<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT AND FORM 10-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<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> 2
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> 3
ITEM 1. BUSINESS (CONTINUED)
MEDICAL AND RELATED SERVICES. During February 1987, W-B formed
Wendt-Bristol Diagnostics Company, "Diagnostics", as a
subsidiary for the purpose of establishing an outpatient
medical diagnostic imaging center. The center was financed
through the formation of a limited partnership, Wendt-Bristol
Diagnostics Company L.P. (the "Partnership"), of which
Diagnostics is the general partner and currently receives 50%
of the profits in addition to management fees. The center
opened in April 1988 in Columbus, Ohio. The center specializes
in state of the art diagnostic imaging techniques, including
magnetic resonance imaging (MRI), CT Scans, Ultrasound, X-ray,
Mammography, Bone Densitometry and 3-D imaging. In the fourth
quarter of 1996 the Center opened a remodeled suite to
accommodate a new angiography/fluoroscopy unit.
Physicians in the Telequest Network provide radiology services
to the partnership via telecommunications technology.
Telequest is a consortium of six leading academic radiology
centers in the United States. Telequest represents this
country's first nationwide sub-specialty radiology network and
is dedicated to implementing products and services that
enhance the overall quality and efficiency of the radiology
services.
The consortium consists of the following institutions:
Bowman Gray School of Medicine
Brigham & Womens Hospital - Boston
Emory University Hospital - Atlanta
University of California, San Francisco
University of Pennsylvania Medical Center
University of Washington, Seattle
In addition, Diagnostics, through one of its subsidiaries,
constructed the Alzheimer's and related syndromes facility
referred to above 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> 4
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> 5
ITEM 1. BUSINESS (CONTINUED)
Nursing homes and home health care businesses are subject to
federal and state government regulation, including the
necessity of obtaining and maintaining a license,
certification for participating in the Medicare and/or
Medicaid programs, and/or registration. There are also
licensing requirements for nurses and other professional staff
of the nursing home and/or home health care agency. The
operations and activities of nursing homes and home health
agencies are also affected by the Medicare/Medicaid conditions
of participation and other relevant federal and local laws.
Activities of nursing homes and home health care agencies
which are regulated, include, but are not limited to, release
of medical records, patient confidentiality rights and the
dispensing of drugs. In addition, there are federal and state
requirements as to patient rights. Failure to abide by the
Federal and State laws governing the operations of nursing
homes and home health agencies including the requirement
governing the foregoing areas, lead to termination of
licensure and/or decertification and loss of reimbursement,
private enforcement rights by the patient, and other
sanctions.
The State of Ohio currently licenses nursing homes which are
privately owned and operated. A private owner cannot operate a
nursing home without a license. In addition to licensure
requirements, in the case of long-term care facilities and
home health agencies, the Ohio Department of Health, the Ohio
Department of Human Services, and the United States Department
of Health and Human Services are the principal regulatory
agencies to whose jurisdiction the Company is subject.
The Company remains in good standing with all requisite
agencies.
REQUIREMENT OF OBTAINING A CERTIFICATE OF NEED. Under the
current Certificate of Need ("CON") law, there is a moratorium
on the approval of new nursing home beds until June 30, 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> 6
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> 7
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> 8
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> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The high and low trade prices for the Company's Common
Stock and Common Stock Purchase Warrants as reported by
the American Stock Exchange for the periods indicated are
as follows:
<TABLE>
<CAPTION>
AMEX SYMBOL WMD WMD.WS
YEAR COMMON STOCK WARRANTS
---- ------------ --------
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> 10
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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> 11
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> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
----------
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the year in a much stronger liquidity
position due to several significant events that occurred in
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> 13
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> 14
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> 15
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
The Wendt-Bristol Health Services Corporation
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of The
Wendt-Bristol Health Services Corporation and Subsidiaries for the years ended
December 31, 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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
A. PRINCIPLES OF CONSOLIDATION
---------------------------
The primary business of The Wendt-Bristol Health Services
Corporation and its Subsidiaries (the "Company") is to provide
health care services. Through subsidiaries and a limited
partnership, The Wendt-Bristol Company ("W-B"), itself a
subsidiary, operates three nursing homes (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> 23
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, PARTNERSHIP
----------------------------------------------------------
INTERESTS OR OWNERSHIP INTERESTS (CONTINUED)
--------------------------------------------
During 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> 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)
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> 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)
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> 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)
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 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
(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> 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>
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> 46
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> 47
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> 48
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 $100,000.
III-2
<PAGE> 49
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) 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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K. (Numbers
assigned to the following correlate to those used in such
Item 601). (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
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> 60
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K. (Numbers
assigned to the following correlate to those used in such
Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.4 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> 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
------ -----------
10.11 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> 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
------ -----------
10.17 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> 63
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> 64
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
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
STATE OF OWNERSHIP OF
NAME INCORPORATION VOTING SECURITIES
---- ------------- -----------------
Consolidated Subsidiaries:
<S> <C> <C>
The Wendt-Bristol Company Delaware 100% by The Wendt-Bristol Health
("Wendt-Bristol") Services Corporation
Wendt-Bristol Home Health Ohio 100% by Wendt-Bristol
Care Company
Wendt-Bristol Diagnostics Ohio 85.5% by Wendt-Bristol
Company (1)
Wendt-Bristol Organizational Ohio 100% by Wendt-Bristol
L.P., Inc.
1275 Olentangy River Road Ohio Wendt-Bristol is the sole general and
Limited Partnership (2) (3) limited partner
Wendt-Bristol Diagnostics Delaware Wendt-Bristol Diagnostics Company is
Company L.P. (2) the sole general partner
Consolidated Medical Ohio 100% by Wendt-Bristol Home Health
Services, Inc. Care Company
CMSI Medco Limited Ohio Consolidated Medical Services is the
Partnership (2) (3) sole general partner
American Living Centers, Inc. Ohio 100% by Wendt-Bristol
American Care Center, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Columbus
Ethan Allen Care Center, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Springfield
Congress Liquors, Inc. (3) Florida 100% by Wendt-Bristol
Health America, Inc. Ohio 100% by Wendt-Bristol Diagnostics
dba The Wendt-Bristol Center Company
American Hospital of Athens, Inc. (3) Ohio 100% by Health America, Inc.
</TABLE>
(1) See Item 1. Business - MEDICAL AND RELATED SERVICES
(2) Limited partnership
(3) Inactive
IV-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 846,729
<SECURITIES> 0
<RECEIVABLES> 3,079,726
<ALLOWANCES> 201,000
<INVENTORY> 202,951
<CURRENT-ASSETS> 8,964,795
<PP&E> 13,081,583
<DEPRECIATION> 4,742,587
<TOTAL-ASSETS> 21,996,519
<CURRENT-LIABILITIES> 6,078,588
<BONDS> 9,151,637
0
0
<COMMON> 82,485
<OTHER-SE> 6,362,641
<TOTAL-LIABILITY-AND-EQUITY> 21,996,519
<SALES> 2,435,334
<TOTAL-REVENUES> 20,818,891
<CGS> 1,820,352
<TOTAL-COSTS> 1,820,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,264,878
<INCOME-PRETAX> 1,981,113
<INCOME-TAX> 199,500
<INCOME-CONTINUING> 1,781,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,781,613
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
</TABLE>
