cash proceeds ($750,000) (1,028,007)
</TABLE>
II-35
<PAGE> 45
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITY
(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
A subsidiary and 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 $ 942,415 $ 875,626
Increase in long-term obligations (942,415) (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-36
<PAGE> 46
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITY
(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <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 $ -
Increase in long-term obligations (166,826)
Increase in prepaid expenses and other
current assets 45,116
Decrease in accounts payable 121,710
</TABLE>
II-37
<PAGE> 47
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. 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, 1997 and 1996, 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.
At December 31, 1997, the Company had outstanding multiples of three
month foreign exchange futures contracts that were to expire March,
1998. Management's intent is to continue to repurchase these
contracts (currently holding June 1998 expirations) as a hedge
against the Swiss Franc on 5,000,000 Swiss Franc 5% bonds payable in
February, 2002. As these futures contracts are not for trading or
speculative purposes, the Company has deferred the current loss of
approximately $104,000 at December 31, 1997 until 2002 when the bond
becomes due and a determination of the cumulative gain or loss is
known.
II-38
<PAGE> 48
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, Mr. Del Ponte 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 69 Chairman of the Board, Director
Sheldon A. Gold 55 President, Treasurer, Chief Executive Officer,
Director, member of Audit Committee
Reed A. Martin 44 Executive Vice President, Chief Operating
Officer and Director
Harold T. Kantor 64 Vice Chairman of the Board, Director
Paul H. Levine 57 Director, member of Audit Committee
Gerald M. Penn 60 Director, Vice President of Medical Affairs (1998),
member of Audit Committee until December
31, 1997
Clemente Del Ponte 55 Director
Charles R. Cicerchi 38 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 a brother of Marvin D.
Kantor.
III-1
<PAGE> 49
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., Bio-Catalytic Enterprises, Inc., and Retirement
Strategies Group, Ltd.
Dr. Gerald M. Penn, M.D., Ph.D., was elected as a director on
February 8, 1995 and became the Vice President of Medical Affairs of
the Company on January 1, 1998. He serves on the stock option
committee and also served on the audit committee through December 31,
1997. 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.
Clemente Del Ponte was elected as a director of the Company on June
18, 1997. For the past five years he has been the managing director
of McBridge Advisory, Ltd., an import/export consulting agency. Prior
thereto, he was an independent consulting agent. Mr. Del Ponte
resides in Lugano, Switzerland.
Charles R. Cicerchi is a certified public accountant and has been
Vice President of Finance since joining the Company in September,
1994. 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. Since May, 1996
he has been the Principal Financial and Accounting Officer of the
Company.
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, 1997 and with respect to each of
whom such compensation exceeded $100,000.
III-2
<PAGE> 50
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) SARS (#) COMP. ($)**
------------------ ---- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sheldon A. Gold 1997 $ 160,000 * $ 15,532
President and Chief 1996 150,000 50,000/0 -
Executive Officer 1995 140,000 * -
Marvin D. Kantor 1997 140,000 * 65,028
Chairman of the 1996 130,000 * 75,866
Board 1995 127,404 * 65,028
<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, 1997, the amounts paid by the Company for
each of the named persons is:
</TABLE>
<TABLE>
<CAPTION>
LIFE
NAME INSURANCE
---- ---------
<S> <C>
Sheldon A. Gold $ 15,532
Marvin D. Kantor 65,028
</TABLE>
III-3
<PAGE> 51
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:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<TABLE>
<CAPTION>
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>
None
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
--------------------------------------------------------------
OPTION/SAR VALUES
-----------------
<TABLE>
<CAPTION>
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 $62,500/0
</TABLE>
----------
All options held by Mr. Sheldon A. Gold were exercisable at December
31, 1997. All were "in-the-money". American Stock Exchange reported
quotations for the Common Stock of the Company on December 31, 1997,
are: high, $1.25; low $1.1875; and close, $1.25; such prices on
February 27, 1998 are: high, $1.25; low, $1.25; and close, $1.25. 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> 52
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, 1998, options to purchase an
aggregate of 52,000 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> 53
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, 1997, 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 $ 421,000
Sheldon A. Gold 375,000 (4) 09/11/86 67,000
</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, 1997.
(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> 54
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> 55
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. 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, 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 anti-dilution
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 anti-dilution 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; 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 and he received on July 11, 1997, options to purchase an
aggregate of 1,000 shares of common stock of the Company at a price
of $1.1875 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, 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 and he received on February 1, 1998, options to purchase
an aggregate of 1,000 shares of common stock of the Company at a
price of $1.25 per share, 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> 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below presents as of February 28, 1998, 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 871,420 13.79%
Two Nationwide Plaza
Suite 760
Columbus, Ohio 43215
Common Stock Harold T. Kantor 247,475 (3) 3.92%
Common Stock Sheldon A. Gold 106,375 (4) 1.68%
Common Stock Reed A. Martin 40,351 (5) -
Common Stock Paul H. Levine 5,500 (6) -
Common Stock Dr. Gerald M. Penn 16,000 (7) -
Common Stock Clemente Del Ponte 655,200 (8) 10.37%
Dollard House
Wellington Quay
Dublin 2 Ireland
Common Stock All Directors and 1,942,321 (9) 30.74%
Executive Officers
As a Group (7 persons)
Common Stock Gerald F. Schroer 389,800 6.17%
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
(9) 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>
-------------------
(Footnotes continued on following page)
III-9
<PAGE> 57
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 1997 was $799,718;
1996 was $809,435; and 1995 was $773,638. On February 28, 1998, the
amount of such indebtedness, exclusive of interest, outstanding was
$729,158. Interest at 9% totaling $68,328 and $61,823 has been
charged, through December 31, 1997 and 1996, respectively. 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 1997
was $243,412; 1996 was $243,412; and 1995 was $204,975. On February
28, 1998, the amount of such indebtedness was $204,300. 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 are limited
partners owning less than an aggregate 10% interest in Wendt-Bristol
Diagnostics Company L.P. 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.
-------------------
(Footnotes continued from previous Page)
(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 5,000 shares of Common Stock which Mr.
Levine may acquire by exercising options granted
under the Company's Stock Option Plan.
-------------------
(Footnotes continued on following page)
III-10
<PAGE> 58
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
(Footnotes continued from previous page)
(7) Includes 13,000 shares of Common Stock which Dr. Penn
may acquire by exercising options granted under the
Company's Stock Option Plan.
(8) All of the shares are in the record name of McBridge
Advisory, Ltd. of which Mr. Del Ponte is the sole
owner of said company.
(9) Includes 14,850 shares of Common Stock which may be
acquired by exercise of Warrants and 128,000 shares
which may be acquired by exercise of options granted
under the Company's Stock Option Plan.
-------------------------
III-11
<PAGE> 59
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, 1997 and 1996 II-8 and II-9
Consolidated Statements of Operations for
the years ended December 31, 1997, 1996
and 1995 II-10
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1997, 1996 and 1995 II-11
Consolidated Statements of Cash Flow for
the years ended December 31, 1997, 1996
and 1995 II-12 and II-13
Notes to Consolidated Financial Statements II-14 through II-38
</TABLE>
2. Financial Statement Schedules. The following financial
statement schedules for the years ended December 31,
1997, 1996 and 1995 are included in Part IV:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <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> 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
------ -----------
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> 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
------ -----------
10.4 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> 62
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> 63
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
1997:
(1) Report dated December 31, 1997 relating to the sale of the
assets of two nursing homes.
IV-5
<PAGE> 64
SCHEDULE II
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<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> <C>
December 31, 1997
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 190,000 $ 146,000 $ (a) 135,000 $ 201,000
========= ========= ============= ==========
Valuation allowance for deferred
tax assets $ 200,000 $ $ 200,000 $ -
========= ========= ============= ==========
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
========= ========= ============= ==========
</TABLE>
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 4.
IV-6
<PAGE> 65
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)
April 20, 1998 By: /s/ Sheldon A. Gold
------------------------------
President
April 20, 1998 By: /s/ 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:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Marvin D. Kantor Chairman of the Board and
----------------------- Director April 20, 1998
Marvin D. Kantor
/s/ Harold T. Kantor Vice Chairman of the Board April 20, 1998
----------------------- and Director
Harold T. Kantor
/s/ Sheldon A. Gold President (Principal Executive April 20, 1998
----------------------- Officer) and Director
Sheldon A. Gold
/s/ Reed A. Martin Executive Vice President, Chief April 20, 1998
----------------------- Operating Officer and Director
Reed A. Martin
/s/ Paul H. Levine Director April 20, 1998
-----------------------
Paul H. Levine
/s/ Gerald M. Penn Director April 20, 1998
-----------------------
Gerald M. Penn
Director
-----------------------
Clemente Del Ponte
IV-7
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
96
<PAGE> 2
EXHIBIT 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF OWNERSHIP OF
INCORPORATION VOTING SECURITIES
Consolidated Subsidiaries:
The Wendt-Bristol Company Delaware 100% by The Wendt-Bristol
("Wendt-Bristol") Health Services Corporation
Wendt-Bristol Home Health Care Ohio 100% by Wendt-Bristol
Company
Wendt-Bristol Diagnostics Ohio 85.5% by Wendt-Bristol
Company
Wendt-Bristol Organizational L.P., Ohio 100% by Wendt-Bristol
Inc.
1275 Olentangy River Road Ohio Wendt-Bristol is the sole
Limited Partnership (1) (2) general and limited partner
Wendt-Bristol Diagnostics Delaware Wendt-Bristol Diagnostics
Company L.P. (1) Company is the sole general
partner
Consolidated Medical Services, Ohio 100% by Wendt-Bristol Home
Inc. Health Care Company
Cmsi Medco Limited Partnership Ohio Consolidated Medical
(1)(2) Services is the sole
general partner
American Living Centers, Inc. Ohio 100% by Wendt-Bristol
American Care Center, Inc. Ohio 100% by American Living
dba Bristol House of Columbus Centers, Inc.
Ethan Allen Care Center, Inc. Ohio 100% by American Living
dba Bristol House of Springfield Centers, Inc.
Congress Liquors, Inc. (2) Florida 100% by Wendt-Bristol
Health America, Inc. Ohio 100% by Wendt-Bristol
dba The Wendt-Bristol Center Diagnostics Company
97
<PAGE> 3
American Hospital of Athens, Inc. Ohio 100% by Health America,
(2) Inc.
(1) Limited Partnership
(2) Inactive
98
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
RELATING TO WENDT-BRISTOL HEALTH
SERVICES CORPORATION
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated April 20, 1998, in the Registration
Statement on Form S-4 and related Prospectus of Wendt-Bristol Health Services
Corporation and Subsidiaries.
/s/ HAUSSER + TAYLOR LLP
Columbus, Ohio
September 23, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
RELATING TO WENDT-BRISTOL DIAGNOSTICS
COMPANY
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated April 20, 1998, in the Registration
Statement on Form S-4 and related Prospectus of Wendt-Bristol Diagnostic
Company and Subsidiaries.
/s/ HAUSSER + TAYLOR LLP
Columbus, Ohio
September 23, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEYS
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Gerald M. Penn
----------------------------------------
Gerald M. Penn, Director
September 16, 1998
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Clemente Del Ponte
----------------------------------------
Clemente Del Ponte, Director
September 16, 1998
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
September 16, 1998 /s/ Marvin D. Kantor
----------------------------------------
Marvin D. Kantor, Chairman of the Board
and Director
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Harold T. Kantor
----------------------------------------
Harold T. Kantor, Vice Chairman of the
Board and Director
September 16, 1998
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Sheldon A. Gold
----------------------------------------
Sheldon A. Gold, President, Principal
Executive Officer and Director
September 16, 1998
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Reed A. Martin
----------------------------------------
Reed A. Martin, Executive Vice President,
Chief Operating Officer and Director
September 16, 1998
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Paul H. Levine
----------------------------------------
Paul H. Levine, Director
September 16, 1998
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Sheldon A. Gold and Charles R. Cicerchi, and each of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Clemente Del Ponte
----------------------------------------
Clemente Del Ponte, Director
September 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,309,760
<SECURITIES> 0
<RECEIVABLES> 2,611,566
<ALLOWANCES> 185,000
<INVENTORY> 187,912
<CURRENT-ASSETS> 6,981,333
<PP&E> 14,394,625
<DEPRECIATION> 5,056,926
<TOTAL-ASSETS> 21,556,468
<CURRENT-LIABILITIES> 5,106,964
<BONDS> 9,780,951
0
0
<COMMON> 82,485
<OTHER-SE> 6,247,356
<TOTAL-LIABILITY-AND-EQUITY> 21,556,468
<SALES> 548,432
<TOTAL-REVENUES> 5,470,889
<CGS> 415,668
<TOTAL-COSTS> 415,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,717
<INCOME-PRETAX> 110,889
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 107,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,389
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,511,430
<SECURITIES> 0
<RECEIVABLES> 3,026,394
<ALLOWANCES> 179,000
<INVENTORY> 390,156
<CURRENT-ASSETS> 6,294,367
<PP&E> 21,468,755
<DEPRECIATION> 6,367,954
<TOTAL-ASSETS> 26,165,264
<CURRENT-LIABILITIES> 5,474,488
<BONDS> 15,596,441
0
0
<COMMON> 82,485
<OTHER-SE> 4,830,102
<TOTAL-LIABILITY-AND-EQUITY> 26,165,264
<SALES> 1,420,408
<TOTAL-REVENUES> 10,472,901
<CGS> 1,063,273
<TOTAL-COSTS> 1,063,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 613,341
<INCOME-PRETAX> 168,424
<INCOME-TAX> 11,700
<INCOME-CONTINUING> 156,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,724
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
