<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
For Quarter Ended September 30, 1998 Commission file number 0-11656
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
A Delaware Corporation I.R.S. No. 22-1807533
Two Nationwide Plaza, Suite 760, Columbus, Ohio 43215
Registrant's Telephone No. (614) 221-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
EACH OF THE FOLLOWING CLASSES ARE REGISTERED ON THE AMERICAN STOCK EXCHANGE.
Class Outstanding at October 31, 1998
----- -------------------------------
Common Stock, par value 6,141,979
$.01 per share
Common Stock Purchase Warrants 414,538 (1)
(1) Upon exercise, represents 1,139,980 shares of The Wendt-Bristol Health
Services Corporation.
<PAGE> 2
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
I N D E X
<TABLE>
<CAPTION>
Part I Page No.
- ------ --------
<S> <C>
Financial Statements:
Consolidated Balance Sheets - September 30, 1998 (Unaudited)
and December 31, 1997 3-4
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended September 30, 1998 and 1997 6
Consolidated Statements of Cash Flow (Unaudited)
Nine Months Ended September 30, 1998 and 1997 7-8
Notes to Consolidated Financial Statements 9-14
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-18
Part II
- -------
Other Information 19
Signatures 19
Exhibits:
Exhibit 27 EDGAR Financial Data Schedule 20
</TABLE>
2
<PAGE> 3
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 800,773 $ 625,609
------------ ------------
Restricted cash 202,018 221,120
------------ ------------
Receivables:
Trade, net of allowance for doubtful
accounts of $184,000 (September)
and $201,000 (December) 2,626,572 2,878,726
Notes receivable 353,491 3,236,900
Allocation due from limited partnership (Notes 2 and 8) 697,000 440,000
Miscellaneous 879,761 1,210,664
------------ ------------
4,556,824 7,766,290
------------ ------------
Inventories 168,765 202,951
Prepaid expenses and other 165,310 148,825
------------ ------------
Total current assets 5,893,690 8,964,795
------------ ------------
Property, plant and equipment, at cost 14,519,749 13,081,583
Less: Accumulated depreciation and
amortization (5,209,590) (4,742,587)
------------ ------------
9,310,159 8,338,996
------------ ------------
Investments and other assets:
Securities available for sale, at market 123,750 --
Notes and other receivables, net of current portion 235,001 420,651
Notes receivable from officers, employees and
related parties, net of amounts payable 998,022 902,271
Life insurance premiums receivable 1,060,581 972,451
Investment in unconsolidated affiliates 612,670 640,980
Advances to unconsolidated affiliates 1,030,133 451,110
Excess of cost over assets of businesses
and subsidiaries acquired, less amortization 344,531 355,439
Deferred charges 689,350 691,158
Other assets 343,104 258,668
------------ ------------
Total investments and other assets 5,437,142 4,692,728
------------ ------------
$ 20,640,991 $ 21,996,519
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,624,030 $ 3,307,082
Accrued expenses and other liabilities:
Salaries and wages 199,490 533,346
Taxes, other than federal income taxes 133,914 219,885
Interest 130,839 117,313
Other 229,079 874,814
Long-term obligations classified as current 1,016,393 986,148
Federal income taxes payable -- 40,000
------------ ------------
Total current liabilities 4,333,745 6,078,588
------------ ------------
Long-term obligations, less amounts classified
as current 9,636,317 9,151,637
------------ ------------
Total liabilities 13,970,062 15,230,225
------------ ------------
Minority interests 362,592 321,168
------------ ------------
Stockholders' equity:
Preferred stock: $20 ,stated value
authorized: 500,000 shares
issued: none (Note 10) -- --
Common stock: $.01 par;
authorized: 12,000,000 shares
issued: 8,248,480 shares 82,485 82,485
Capital in excess of par 10,260,927 10,244,805
Net unrealized gains (losses)
on securities available for sale, net of tax (36,659) --
Retained earnings (deficit) (1,396,312) (1,337,483)
------------ ------------
8,910,441 8,989,807
Treasury stock, at cost, 2,079,901 shares (September)
and 2,067,254 shares (December) (2,602,104) (2,544,681)
------------ ------------
Total stockholders' equity 6,308,337 6,445,126
------------ ------------
$ 20,640,991 $ 21,996,519
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
---------------------------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 819,978 $ 1,924,713 $ 271,546 $ 504,305
Service income 7,772,475 13,722,299 2,850,018 4,669,806
------------ ------------ ------------ ------------
8,592,453 15,647,012 3,121,564 5,174,111
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 621,243 1,479,636 205,575 416,363
Selling, general and administrative
expenses, net 7,217,737 12,569,941 2,747,080 4,300,234
------------ ------------ ------------ ------------
7,838,980 14,049,577 2,952,655 4,716,597
------------ ------------ ------------ ------------
753,473 1,597,435 168,909 457,514
Depreciation 564,723 789,809 192,304 276,756
------------ ------------ ------------ ------------
Operating income (loss) 188,750 807,626 (23,395) 180,758
Equity in earnings of unconsolidated
affiliates, net of minority interests in
consolidated affiliates (Note 6) 181,266 179,122 30,747 76,481
------------ ------------ ------------ ------------
370,016 986,748 7,352 257,239
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (464,693) (926,480) (199,976) (313,139)
Other, net 18,748 176,737 5,806 124,481
------------ ------------ ------------ ------------
(445,945) (749,743) (194,170) (188,658)
------------ ------------ ------------ ------------
Income (loss) before income taxes (75,929) 237,005 (186,818) 68,581
Income tax benefit (expense) 17,100 (17,400) 20,600 (5,700)
------------ ------------ ------------ ------------
Net income (loss) $ (58,829) $ 219,605 $ (166,218) $ 62,881
============ ============ ============ ============
Income (loss) per common share: (Note 5)
Basic $ (0.01) $ 0.04 $ (0.03) $ 0.01
============ ============ ============ ============
Diluted $ (0.01) $ 0.03 $ (0.03) $ 0.01
============ ============ ============ ============
Weighted average shares outstanding:
Basic 6,108,144 6,237,303 6,139,889 6,228,326
============ ============ ============ ============
Diluted 6,108,144 6,290,097 6,139,889 6,263,526
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
--------------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ (58,829) $ 219,605 $(166,218) $ 62,881
Unrealized loss on securities available
for sale, net of tax benefit of $18,900 (36,659) -- (36,659) --
--------- --------- --------- ---------
Comprehensive income (loss) $ (95,488) $ 219,605 $(202,877) $ 62,881
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (58,829) $ 219,605
----------- -----------
Adjustments required to reconcile net income to net cash provided by
operating activities:
Amortization, depreciation and other, net 575,631 836,070
Provision for losses on notes and accounts receivable 79,222 90,823
Loss on disposition of assets 4,885 11,465
Minority interest in earnings (losses) of consolidated affiliates (214,576) 25,765
Equity in net losses (earnings) of unconsolidated affiliates 33,310 (204,887)
Changes in assets and liabilities:
Receivables
Purchase of receivables -- (607,229)
Other changes 503,835 (613,062)
Merchandise inventories 34,186 140,350
Prepaid expenses and other current assets (4,669) 45,463
Accounts payable (683,052) 223,555
Accrued expenses and other liabilities (1,052,036) (1,603,744)
Federal income taxes payable (40,000) --
Deferred charges and other (63,034) (86,294)
----------- -----------
Total adjustments (826,298) (1,741,725)
----------- -----------
(885,127) (1,522,120)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of assets -- 40,000
Advances to unconsolidated affiliates (579,023) --
(Increase) decrease in notes receivable 3,069,059 (161,343)
Investment in unconsolidated affiliates (5,000) (462,300)
Purchase of marketable securities (179,309)
Disbursements to related parties
and former affiliates, net (183,881) (33,298)
Utilization of or (deposit to) restricted cash 19,102 (143,804)
Capital expenditures (231,058) (274,581)
----------- -----------
Net cash provided by (used in) investing activities 1,909,890 (1,035,326)
----------- -----------
Cash flows from financing activities:
Distributions to limited partners, net -- (143,842)
Treasury stock purchased (318,108) (69,414)
Proceeds from the sale of Treasury stock 264,991
Purchase of common stock/partnership units of affiliates -- (10,100)
Purchase of partnership units of subsidiary (1,000) --
Proceeds from officer obligation 50,000 90,000
Principal payments of officer obligation (50,000) (145,000)
Proceeds from stock options -- 4,375
Principal payments of long-term obligations (795,482) (905,860)
Proceeds from long-term obligations -- 3,555,284
Net payments to securitization program -- (392,287)
----------- -----------
Net cash provided by (used in) financing activities (849,599) 1,983,156
----------- -----------
Net increase (decrease) in cash 175,164 (574,290)
Cash at beginning of period 625,609 890,670
----------- -----------
Cash at end of period $ 800,773 $ 316,380
=========== ===========
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash paid during the nine months for:
Interest, net of interest income $ 451,167 $ 884,428
Income taxes $ 95,037 $ 16,775
Supplemental disclosures of noncash investing and financing activity:
A subsidiary and a partnership, of which the subsidiary is the managing
general partner, purchased equipment which was financed by entering into
installment finance agreements
Increase in equipment cost, net $ 1,310,407 $ 761,568
Increase in long-term obligations (1,310,407) (761,568)
The company purchased marketable securities and
in accordance with the provisions of SFAS No. 115,
has recognized an unrealized loss on the balance sheet
as a component of stockholders' equity
Increase in unrealized (gains) losses on securities
available for sale, net of tax $ 36,659
Increase in other assets 18,900
Decrease in securities available for sale (55,559)
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MANAGEMENT'S REPRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
adjustments and recurring accruals) necessary to present fairly The
Wendt-Bristol Health Services Corporation ("Wendt-Bristol" or
"Company") and subsidiaries consolidated financial position as at
September 30, 1998 and December 31, 1997 and the consolidated results
of its operations for the three and nine months ended September 30,
1998 and 1997 as well as the cash flows for the respective nine months.
The results of operations for any interim period are not necessarily
indicative of results for the full year. THESE FINANCIAL STATEMENTS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES
THERETO CONTAINED IN THE WENDT-BRISTOL ANNUAL REPORT FILED AS FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997, WHICH IS HEREBY INCORPORATED BY
REFERENCE.
2. RECLASSIFICATIONS
Certain amounts on the balance sheet at December 31, 1997 have been
reclassified to conform with the presentation at September 30, 1998.
3. INCOME TAXES
Federal, state and local taxes are summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Sept. 30, Three months ended Sept. 30,
--------------------------- ----------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal taxes:
Current expense (benefit) $ 16,000 -- $ 19,000 --
Deferred expense (benefit) (41,300) (41,300)
State and local taxes:
Current expense 8,200 17,400 1,700 5,700
-------- -------- -------- --------
Total expense (benefit) $(17,100) $ 17,400 $(20,600) $ 5,700
======== ======== ======== ========
</TABLE>
(Continued)
9
<PAGE> 10
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
4. STOCKHOLDERS' EQUITY
At September 30, 1998 there were 414,538 Common Stock purchase warrants
outstanding, exercisable at $3.75 per warrant. Each warrant, upon
exercise, provides two and three quarters (2 3/4) shares of the
Company's common stock and a Series II warrant (issuable upon
completion of appropriate Securities and Exchange Commission filings)
exercisable for two shares at $3.00/share. The Warrants' expiration
dates, as amended by the Board of Directors in April 1998, are May 1,
1999 for the initial Warrant and May 1, 2000 for the Series II
Warrants. There were no warrants exercised during the nine or three
months ended September 30, 1998.
On July 21, 1998, the Company sold 200,000 shares of common stock held
in treasury, pursuant to Regulation S of the Securities Act of 1933.
The net proceeds of such shares sold totaled $265,000.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standard Board issued
statement of Financial Accounting Standards No. 128, "Earnings per
Share," which changed the method used to calculate earnings per share.
Basic earnings per share has been calculated as income available to
common stockholders divided by the weighted average number of common
shares outstanding. Diluted earnings per share has been calculated as
diluted income available to common stockholders divided by the diluted
weighted average number of common shares. Diluted weighted average
number of common shares has been calculated using the treasury stock
method for Common Stock equivalents, which includes Common Stock
issuable pursuant to stock options and Common Stock warrants. The
following is provided to reconcile the earnings per share calculations:
(Continued)
10
<PAGE> 11
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
-----------------------------------------------------
5. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Income available to common stockholders $ (58,829) $ 219,605 $(166,218) $ 62,881
Effect of dilutive 5.5% convertible
bond (net of tax) -- -- --
---------- -------- ---------- ----------
Income available to common stockholders
and assumed conversions $ (58,829) $ 219,605 $ (166,218) $ 62,881
========== ======== ========== ==========
Shares:
Weighted average shares (basic) 6,108,144 6,237,303 6,139,889 6,228,326
Effect of dilutive securities
Options -- (A) 52,794 -- (A) 35,200
Warrants -- (B) -- (B) -- (B) -- (B)
Convertible Debt -- (C) -- (C) -- (C) -- (C)
---------- -------- ---------- ----------
Diluted weighted average shares 6,108,144 6,290,097 6,139,889 6,263,526
========== ======== ========== ==========
Income per common share:
Basic $ (0.01) $ 0.04 $ (0.03) $ 0.01
========== ======== ========== ==========
Diluted $ (0.01) $ 0.03 $ (0.03) $ 0.01
========== ======== ========== ==========
</TABLE>
(A) Excluded from the computation because their exercise would be
anti-dilutive.
(B) 414,538 warrants were excluded from the computation of diluted EPS because
the exercise price was greater than the average market price of the common
shares.
(C) 500,000 shares of common stock associated with the possible conversion of
convertible debt were excluded because the conversion would be
anti-dilutive.
(Continued)
11
<PAGE> 12
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
6. UNCONSOLIDATED AFFILIATES/MINORITY INTEREST
The following table reflects the Company's proportionate share of the
earnings (losses) of unconsolidated affiliates and the proportionate
share of Minority interest attributable to investors in the (earnings)
losses of consolidated affiliates.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Minority interest in (earnings) losses of
consolidated affiliates, net of tax $ 214,576 $ (25,765) $ 45,120 $ 5,697
Equity in earnings (losses) of
unconsolidated affiliates (33,310) 204,887 (14,373) 70,784
--------- --------- --------- ---------
$ 181,266 $ 179,122 $ 30,747 $ 76,481
========= ========= ========= =========
</TABLE>
Unaudited financial information of the affiliates which are accounted for by the
equity method is summarized below:
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Current assets $ 1,081,746 $ 554,822
Property, plant and equipment
net of accumulated depreciation 8,631,263 1,070,749
Other non-current assets 451,651 390,198
----------- -----------
Total assets $10,164,660 $ 2,015,769
=========== ===========
Liabilities $ 9,361,613 $ 736,394
Equity 803,047 1,279,375
----------- -----------
Total liabilities and equity $10,164,660 $ 2,015,769
=========== ===========
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Service revenues $ 1,802,974 $ 1,019,172 $ 579,578 $ 343,625
Operating income (loss) $ (129,969) $ 391,819 $ (140,473) $ 136,888
Net income (loss) $ (404,936) $ 409,774 $ (275,897) $ 141,568
</TABLE>
As a result of the limited liability companies being taxed as partnerships for
Federal income tax purposes, there is no tax provided for earnings. See Note 2.
Income Taxes.
(Continued)
12
<PAGE> 13
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
7. MARKETABLE SECURITIES
The Company determines the appropriate classification of marketable securities
at the time of purchase and reevaluates such designation at each balance sheet
date. Marketable securities have been classified as available-for-sale and are
carried at fair value, with unrealized holding gains and losses reported as a
separate component of stockholders' equity.
8. ALLOCATION DUE FROM LIMITED PARTNERSHIP
A subsidiary of the Company is the general partner in a limited partnership.
Based on the allocation of income in accordance with the partnership agreement,
the balance is due from the limited partners for excess income allocated to the
limited partners from the general partner. It is management's estimate that all
income reallocated will be restored as a result of the priorities established in
the partnership agreement. If the acquisition of the minority interests is
consummated (see note 10) management will evaluate the appropriateness of
treatment of this item as acquisition costs.
9. NEW ACCOUNTING PRONOUNCEMENTS
On April 3, 1998 the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5 "Reporting on the Costs of Start-up Activities" which
states that the costs of start-up activities, including organization costs,
should be expensed as incurred. Implementation of SOP 98-5 is required for
financial statements issued for fiscal years beginning after December 15, 1998
with the initial application of this SOP being reported as a cumulative effect
of a change in accounting principle. Currently, the Company has an asset of
approximately $252,000 included in the caption "Deferred charges" on the balance
sheet at September 30, 1998, of which $123,000 was capitalized during the first
nine months of 1998. If the SOP was adopted early, there would be a cumulative
charge to earnings at this time of approximately $181,000 for the consolidated
entities.
In addition, unconsolidated entities have deferred start-up charges on their
balance sheets totaling $348,000 at September 30, 1998 of which $114,000 was
capitalized during the first nine months of 1998. If SOP 98-5 was adopted early,
there would be a cumulative charge to earnings in unconsolidated affiliates at
this time of approximately of $67,000.
(continued)
13
<PAGE> 14
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
-----------------------------------------------------
10. PLANS TO ACQUIRE MINORITY INTERESTS/ISSUANCE OF PREFERRED STOCK
On June 23, 1998 the Company announced its plans to acquire all of the limited
partner interests in Wendt-Bristol Diagnostics Co. L.P., its ten year old,
initial Diagnostic and Radiology Center located in Columbus, Ohio. Additionally,
the Company intends to acquire the approximate 15% of the outstanding shares
that it doesn't already own in the partnership's sole general partner:
Wendt-Bristol Diagnostics Company.
The Board of Directors has approved the issuance of the Company's authorized,
but unissued convertible Series 1 $20.00 Preferred Stock, with cumulative
dividends at 6% per annum (payable quarterly) with the express intent to
accomplish the acquisition of all of the minority interests in each of the two
aforementioned affiliates.
The Company has filed registration statements of Preferred Shares with the
Securities and Exchange Commission and a listing application with the American
Stock Exchange. Such filings have had an initial review by the SEC and the
Company is preparing amended registration statements responding to the comments
and utilizing the updated financial information contained herein along with the
Annual Report for the twelve months ended December 31, 1997. It is anticipated
that the issuance of the Preferred Shares and acquisition of the minority
interests will be completed subject to the approval of the limited partners, the
shareholders of Wendt-Bristol Diagnostics Company, the effectiveness of the
amended registration statements to be filed by the Company with the Securities
and Exchange Commission regarding the Preferred Shares, and any necessary third
party consents.
In conjunction with the above and in response to foreign investor interest, the
Company has also filed a registration statement for the possible issuance of up
to 385,000 shares of Preferred Stock for a cash price of $20.00 per share. An
amended registration statement will be filed similarly and concurrently with the
above.
14
<PAGE> 15
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOTE: REFERENCE SHOULD BE MADE TO THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS HEREIN.
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, economic, competitive, regulatory, growth strategies,
available financing and other factors discussed elsewhere in this report and in
the documents filed by the Company with the SEC. Many of these factors are
beyond the Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
FINANCIAL CONDITION
The Company continues to focus on 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 addition, on December 31, 1997, the company sold its
two Columbus nursing homes and is utilizing 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 allows
management to focus on its diagnostic and radiology centers.
In February 1998 the Company, through a subsidiary, opened its third diagnostic
center in Central Ohio. This center, located in Granville, Ohio, provides
enhanced diagnostic imaging techniques including magnetic resonance imaging
(MRI), CT scans, ultrasound, bone densitometry, x-ray and mammography. In
October 1998 the Company, through a subsidiary, opened its fourth diagnostic
center which is located on Jasonway Avenue in Columbus, Ohio.
(Continued)
15
<PAGE> 16
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
This 31,000 square foot medical complex includes the Company's second radiation
oncology facility as well as an advanced diagnostic center that includes the
first Positron Emission Tomography (PET) scanning unit in Central Ohio and a
full nuclear medicine department.
The Company, through a subsidiary, broke ground in July 1998 on its Women's
Health Center on Kenny Road. This 7,500 square foot center, scheduled to open in
the first quarter of 1999, will focus on women's health and imaging services and
will include an outpatient surgical site for breast surgery.
Working capital decreased approximately $1,326,000 from $2,886,000 at December
31, 1997 to $1,560,000 at September 30, 1998. Current assets decreased
approximately $3,071,000 due mostly from decreases in notes receivable
($2,883,000), accounts receivable ($252,000) and miscellaneous receivables
($331,000) offset by increases in cash ($175,000) and allocation due from
limited partnership ($257,000). The increase in cash and decrease in notes and
miscellaneous receivables is mostly due to the collection of the notes related
to the sale of the two nursing homes. The decrease in accounts receivable is
attributable to the collection of year-end receivables from the two sold nursing
homes offset by increases in receivables at the diagnostic centers. Current
liabilities decreased approximately $1,745,000 due mostly from reductions in
accounts payable ($683,000), accrued wages ($334,000), and other accrued
liabilities ($646,000), all primarily related to the sale of the two nursing
homes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position for the first nine months remains adequate with
working capital at $1,560,000 at September 30, 1998. During April 1998 the
Company collected the remaining balance of approximately $2.9 million on the
notes receivable due from the sale of the two nursing homes. Also in April 1998,
the Company secured an equipment lease line of credit for $1,000,000 with a
finance company. As of October 31, 1998 approximately $818,000 has been drawn
against this lease line.
The Company and its subsidiaries, limited partnership, and limited liability
companies, have committed to certain equipment upgrades or acquisitions that
will be financed either through the current equipment financing relationship or
through vendor programs. The cost of such equipment currently on order is
approximately $5,400,000.
(Continued)
16
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During October 1998, the Company, along with a partner, completed construction
of a major 31,000 square feet, two-building center including radiology, nuclear
medicine, cytology, radiation therapy, Positron Emission Tomography (the first
PET Scanner in central Ohio), and a therapy and rehab center. A subsidiary of
the Company has a participating partnership relationship (20%) in the rehab
center, a 22-1/2% interest and management control and responsibility in the
radiation therapy, and 100% ownership in the radiology, PET, nuclear and
cytology operations. The subsidiary also has a 50% interest in the land and
buildings associated to the new center. In addition, the Company, through a
subsidiary, is expanding one of its facilities by adding approximately 7,500
square feet. The adjoining addition (which is being financed by a bank) is
anticipated to cost approximately $800,000 and will be used to create one of the
first major women's health centers in central Ohio.
Management further believes the present resources will meet anticipated
requirements for operations of the business. Other than as indicated above,
there are no further material commitments for capital expenditures.
YEAR 2000 COSTS
The Company has assessed its risk of year 2000 issues and has determined that
most of the risk arises in the information technology area, specifically
accounting. The operations of the Company relies heavily on several major
diagnostic imaging equipment vendors and has assessed that the equipment is year
2000 compliant or will be through timely software upgrades. Due to ongoing
maintenance contracts, these software upgrades will be performed at minimal
incremental costs to the Company.
Separately, the Company has been evaluating its internal accounting software and
has ordered an accounting system that is year 2000 compliant. It is anticipated
that the system will be in use by the end of the first quarter 1999. The costs
of such software and implementation are approximately $40,000 and are being
financed as part of a larger package by an equipment financing company.
Accordingly, "Year 2000" issues are not expected to have any material impact on
the Company's future financial condition or results of operations.
RESULTS OF OPERATIONS 1998 VS. 1997
Consolidated revenues from operations for the nine and three months ended
September 30, 1998 decreased approximately $7,055,000 or 45.1% and $2,053,000 or
39.7%, respectively, from the same periods in 1997. Net sales decreased
$1,105,000 or 57.4% for the nine months and $233,000 or 46.2% for the three
months ended September 30, 1998 while service revenues declined $5,950,000 or
43.4% for the nine months and $1,820,000 or 39.0% for the quarter over the same
periods last year. The decline in net sales is due to the reduction in the
number of pharmacies from three in 1997 to one in 1998 while the decrease in
service revenues
(Continued)
17
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1998 VS. 1997 (CONTINUED)
is attributable to the sale of two nursing homes at December 31, 1997. Excluding
the two sold nursing homes, service revenues for the first nine months of 1998
are up 13.5% as compared to 1997 due mostly to the opening of the new diagnostic
center in February 1998.
Cost of sales decreased approximately $858,000 or 58.0% for the nine months and
$211,000 or 50.6% for the three months ended September 30, 1998 as compared to
the corresponding periods in 1997. Gross margin for the first nine months
increased to 24.2% in 1998 from 23.1% in 1997. The decreases are primarily due
to the 1997 sale of two retail pharmacies whose sales are not included in the
1998 results.
Selling, general and administrative expenses decreased approximately $5,352,000
or 42.6% for the nine months and $1,553,000 or 36.1% for the three months ended
September 30, 1998 as compared to the corresponding periods in 1997. The
decrease is mostly due to the reduction in expenses caused by the sale of the
two nursing homes and two pharmacies offset by increases in expenses at the
Diagnostic Center due to additional modalities, expenses of the new Granville
Diagnostic Center, and the expansion of mobile mammography. Selling, general and
administrative expenses at the new centers contribute heavily to the costs
during their initial period of market development. Such costs have had a
significant impact to the consolidated results for 1998. However, management
anticipates each of the centers, upon reaching its operating goals, to
contribute profits to the Company's results of operations.
Interest expense for the nine and three months ended September 30, 1998
decreased approximately $462,000 or 49.8% and $113,000 or 36.1%, respectively,
as compared to the same periods in 1997. The reduction is mostly due to the
reduced debt from the mortgages on the two sold nursing homes and the interest
income earned on the notes receivable from the sale of the homes offset by
interest expense on additional equipment at the new diagnostic center.
18
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
--------------------------------------------------
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 -EDGAR Financial Data Schedule
(b) Reports on Form 8-K
None
-------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
(Registrant)
November 16, 1998 By: /S/ Sheldon A. Gold
-------------------
Sheldon A. Gold
President
(Principal Executive Officer)
November 16, 1998 By: /S/ Charles R. Cicerchi
-----------------------
Charles R. Cicerchi
Vice-President, Finance
(Principal Financial and
Accounting Officer)
19
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,002,791
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