<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 March 31, 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.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1999
----- -----------------------------
<S> <C>
Common Stock, par value 6,050,629
$.01 per share
Common Stock Purchase Warrants -- (1)
</TABLE>
(1) All warrants expired on May 1, 1999.
<PAGE> 2
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
I N D E X
Part I Page No.
- ------ --------
Financial Statements:
Consolidated Balance Sheets - March 31, 1999 (Unaudited)
and December 31, 1998 3-4
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 1999 and 1998 6
Consolidated Statements of Cash Flow (Unaudited)
Three Months Ended March 31, 1999 and 1998 7-8
Notes to Consolidated Financial Statements 9-13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-18
Part II
- -------
Other Information 19
Signatures 19
Exhibits:
Exhibit 27 EDGAR Financial Data Schedule 20
2
<PAGE> 3
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,976 $ 577,317
------------ ------------
Restricted cash 197,396 230,347
------------ ------------
Receivables:
Trade, net of allowance for doubtful
accounts of $227,000 (March and December) 1,304,299 1,009,486
Notes receivable 150,000 236,353
Miscellaneous 1,065,497 1,196,056
------------ ------------
2,519,796 2,441,895
------------ ------------
Inventories 15,994 22,816
Prepaid expenses and other 159,804 143,516
------------ ------------
Total current assets 2,895,966 3,415,891
------------ ------------
Property, plant and equipment, at cost 10,828,500 10,680,870
Less: Accumulated depreciation and
amortization (2,038,534) (1,864,752)
------------ ------------
8,789,966 8,816,118
------------ ------------
Investments and other assets:
Securities available for sale, at market -- 52,500
Notes and other receivables, net of current portion 160,552 149,201
Notes receivable from officers, employees and
related parties, net of amounts payable 938,717 1,013,658
Life insurance premiums receivable 829,689 1,095,135
Investment and related advances, net 5,015,466 4,663,780
Excess of cost over assets of businesses
and subsidiaries acquired, less amortization 337,259 340,895
Deferred charges 734,148 599,249
Deferred income taxes 161,600 --
Other assets 74,105 71,807
------------ ------------
Total investments and other assets 8,251,536 7,986,225
------------ ------------
$ 19,937,468 $ 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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS AT MARCH 31, 1999 AND DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,763,429 $ 1,768,848
Accrued expenses and other liabilities:
Salaries and wages 171,086 142,862
Taxes, other than federal income taxes 416,907 248,041
Interest 123,820 120,921
Other 336,426 171,937
Longterm obligations classified as current 718,892 487,535
------------ ------------
Total current liabilities 3,530,560 2,940,144
------------ ------------
Longterm obligations, less amounts classified
as current 10,914,637 11,014,477
------------ ------------
Deferred income taxes -- 132,300
------------ ------------
Total liabilities 14,445,197 14,086,921
------------ ------------
Minority interests 557,103 611,390
------------ ------------
Stockholders' equity:
Preferred stock: $10 ,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 10,261,371 10,260,927
Net unrealized gains (losses)
on securities available for sale, net of tax -- (83,709)
Retained earnings (deficit) (2,665,752) (2,012,237)
------------ ------------
7,678,104 8,247,466
Treasury stock, at cost, 2,079,901 shares (March)
and 2,067,254 shares (December) (2,742,936) (2,727,543)
------------ ------------
Total stockholders' equity 4,935,168 5,519,923
------------ ------------
$ 19,937,468 $ 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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Net sales $ -- $ 286,987
Service income 1,940,383 1,241,594
----------- -----------
1,940,383 1,528,581
----------- -----------
Costs and expenses:
Cost of sales -- 179,194
Selling, general and administrative
expenses, net 2,134,432 1,433,059
Depreciation 173,865 59,577
----------- -----------
2,308,297 1,671,830
----------- -----------
Operating loss (367,914) (143,249)
Other income (expense):
Minority interest in affiliates, net of tax 54,287 (3,728)
Equity in earnings (losses) of affiliates (47,545) 46,046
Interest expense (193,818) (19,156)
Other, net (80,438) 10,760
----------- -----------
(267,514) 33,922
----------- -----------
Loss before income taxes (635,428) (109,327)
Income tax benefit (expense) 216,000 1,600
----------- -----------
Loss before cumulative effect of a change in accounting principle (419,428) (107,727)
Cumulative effect of writing off startup costs, net of tax (234,087)
----------- -----------
Net loss $ (653,515) $ (107,727)
=========== ===========
Loss per common share basic and diluted: (Note 6)
Loss before cumulative effect of a change in accounting principle $ (0.07) $ (0.02)
----------- -----------
Cumulative effect of writing off startup costs, net of tax (0.04) --
Net loss $ (0.11) $ (0.02)
=========== ===========
Weighted average shares outstanding:
Basic 6,056,255 6,138,609
=========== ===========
Diluted 6,056,255 6,138,609
=========== ===========
</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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Loss before cumulative effect of a change in
accounting principle $(419,428) $(107,727)
Add:
Unrealized gain for quarter on securities available
for sale, net of tax 24,549 --
Reclassification adjustment for losses
included in net loss, net of tax 59,160 --
--------- ---------
Comprehensive loss before cumulative effect of a
change in accounting principle (335,719) (107,727)
Cumulative effect of writing off startup costs, net of tax (234,087) --
--------- ---------
Comprehensive loss $(569,806) $(107,727)
========= =========
</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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (653,515) $ (107,727)
----------- -----------
Adjustments required to reconcile net income
to net cash provided by operating activities:
Amortization, depreciation and other, net 177,501 63,213
Provision for losses on notes and accounts receivable 4,131 27,860
Provision for deferred income taxes (337,000)
Loss on disposition of assets 89,560
Minority interest in earnings (losses) of consolidated affiliates (54,287) 3,728
Equity in net losses (earnings) of unconsolidated affiliates 47,545 (46,046)
Changes in assets and liabilities:
Receivables 458,615 1,010,947
Merchandise inventories 6,822 1,887
Prepaid expenses and other current assets (6,645) (12,170)
Accounts payable (5,419) (208,039)
Accrued expenses and other liabilities 364,478 (424,278)
Deferred charges and other (137,195) (245,773)
----------- -----------
Total adjustments 608,106 171,329
----------- -----------
Net cash provided by (used in) operating activities (45,409) 63,602
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of assets 89,748
(Increase) decrease in notes receivable 75,002 (15,915)
Investment and advances to affiliates (1,026,231) (725,680)
(Increase) decrease in receivable due from related parties
and former affiliates, net 265,387 (2,457)
Utilization of or (deposit to) restricted cash 32,951 (9,426)
Capital expenditures (74,253) (56,966)
----------- -----------
Net cash used in investing activities (637,396) (810,444)
----------- -----------
Cash flows from financing activities:
Treasury stock purchased (24,592) (131,927)
Proceeds from officer loan 105,000 50,000
Principal payments of officer loan (30,000)
Principal payments of longterm obligations (64,915) (70,356)
Proceeds from longterm obligations 122,971 288,496
----------- -----------
Net cash provided by financing activities 108,464 136,213
----------- -----------
Net decrease in cash (574,341) (610,629)
Cash at beginning of period 577,317 625,109
----------- -----------
Cash at end of period $ 2,976 $ 14,480
=========== ===========
</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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash paid during the nine months for:
Interest, net of interest income $ 190,919 $ 23,256
Income taxes $ -- $ --
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 $ 73,461 $ 804,447
Increase in longterm obligations (73,461) (804,447)
</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 MARCH 31, 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 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 March
31, 1999 and December 31, 1998 and the consolidated results of its
operations for the three months ended March 31, 1999 and 1998 as well
as the cash flows for the respective three 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 criteria for consolidation. Prior year interim financial
statements have been restated to reflect this determination. There is
no affect 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 quarter ended March 31,
1999.
(Continued)
9
<PAGE> 10
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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>
Three months ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Federal taxes:
Current expense (benefit) $ -- $ (3,000)
Deferred expense (benefit) (216,000) --
State and local taxes:
Current expense -- 1,400
--------- ---------
Total expense (benefit) $(216,000) $ (1,600)
========= =========
</TABLE>
5. STOCKHOLDERS' EQUITY
At March 31, 1999 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, are 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 during the three months ended March 31, 1999.
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 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 MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
-----------------------------------------------------
6. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Income (loss) before cumulative effect
of a change in accounting principle $ (419,428) $ (107,727)
Cumulative effect of writing off
start-up costs, net of tax (234,087) --
Effect of dilutive 5.5% convertible
bond, net of tax -- --
----------- -----------
Income (loss) available to common stockholders
and assumed conversions $ (653,515) $ (107,727)
=========== ===========
Shares:
Weighted average shares (basic) 6,056,255 6,138,609
Effect of dilutive securities
Options -- --
Warrants -- --
Convertible Debt -- --
----------- -----------
Diluted weighted average shares 6,056,255(1) 6,138,609(1)
=========== ===========
Income (loss) per common share-basic and diluted:
Income (loss) before cumulative effect of
a change in accounting principle $ (.07) $ (.02)
Cumulative effect of writing off start-up
costs, net of tax $ (04) $ --
----------- -----------
Net income (loss) $ (.11) $ (.02)
=========== ===========
</TABLE>
(1) At March 31, 1999 and 1998, 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.
(Continued)
11
<PAGE> 12
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
7. UNCONSOLIDATED AFFILIATES/MINORITY INTEREST
Unaudited financial information of the affiliates which are accounted for by the
equity method is summarized below:
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Current assets $ 2,484,320 $ 2,298,676
Property, plant and equipment
net of accumulated depreciation 10,487,487 10,483,313
Other non-current assets 317,410 704,639
------------ ------------
Total assets $ 13,289,217 $ 13,486,628
============ ============
Liabilities $ 13,118,812 $ 12,415,875
Equity 170,405 1,070,753
------------ ------------
Total liabilities and equity $ 13,289,217 $ 13,486,628
============ ============
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Service revenues $ 1,914,512 $ 1,602,802
Operating income (loss) $ (273,678) $ 77,424
Income (loss) before cumulative effect
of a change in accounting principle $ (472,832) $ (70,088)
Cumulative effect of writing off
start-up costs $ (427,516) $ --
Net income (loss)...@100% $ (900,348) $ (70,088)
</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 4.
Income Taxes.
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 period, 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
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.
(Continued)
12
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THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
9. NEW ACCOUNTING PRONOUNCEMENTS
Effective for fiscal years beginning after June 15, 1999 (one-year
delay pending), 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 March 31, 1999 the Company
has deferred approximately $369,000 of losses on the foreign currency
hedges ($244,000 net of tax).
10. PROPOSED PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON STOCK AND
LIMITED PARTNERSHIP INTERESTS
The Wendt-Bristol Health Services Corporation ("WBHSC") announced on
June 23, 1998 that it is proceeding with plans to acquire the
approximate 15% of the outstanding shares of Wendt-Bristol Diagnostics
Company that it does not already own through a subsidiary
(Wendt-Bristol Company).
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 has 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
have not become effective.
(Continued)
13
<PAGE> 14
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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 continuing 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.
The Company, through a subsidiary, is scheduled to open 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 will
focus on women's health and imaging services and will include an outpatient
surgical suite for breast surgery.
(Continued)
14
<PAGE> 15
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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)
Working capital decreased approximately $1,110,000 from $476,000 at December 31,
1998 to a deficit of $634,000 at March 31, 1999. Current assets decreased
approximately $520,000 due mostly from a decrease in cash of approximately
$574,000. 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). Current liabilities increased approximately
$590,000, due primarily from increases in accrued taxes ($169,000), accrued
other expenses ($164,000) and current portion of long-term debt. The increases
in taxes 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 during 1999 as a result of the addition of
equipment for the new centers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position has diminished in the first quarter with a
working capital deficit of $634,000 at March 31, 1999. The Company has a
$400,000 lease line of credit available to finance equipment and furniture for
the new Women's Health Center. In addition, 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. As of March
31, 1999, the cost of such equipment currently on order and expected to be
installed in the second quarter is approximately $750,000.
Cash decreased approximately $574,000 during the first quarter of 1999. Cash
used in operations was approximately $45,000 while cash used in investing
activities was $637,000. The major use of cash in investing activities was the
investment and advances to affiliates with start-up operations ($1,026,000).
These unconsolidated affiliates required cash during the first quarter of 1999
and will continue to need additional support in the second quarter.
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, is
scheduled to open a Women's Health Center in the second quarter of 1999, which
will focus on women's health and imaging services and will include an outpatient
surgical suite for breast surgery.
Management believes that 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.
(Continued)
15
<PAGE> 16
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
THE 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
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 $173,900 and interest of $193,800, was $(267,700) in 1999 as
compared to $(30,500) (exclusive of $59,600 of depreciation and $19,200 of
interest) in the first quarter of 1998. The Company does not believe that the
results of the first quarter are indicative of the full year results. 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 later in 1999. 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
(PET) scanning unit in Central Ohio. The Company also anticipates the opening of
its Women's Health Center on Kenny Road in the second quarter of 1999.
Consolidated revenues from operations for the three months ended March 31, 1999
increased approximately $412,000 or 26.9% from the same period in 1998. Net
sales decreased $287,000 or 100.0% while service revenues increased $699,000 or
56.3%. 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 two centers during 1998.
Cost of sales decreased approximately $179,000 or 100.0% for the three months
ended March 31, 1999 due to the sale of the pharmacy during 1998.
Selling, general and administrative expenses increased approximately $701,000 or
48.9% for the quarter ended March 31, 1999 as compared to the comparable period
in 1998. The increase is mostly due to the opening of two diagnostic centers
during 1998 and the expansion of the Company's mobile mammography division.
Interest expense for the three months ended March 31, 1999 increased
approximately $175,000 as compared to the same period in 1998. The increase is
due to the increased amount of debt attributable to the addition of equipment at
the two new diagnostic centers.
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.
(Continued)
16
<PAGE> 17
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
WENDT-BRISTOL HEALTH SERVICES CORPORATION
-----------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 COSTS (CONTINUED)
The Company has conducted a preliminary 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 will begin reviewing its non-information
technology systems in mid-1999. 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 has already begun its review of its information
technology systems and will make necessary software upgrades in 1999. In
addition, the Company has been separately evaluating its accounting software and
is currently in the process of implementing a new system with implementation
anticipated to be completed during the third quarter of 1999. Total cost of the
conversion is expected to be approximately $45,000.
The Company has already begun 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 Year 2000 problems. The Company is in the process of evaluating
these questionnaires. The area in which the Company is most dependent on third
parties is technical equipment and accounts receivable. Most of the equipment is
from major vendors who have already made assurances of Year 2000 compliance. The
vast majority of the Company's account receivables 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 has yet to formulate a
contingency plan in this regard, but is working to develop alternative billing
procedures to deal with any lack of readiness on the part of these third
parties.
(Continued)
17
<PAGE> 18
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
--------- ------------------------------------
WENDT-BRISTOL HEALTH SERVICES CORPORATION
-----------------------------------------
AND SUBSIDIARIES
----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 COSTS (CONTINUED)
The Company will utilize both internal and external resources to reprogram or
replace and test all of its software. The Company estimates that it will cost
$5,000 to evaluate, reprogram and replace equipment and software to ensure Year
2000 compliance, of which all $5,000 will likely be spent on outside
consultants. In addition, as discussed above, the Company estimates a cost of
approximately $45,000 to replace its existing accounting system. Such costs are
being financed through an existing line of credit.
18
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
---------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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
(2) Report dated January 27, 1999 relating to the
Company's change to the equity method of accounting
for its interest as sole general partner of
Wendt-Bristol Diagnostics Company L.P.
(3) Report dated April 9, 1999 relating to the sale of
Series 2 Bonds (400,000 Swiss francs) pursuant
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)
May 20, 1999 By: /s/ Sheldon A. Gold
-------------------
Sheldon A. Gold
President
(Principal Executive Officer)
May 20, 1999 By: /s/ Charles R. Cicerchi
-----------------------
Charles R. Cicerchi
Vice-President, Finance
(Principal Financial and
Accounting Officer)
19
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