<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, 1999 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, 1999
----- -------------------------------
Common Stock, par value 6,069,356
$.01 per share
Common Stock Purchase Warrants - (1)
(1) All warrants expired on May 1, 1999.
<PAGE> 2
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
I N D E X
Part I Page No.
- ------ --------
Financial Statements:
Consolidated Balance Sheets - September 30, 1999 (Unaudited)
and December 31, 1998 3-4
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended September 30, 1999 and 1998 6
Consolidated Statements of Cash Flow (Unaudited)
Nine Months Ended September 30, 1999 and 1998 7-8
Notes to Consolidated Financial Statements 9-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations 16-20
Part II
- -------
Other Information 21
Signatures 21
Exhibits:
Exhibit 27 EDGAR Financial Data Schedule 22
2
<PAGE> 3
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 3,410 $ 577,317
----------- -----------
Restricted cash 133,057 230,347
----------- -----------
Receivables:
Trade, net of allowance for doubtful accounts
of $242,000 (September) and $227,000 (December) 2,108,345 1,009,486
Notes receivable 131,647 236,353
Miscellaneous 850,237 1,196,056
----------- -----------
3,090,229 2,441,895
----------- -----------
Inventories 15,196 22,816
Prepaid expenses and other 149,210 143,516
----------- -----------
Total current assets 3,391,102 3,415,891
----------- -----------
Property, plant and equipment, at cost 15,361,758 10,680,870
Less: Accumulated depreciation and
amortization (2,456,981) (1,864,752)
----------- -----------
12,904,777 8,816,118
----------- -----------
Investments and other assets:
Securities available for sale, at market - 52,500
Notes and other receivables, net of current portion 28,034 149,201
Notes receivable from officers, employees and
related parties, net of amounts payable 856,557 1,013,658
Life insurance premiums receivable 744,932 1,095,135
Investment and related advances, net 4,187,781 4,663,780
Excess of cost over assets of businesses
and subsidiaries acquired, less amortization 335,833 340,895
Deferred charges 1,166,640 599,249
Deferred income taxes 338,600 -
Other assets 74,422 71,807
----------- -----------
Total investments and other assets 7,732,799 7,986,225
----------- -----------
$24,028,678 $20,218,234
=========== ===========
</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, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,912,134 $ 1,768,848
Accrued expenses and other liabilities:
Salaries and wages 183,328 142,862
Taxes, other than federal income taxes 1,076,338 248,041
Interest 184,222 120,921
Other 493,252 171,937
Long-term obligations classified as current 1,507,925 487,535
------------ ------------
Total current liabilities 5,357,199 2,940,144
------------ ------------
Long-term obligations, less amounts classified
as current 13,645,713 11,014,477
------------ ------------
Deferred income taxes - 132,300
------------ ------------
Total liabilities 19,002,912 14,086,921
------------ ------------
Minority interests 457,634 611,390
------------ ------------
Stockholders' equity:
Preferred stock: $10 ,stated value
authorized: 500,000 shares
issued: none - -
Common stock: $.01 par;
authorized: 12,000,000 shares
issued: 8,280,807 shares (September) and
8,248,480 shares (December) 82,808 82,485
Capital in excess of par 10,261,735 10,260,927
Net unrealized gains (losses)
on securities available for sale, net of tax - (83,709)
Retained earnings (deficit) (3,010,575) (2,012,237)
------------ ------------
7,333,968 8,247,466
Treasury stock, at cost, 2,211,451 shares (September)
and 2,179,301 shares (December) (2,765,836) (2,727,543)
------------ ------------
Total stockholders' equity 4,568,132 5,519,923
------------ ------------
$ 24,028,678 $ 20,218,234
============ ============
</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, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30 Three Months Ended September 30
------------------------------ -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ - $ 819,978 $ - $ 271,546
Service income 6,757,294 4,595,723 2,539,553 1,641,009
----------- ----------- ----------- -----------
6,757,294 5,415,701 2,539,553 1,912,555
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - 621,243 - 205,575
Selling, general and administrative
expenses, net 6,855,933 4,593,502 2,470,386 1,765,667
Depreciation 592,645 187,232 222,388 66,232
----------- ----------- ----------- -----------
7,448,578 5,401,977 2,692,774 2,037,474
----------- ----------- ----------- -----------
Operating income (loss) (691,284) 13,724 (153,221) (124,919)
Other income (expense):
Minority interest in affiliates, net of tax 139,600 (35,865) 87,704 (24,120)
Equity in earnings (losses) of affiliates (105,796) 86,190 (27,968) 39,937
Interest expense (699,976) (160,210) (271,211) (83,199)
Other, net 200,205 20,232 135,460 5,483
----------- ----------- ----------- -----------
(465,967) (89,653) (76,015) (61,899)
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,157,251) (75,929) (229,236) (186,818)
Income tax benefit (expense) 393,000 17,100 77,000 20,600
----------- ----------- ----------- -----------
Income (loss) before cumulative effect of a change
in accounting principle (764,251) (58,829) (152,236) (166,218)
Cumulative effect of writing off start-up costs,
net of tax (234,087) - - -
----------- ----------- ----------- -----------
Net income (loss) $ (998,338) $ (58,829) $ (152,236) $ (166,218)
=========== =========== =========== ===========
Income (loss) per common share: (Note 6)
Income (loss) before cumulative effect
of a change in accounting principle $ (0.13) $ (0.01) $ (0.03) $ (0.03)
Cumulative effect of writing off
start-up costs, net of tax (0.04) 0.00 0.00 0.00
----------- ----------- ----------- -----------
Net income (loss) basic and diluted $ (0.17) $ (0.01) $ (0.03) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic and diluted 6,056,202 6,108,144 6,066,016 6,139,889
========= ========= ========= =========
</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, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30 Three Months Ended September 30
------------------------------ -------------------------------
1999 1998 1999 1998
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect of
a change in accounting principle $(764,251) $(58,829) $(152,236) $(166,218)
Add:
Unrealized gain on securities available
for sale, net of tax 24,549 - - -
Reclassification adjustment for securities losses
included in net loss, net of tax 59,160 - - -
--------- -------- --------- ---------
Comprehensive income (loss) before cumulative
effect of a change in accounting principle (680,542) (58,829) (152,236) (166,218)
Cumulative effect of writing off start-up costs,
net of tax (234,087) - - -
--------- -------- --------- ---------
Comprehensive income (loss) $(914,629) $(58,829) $(152,236) $(166,218)
========= ======== ========= =========
</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, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (998,338) $ (58,829)
----------- -----------
Adjustments required to reconcile net income
to net cash provided by operating activities:
Amortization, depreciation and other, net 603,551 198,140
Provision for losses on notes and accounts receivable 26,624 79,222
Provision for deferred income taxes (514,000) (40,000)
(Gain) loss on disposition of assets (60,752) 3,391
Minority interest in earnings (losses) of consolidated affiliates (139,600) 35,865
Equity in net losses (earnings) of unconsolidated affiliates 105,796 (86,190)
Changes in assets and liabilities:
Receivables (387,164) 891,717
Merchandise inventories 7,620 34,186
Prepaid expenses and other current assets 3,949 (33,587)
Accounts payable 264,171 (757,361)
Accrued expenses and other liabilities 1,253,378 (998,964)
Deferred charges and other (570,004) (89,780)
----------- -----------
Total adjustments 593,569 (763,361)
----------- -----------
Net cash used in operating activities (404,769) (822,190)
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of assets 386,667
Decrease in notes receivable 225,873 3,054,960
Investment and advances to affiliates (1,013,747) (1,400,100)
(Increase) decrease in receivable due from related parties
and former affiliates, net 372,304 (183,881)
Utilization of restricted cash 97,290 19,102
Purchase of marketable securities (179,309)
Capital expenditures (646,807) (176,012)
----------- -----------
Net cash provided by (used in) investing activities (578,420) 1,134,760
----------- -----------
Cash flows from financing activities:
Treasury stock purchased (47,492) (318,108)
Proceeds from the sale of Treasury Stock 264,991
Purchase of common stock of subsidiary (3,000)
Proceeds from exercise of stock options, net 687
Proceeds from officer loan 270,000 50,000
Principal payments of officer loan (135,000) (50,000)
Principal payments of long-term obligations (527,407) (86,582)
Proceeds from long-term obligations 851,494
----------- -----------
Net cash provided by (used in) financing activities 409,282 (139,699)
----------- -----------
Net increase (decrease) in cash (573,907) 172,871
Cash at beginning of period 577,317 625,109
----------- -----------
Cash at end of period $ 3,410 $ 797,980
=========== ===========
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
ru
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash paid during the nine months for:
Interest, net of interest income $ 636,675 $ 145,017
Income taxes $ - $ 95,037
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 $ 656,654 $ 869,198
Increase in long-term obligations (656,654) (869,198)
A subsidiary purchased the real property utilized in the
operations of two unconsolidated affiliates
Increase in real property cost, net $ 3,524,450 $ -
Decrease in investments and related advances (974,450) -
Increase in long-term obligations (2,550,000)
During July 1999, two officers / directors
exercised stock options utilizing previously
purchased shares (see Note 5)
Increase in common stock $ 313 $ -
Decrease in capital in excess of par (313) -
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, 1999
--------- ----------------------------------------
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, cumulative effect of a change in accounting principle re
start-up costs 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, 1999 and December 31, 1998 and the consolidated results
of its operations for the three and nine months ended September 30,
1999 and 1998 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, 1998, WHICH IS HEREBY INCORPORATED BY
REFERENCE.
2. FINANCIAL STATEMENTS RESTATEMENT
The Company has changed its use of the "Consolidation Method" of
accounting related to its interest as sole General Partner of
Wendt-Bristol Diagnostics Co. L.P. and records the investment utilizing
the "equity method" of accounting. Management reviewed its accounting
policy for consolidation of the limited partnership and determined that
while Management significantly influences the partnership, it does not
meet the complete criteria for consolidation. Prior year interim
financial statements have been restated to reflect this determination.
There is no effect on the net consolidated results of operations due to
this determination. Such method does not effect the Company's
previously determined net earnings or stockholders' equity. The "equity
method", however, does change the individual components of the
Consolidated Balance Sheets, Statements of Operations, Statements of
Cash Flows and related financial information. All financial statements
included herein have been restated to conform to this change.
3. WRITE-OFF OF START-UP COSTS
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. The Company adopted the provisions of
the SOP in its financial statements as of January 1, 1999. The
cumulative effect of the adoption of SOP 98-5 was a charge to earnings
of $355,087 net of taxes of $121,000 for the nine months ended
September 30, 1999 and the quarter ended March 31, 1999.
(Continued)
9
<PAGE> 10
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
4. INCOME TAXES
Federal, state and local taxes are summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal taxes:
Current expense (benefit) $ - $ 16,000 $ - $ 19,000
Deferred expense (benefit) (393,000) (41,300) (77,000) (41,300)
State and local taxes:
Current expense - 8,200 - 1,700
--------- -------- -------- --------
Total expense (benefit) $(393,000) $(17,100) $(77,000) $(20,600)
========= ======== ======== ========
</TABLE>
5. STOCKHOLDERS' EQUITY
At September 30, 1999, there were no common stock purchase warrants
outstanding. Previously, there were 414,538 Common Stock purchase
warrants outstanding, exercisable at $3.75 per warrant. Each warrant,
upon exercise, provided two and three quarters (2 3/4) shares of the
Company's common stock and a Series II warrant exercisable for two
shares at $3.00/share. The Warrants' expiration dates, as amended by
the Board of Directors in April 1998, were May 1, 1999 for the initial
Warrant and May 1, 2000 for the Series II Warrants. The Board of
Directors elected to allow the warrants to expire on May 1, 1999 and
the Series II warrants to expire on May 1, 2000. There were no warrants
exercised in 1999.
During July, 1999 two officers/directors exercised stock options
totaling 61,000 shares for an aggregate cost of $47,875. Such exercise
was completed pursuant to a Plan provision enabling the payment to be
made in the form of Company shares held by the participants, valued at
the market price on the exercise date. Therefore, a total of 29,673
shares were received by the Company, thereby yielding a net issuance of
31,327 shares (no cash was received by the Company). In addition,
another director exercised and paid cash for a 1,000 share option.
10
<PAGE> 11
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
6. 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 is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding. Diluted earnings per share is 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 is 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 table is
provided to reconcile the earnings per share calculations:
SEE TABLE ON FOLLOWING PAGE
(Continued)
11
<PAGE> 12
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
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FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
------------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
6. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
September 30, September 30,
------------- -------------
1999 1998 1999 1998
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of a change in accounting principle $ (764,251) $ (58,829) $(152,236) $(166,218)
Cumulative effect of writing off
start-up costs, net of tax (234,087) -- -- --
Effect of 5.5% convertible
bond, net of tax -- -- -- --
----------- ----------- --------- ---------
Income (loss) available to common stockholders
and assumed conversions $ (998,238) $ (58,829) $(152,236) $(166,218)
=========== =========== ========= =========
Shares:
Weighted average shares (basic)(D) 6,056,202 6,108,144 6,066,016 6,139,889
Effect of dilutive securities
Options -- (A) -- -- (A) --
Warrants -- (B) -- -- (B) --
Convertible Debt -- (C) -- -- (C) --
----------- ----------- --------- ---------
Diluted weighted average shares 6,056,202 6,108,144 6,066,016 6,139,889
=========== =========== ========= =========
Income (loss) per common share:
BASIC and DILUTED (D)
Income (loss) before cumulative effect of
a change in accounting principle $ (.13) $ (.01) $ (.03) $ (.02)
Cumulative effect of writing off start-up
costs, net of tax $ (04) $ -- -- --
----------- ----------- --------- ---------
Net income (loss) $ (.17) $ (.01) $ (.03) $ (.02)
=========== =========== ========= =========
</TABLE>
SEE (A) - (D) ON FOLLOWING PAGE
(Continued)
12
<PAGE> 13
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
6. EARNINGS PER SHARE (CONTINUED)
(A) 1,000 stock options not associated with convertible debt would
be excluded from the computation of diluted EPS because the
exercise price was greater than the average market price of
the common shares.
(B) 414,538 warrants were excluded from the computation of diluted
EPS because the exercise price was greater than the average
market price of the common shares. See Note 5 concerning the
expiration of warrants.
(C) 500,000 stock options associated with convertible debt were
excluded because their exercise would be anti-dilutive.
(D) At September 30, 1999, all potential common stock options,
warrants, and options associated with convertible debt were
excluded because their exercise would be anti-dilutive due to
the net loss.
7. UNCONSOLIDATED AFFILIATES
Unaudited financial information of the affiliates which are accounted for by the
equity method is summarized below:
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Current assets $ 2,568,474 $ 2,298,676
Property, plant and equipment
net of accumulated depreciation 12,672,505 10,483,313
Other non-current assets 734,277 704,639
----------- -----------
Total assets $15,975,256 $13,486,628
=========== ===========
Liabilities $14,256,138 $12,415,875
Equity 1,719,118 1,070,753
----------- -----------
Total liabilities and equity $15,975,256 $13,486,628
=========== ===========
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenues $ 5,695,685 $ 5,267,326 $ 1,886,091 $ 1,868,061
Operating income (loss) (848,851) 30,294 (349,149) (48,441)
Income (loss) before cumulative effect
of a change in accounting principle (1,377,652) (530,606) (431,773) (280,285)
Cumulative effect of writing off
start-up costs (427,516) -- -- --
Net income (loss)...@100% $(1,805,168) $ (530,606) $ (431,773) $ (280,285)
</TABLE>
(Continued)
13
<PAGE> 14
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
7. 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. See Note 4. Income Taxes. Also see Note 11.
8. 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. At the beginning of the year, marketable
securities were classified as available-for-sale and were carried at
fair value, with unrealized holding gains and losses reported as a
separate component of stockholders' equity. During the March 31, 1999
quarter the securities were sold and the realized loss of approximately
$90,000 is included in the caption Other Expense in the Consolidated
Statements of Operations.
9. NEW ACCOUNTING PRONOUNCEMENTS
Effective for all fiscal quarters of fiscal years beginning after June
15, 2000, FASB Statement No. 133 "Accounting for Derivative Instruments
and Hedging Activities" requires the recording of deferred gains or
losses on foreign currency hedge transactions as a component of
comprehensive income. Such cumulative, net deferred gains/(losses) are
recognized in the statements of operations at the time of finalizing
the underlying transaction. At September 30, 1999 the Company has
deferred approximately $542,000 of losses on the foreign currency
hedges ($358,000 net of tax).
10. PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON STOCK AND LIMITED
PARTNERSHIP INTERESTS...WITHDRAWAL OF REGISTRATION STATEMENTS
The Wendt-Bristol Health Services Corporation ("WBHSC") announced in
June, 1998 its plans to acquire the approximate 15% of the outstanding
shares of Wendt-Bristol Diagnostics Company that it did not already own
through a subsidiary (Wendt-Bristol Company).
Additionally, the Company announced plans to acquire all of the limited
partnership interests in Wendt- Bristol Diagnostics Company, L.P.
Wendt-Bristol Diagnostics Company, a subsidiary of the Company, is the
general partner.
The Company had filed amended preliminary Forms S-4, with the
Securities and Exchange Commission concerning the issuance of preferred
stock in exchange for the above interests. Such Registration Statements
had not become effective.
(Continued)
14
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THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
10. PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON STOCK AND LIMITED
PARTNERSHIP INTERESTS...WITHDRAWAL OF REGISTRATION STATEMENTS (CONTINUED)
During July, 1999, the Company announced that it was withdrawing the
afore-mentioned Registration Statements, Forms S-4. The Company further
stated that it remains the Board of Directors express intent to
continue its goal to accomplish the acquisition of all of the minority
interests in each of the two aforementioned affiliates. In that regard,
management is reviewing the timing and available resources to enable
the possibility of a cash offering. Additionally, from time to time,
the Company will acquire partnership units and Diagnostic Company
shares in the open market.
11. PURCHASE OF REAL PROPERTY ASSOCIATED TO UNCONSOLIDATED AFFILIATES
During the quarter ended June 30, 1999, a subsidiary of the Company
acquired the real property associated to the operation of a diagnostic
center and a radiation oncology center. Each facility is operated by an
unconsolidated affiliate. The combined purchase price of the two
transactions was approximately $3,900,000 and included the placement of
mortgages in the total amount of $2,550,000 and the reduction of
Advances to affiliates of approximately $975,000. No gain or loss was
recognized in the transactions. Each of the affiliates entered
long-term leases with the subsidiary of the Company.
12. SALE OF UNDEVELOPED REAL ESTATE
During the quarter ended June 30, 1999, the Company sold undeveloped
land previously acquired for possible expansion of operations. A gain
of approximately $150,000 was recognized and is included in the
accompanying Consolidated Statements of Operations in "Other, net"
13. TAXES, OTHER THAN FEDERAL INCOME TAXES
Primarily as a result of the delays inherent in collection of
receivables related to newly-approved procedures associated to the new
facilities (i.e. PET) as well as the costs of establishing the new
facilities, the Company has included a Federal payroll tax liability of
approximately $640,000 on the accompanying Consolidated Balance Sheet
at September 30, 1999. Additionally, approximately $100,000 has been
estimated and recorded as penalties and interest. Management believes
an acceptable and reasonable payment schedule will be achieved.
15
<PAGE> 16
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
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
other documents filed by the Company with the SEC. Many of these factors are
beyond the Company's control. Actual results could differ materially from the
forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
FINANCIAL CONDITION
Management continues to position the Company to focus on the aggressive
expansion of its Diagnostic and Radiology business, including radiation therapy.
During December 1998 the Company sold its remaining retail pharmacy in order to
concentrate on its core business. In October 1998 the Company opened its fourth
diagnostic center which is located on Jasonway Avenue in Columbus, Ohio. This
21,000 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. A second nuclear medicine department is
scheduled for opening in January 2000 at the Company's facility in Newark, Ohio;
approximately 1,500 square feet of additional space has been leased to
accommodate this addition.
(Continued)
16
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
The Company, through a subsidiary, opened its fifth center in May 1999. The
Women's Health Center is located in a newly constructed addition to its facility
on Kenny Road in Columbus, Ohio. This 7,500 square foot center is dedicated to
women's health and imaging services and will include an outpatient surgical
suite for breast surgery that is scheduled to open in early 2000.
Working capital decreased to a deficit of approximately $2,400,000 at September
30, 1999. Current assets decreased approximately $25,000 in 1999 due mostly from
a decrease in cash of approximately $670,000 offset by an increase in total
receivables of approximately $648,000. The decrease in cash is due to supporting
the new centers while they are in a start-up mode (start-up costs are expensed
for financial statement presentation - See Note 3). The total receivables
increased approximately $1,100,000 in trade receivables attributable to the
developing business at the newer facilities (I.E. PET), partially offset by the
collection of other receivables. Current liabilities increased approximately
$2,400,000 in the nine months ending September 30 due primarily from increases
in accrued taxes ($830,000), accrued other expenses ($320,000) and current
portion of long-term debt ($1,020,000). The increases in taxes (see Note 13) and
other expenses are primarily due from the strains of operating in a start-up
mode while the increase in current portion of long-term debt is due to increased
principal payment schedules (some of which are not current) during 1999 as a
result of the addition of equipment for the new centers as well as the purchase
of real property associated to unconsolidated affiliates (see Note 11).
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has diminished in the first nine months with a
working capital deficit of approximately $2,400,000 at September 30, 1999. The
primary decline in liquidity arises from the support of new facilities during
their respective growth stages whereby receivables are initially slower to
collect while fixed costs during the initial phase exceeds revenues. The Company
and its subsidiaries, limited partnership, and limited liability companies, have
committed to certain equipment upgrades or acquisitions that will be financed
through vendor programs. As of September 30, 1999, the cost of such equipment
currently on order and expected to be installed in the fourth quarter of 1999
and first quarter of 2000 is approximately $675,000. The aforementioned
equipment relates primarily to the Company's second nuclear medicine department
scheduled for opening in January 2000 and the first quarter of 2000 addition of
fluoroscopy equipment to existing space in one of the Company's Columbus Ohio
locations.
Cash decreased approximately $574,000 during the first nine months of 1999. Cash
used in operations was approximately $405,000 while cash used in investing
activities was $578,400. The major use of cash in investing activities was the
investment and advances to affiliates with start-up operations ($1,014,000) and
related capital expenditures ($647,000), offset by the proceeds from the sale of
assets ($387,000), collection of notes receivable ($226,000) and amounts due
from the related parties and affiliates ($372,000) as well as the utilization of
(Continued)
17
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
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)
restricted cash ($97,000). In addition, financing activities provided
approximately $409,000, primarily as a result of net long-term obligations
increases ($324,000). The unconsolidated affiliates required cash during the
first nine months of 1999 and will continue to need additional (but diminished)
support. As of July 1, 1999, the Company's nursing facility received a rate
increase that represents an estimated annual revenue increase of approximately
$500,000.
During October 1998, the Company, along with a partner, completed construction
of a major 31,000 square foot, 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 22-1/2% interest and management control and responsibility in
the radiation therapy, and 100% ownership in the radiology, PET and nuclear
medicine operations. In addition, the Company, through a subsidiary, has opened
a Women's Health Center in the second quarter of 1999, which is dedicated to
women's health and imaging services. The related outpatient surgical suite for
breast surgery is expected to open in the first quarter of 2000.
Management believes that present resources available and anticipated through the
growth of the newer centers will meet anticipated requirements for operations of
the business. Other than as indicated above, there are no further material
commitments for capital expenditures.
RESULTS OF OPERATIONS 1999 VS. 1998
Consolidated pre-tax earnings/(loss), before the cumulative effect of a change
in accounting principle - write off of start-up costs and exclusive of
depreciation of $592,600 and interest of $700,000, was $135,300 for the first
nine months of 1999 compared to $271,500 (exclusive of $187,200 of depreciation
and $160,200 of interest) in the first nine months of 1998. Results for the
September quarters, on the same basis, was $264,400 in 1999 and ($37,400)
(1998). The Company does not believe that the results of the first nine months
are indicative of the full year results. In addition to the increasing revenues
of the new ventures (i.e. P.E.T., which had 3 new procedures approved July 1,
1999), the Company's nursing home received a rate increase July 1, 1999 that
represents additional estimated revenues of $250,000 in the second half. The
focus on the expansion of Diagnostic and Radiology, including radiation therapy,
along with the economies of size and cost control are expected to generate
profits upon the completion of the start-up mode. The new medical complex
located on Jasonway Avenue in Columbus was completed in October 1998. This major
facility includes the Company's second Radiation Oncology facility as well as an
advanced Diagnostic Center including the first Positron Emission Tomography
(P.E.T.) scanning unit in Central Ohio. The Company also opened its Women's
Health Center on Kenny Road in the second quarter of 1999.
(Continued)
18
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
WENDT-BRISTOL HEALTH SERVICES CORPORATION
-----------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1999 VS. 1998 (Continued)
Consolidated revenues from operations for the three and nine months ended
September 30, 1999 increased approximately $2,161,500 or 47% and $898,500 or 55%
from the same periods in 1998. Net sales decreased $271,500 (three months) and
$820,000 (nine months). The aforementioned consolidated revenues reflect the
increase in service revenues, net of the absence of 1999 net sales. The decline
in net sales is due to the December 31, 1998 sale of the Company's last pharmacy
while the increase in service revenues is attributable to increased diagnostic
volumes due to the opening of new centers.
Cost of sales decreased approximately $205,600 and $621,200 for the three and
nine months ended September 30, 1999 due to the sale of the pharmacies during
1998.
Selling, general and administrative expenses increased approximately $704,700
and $2,262,400 for the three and nine months ended September 30, 1999 as
compared to the comparable period in 1998. The increase is mostly due to the
opening of two diagnostic centers and the expansion of the Company's mobile
mammography division.
Interest expense for the three and nine months ended September 30, 1999
increased approximately $188,000 and $539,800 as compared to the same period in
1998. The increase is primarily due to the increased amount of debt attributable
to the addition of equipment at the two new diagnostic centers, as well as the
1999 mortgage debt associated to the acquisition of real property (see Note 11).
YEAR 2000 COSTS
A potential problem exists for all companies that rely on computers as the year
2000 approaches. The "Year 2000" problem is the result of the past practice in
the computer industry of using two digits rather than four to identify the
applicable year. This practice could result in incorrect results when the
Company's computers or those of the third parties with which it deals perform
arithmetic operations, comparisons or data field sorting involving years later
than 1999.
The Company has conducted an assessment of its computer systems to identify
items that could be impacted by the Year 2000 issue and formulated the following
course of action. The Company continues to review its non- information
technology systems. Although the Company does not anticipate that
non-information technology systems will pose a major problem, as its reliance on
such systems is relatively small, non-information technology systems are more
difficult to evaluate and repair than information technology systems and may
require replacement. The Company continues its review of its information
technology systems and will make any further necessary software upgrades in
1999. In addition, the Company has been separately evaluating its accounting
(Continued)
19
<PAGE> 20
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------- ----------------------------------------
WENDT-BRISTOL HEALTH SERVICES CORPORATION
-----------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
software and is currently in the process of implementing a new system which is
anticipated to be completed during the fourth quarter of 1999. Total cost of the
conversion is expected to be approximately $45,000. The Company has been
assessing the Year 2000 readiness of those third parties that could have a
material impact on the Company's operations. The Company began sending Year 2000
questionnaires to these third parties in late 1998 with the intent to evaluate
the steps these parties have taken to assess and remedy their respective Year
2000 problems. The Company continues to evaluate these questionnaires. The area
in which the Company is most dependent on third parties is technical equipment
and accounts receivable. The most significant equipment is from major vendors
who have already made assurances of Year 2000 compliance. The vast majority of
the Company's accounts receivable are paid through both private and public
insurance programs. Since these organizations are either governmental in nature
or heavily regulated by the government, the Company is confident that they
either are or will shortly be Year 2000 compliant. Nonetheless, the Company has
begun evaluating the readiness of these organizations as discussed above. The
most reasonably likely worst case scenario the Company faces in regards to Year
2000 problems is a lack of compliance on the part of the third parties with
which it deals. Though not highly dependent on any particular vendor, the
failure on the part of its vendors could result in the Company not being able to
get those supplies it needs to administer its business. The Company is prepared
to find alternative vendors should this problem result and is considering
building up an inventory of any necessary supplies to prevent any shortage if
such an eventuality were to occur. The area of noncompliance that would have the
greatest negative impact on the Company's business is that of the private and
public insurance programs that ultimately pay for the Company's services. A lack
of compliance on their part could result in the Company not being promptly or
properly paid for the services provided, impacting the Company's cash flow and
its ability to meet its operational needs. The Company is working to develop
alternative billing procedures to deal with any lack of readiness on the part of
these third parties.
The Company is utilizing both internal and external resources to reprogram or
replace and test all of its software. The Company estimates that to evaluate,
reprogram and replace equipment and software to ensure Year 2000 compliance, a
total of $5,000 will be spent on outside consultants. In addition, as discussed
above, the Company estimates a total cost of approximately $45,000 to replace
its existing accounting system. Such costs have been financed during the second
quarter of 1999.
20
<PAGE> 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
------------- ------------------------------------
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
(1) Report dated April 9, 1999 relating to the sale of
Series 2 Bonds (400,000 Swiss francs) pursuant to
Regulation S.
-------------------------------
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 19, 1999 By: /s/ Marvin D. Kantor
----------------------------------------
Marvin D. Kantor
Chairman
(Principal Executive Officer)
November 19, 1999 By: /s/ Sheldon A. Gold
-----------------------------------------
Sheldon A. Gold
President
(Principal Financial and Accounting Officer)
21
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<CASH> 136,467
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