<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT AND FORM 10-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED
DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-11656
THE WENDT-BRISTOL HEALTH
SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1807533
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
TWO NATIONWIDE PLAZA, SUITE 760
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NO.: (614) 221-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share American Stock Exchange
Common Stock Purchase Warrants Same as above
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
On February 28, 1999, the aggregate market value of the voting stock
of The Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $3,960,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,049,279 shares of Common Stock of the Registrant and 414,538
Common Stock Purchase Warrants outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K X
DOCUMENTS INCORPORATED BY REFERENCE:
See Part IV, Item 14(a)3
<PAGE> 2
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 *
PART I
ITEM 1. BUSINESS
The Company, a Delaware corporation, was originally organized
under the laws of the State of New Jersey on January 19, 1966
under the name of Temco Products, Inc. and assumed its present
name on October 26, 1992. The Company, through its 100%
subsidiary Wendt-Bristol Company ("W-B"), a Delaware
corporation that has been in existence since 1903, has evolved
through the years as an outpatient health care provider. The
Company's operations consist of ownership and operation of a
nursing home, acting as managing partner of two
multi-disciplinary diagnostic/radiology centers and two
radiation therapy centers, and wholly-owning two diagnostic
centers. These centers provide diagnostic imaging techniques,
including magnetic resonance imaging (MRI), CT Scans,
ultra-sound, x-ray, bone densitometry, mammography,
fluoroscopy, out-patient angiography and, where applicable,
radiation therapy.
The nature of the Company's business has undergone changes
over the past several years. In 1993, the Company owned and
operated three retail pharmacies, two of which were located in
Columbus, Ohio and one of which was located in Canal
Winchester, Ohio. The two nursing homes the Company owned and
operated were located in Columbus and Springfield, Ohio and
had 147 and 100 beds, respectively. Through a wholly-owned
subsidiary, Wendt-Bristol Home Health Care Company, the
Company conducted a Medicare-certified home health care
agency, which provided home health care services throughout
the Franklin County, Ohio area. Wendt-Bristol Diagnostics
Company ("WBDC"), a subsidiary of the Company, was the general
partner in Wendt-Bristol Diagnostics Company L.P.
("Partnership"), which owns and operates a multi-disciplinary
diagnostic center. Finally, W-B was a general partner in the
limited partnership that owned a medical office building
located in Columbus, Ohio. These businesses activities
employed approximately 350 people.
By the end of 1994, that number had grown to approximately 400
employees. The Company, through WBDC, opened its Alzheimer
Patient Care Center in October of that year in Columbus, a 75
bed long-term care facility that also contained a geriatric
day care center and physician offices for geriatric
assessment. In December of 1994, the medical office building
referred to above was sold. By early 1996 the Company employed
approximately 450 people and in the fourth quarter of that
year, the center owned and operated by the Partnership opened
a remodeled suite to accommodate a new angiography/fluoroscopy
unit.
In 1997, the Company sold, through its subsidiaries, two of
its three nursing homes, including its Alzheimer's and related
syndromes facility, and two of its three retail pharmacies.
The Company also ceased operations of its Medicare-certified
home health agency, which had conducted business through
Wendt-Bristol Home Health Care Company, a wholly-owned
subsidiary of the Company. The number of persons employed by
the Company stood at approximately 400 in early 1997.
Additionally, in the fourth quarter of 1997, the Company
opened a radiation therapy center in which it is a partner and
manages the facility.
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<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
The Company plans to selectively and aggressively expand its
diagnostics and radiation therapy business activity. During
October of 1998, the Company completed construction of a major
31,000 square feet, two-building center including radiology,
nuclear medicine, cytology, radiation therapy and Positron
Emission Tomography (the first PET scanner in central Ohio).
WBDC has an ownership interest of 22 1/2% and management in
the radiation therapy, and 100% ownership in the radiology,
PET, and nuclear operations. The Company is constructing, on
previously acquired land adjacent to its Kenny Road diagnostic
and radiology facility, a Women's Health Center dedicated to
the early detection of breast disease including an ambulatory
surgery unit for breast surgery. This center is expected to
open in the second quarter of 1999. The Company's final retail
pharmacy, located in a downtown Columbus, Ohio department
store, was sold in December 1998.
The Company receives a fee (percentage of collected revenues)
for those operations where it serves as a managing partner.
The Company's primary activities are currently located in
Central Ohio.
COMPETITION. Though the Company's business activities are
subject to a number of competitive forces, they are fairly
regional in scope. Generally speaking, the Company's nursing
home faces competition primarily from nursing homes located
within driving distance of Springfield, Ohio. Similarly, the
customers of diagnostic and radiation therapy centers
generally do not travel far from home to have those services
performed, and the competitors of the Company are, therefore,
located in the metropolitan Columbus and Newark, Ohio area.
The diagnostic and radiation therapy centers component of the
Company's business is subject to competition from not only
other independent centers, but hospitals and
hospital-affiliated centers as well. In recent years, the
pressures imposed by "managed care" insurers have forced the
Company's centers to reduce their prices significantly.
Moreover, hospitals in the Columbus, Ohio market have fairly
recently begun to expand and build new centers. The hospitals
are at a competitive advantage related to their ability to
come into contact with potential customers immediately when
the patient is hospitalized when they become aware of the need
for therapy. The Company's centers, however, do not have to
deal with the complications of admitting their customers and
they also have more flexible hours of business, which appeals
to many customers.
The nursing home operated by the Company faces competition
from both long and short-term care facilities. The Springfield
area has recently renovated facilities, which gives those
nursing homes an advantage in attracting new residents.
However, the Company's facility has recently converted one
wing in order to accommodate Alzheimer's patients.
NURSING HOMES. The Company owned and operated two nursing
homes in Columbus, Ohio (147 beds and 75 beds) until December
31, 1997 and leases (with an option to buy) the premises and
operates the one remaining nursing home in Springfield, Ohio
(100 beds).
MEDICAL AND RELATED SERVICES. During February 1987, W-B formed
WBDC for the purpose of establishing an outpatient medical
diagnostic imaging center. The center was financed through the
formation of the Partnership, of which WBDC is the general
partner and currently receives management fees in addition to
its share of the profits. The center opened in April 1988 in
Columbus, Ohio. The center specializes in diagnostic imaging
techniques, including magnetic resonance imaging (MRI), CT
Scans, Ultrasound, X-ray, Mammography, Bone Densitometry and
3-D imaging. In the fourth quarter of 1996, the Center opened
a suite to accommodate a new angiography/fluoroscopy unit.
EMPLOYEES: LABOR RELATIONS. The Company had approximately 228
employees at February 28, 1999. The Company considers its
relations with its employees to be good.
I-2
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
PATENTS AND TRADEMARKS. The Company owns registered
trademarks, including "the Best of Health!", which are
utilized in connection with the marketing of Company services
and products.
INDUSTRY SEGMENTS. The operations of the Company and its
subsidiaries fall within two industry segments: Nursing homes;
and Medical services and other. Additional information about
each of the industry segments, for the respective periods
indicated, follows:
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Operating
Segments". The operations of the Company and its subsidiaries
are all located in Central Ohio and fall within two industry
segments: Nursing homes; and Medical services and other.
Management considers income taxes as a corporate expense and
accordingly does not allocate this cost to the operating
segments. The following is a summary of key segment
information for the years ended December 31, 1998, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
MEDICAL
NURSING SERVICES AND
HOMES OTHER TOTAL
----- ----- -----
1998
----
<S> <C> <C> <C>
Revenues/sales to unaffiliated customers $ 3,894,002 $ 3,718,637 $ 7,612,639
Interest income 12 239,299 239,311
Interest expense 10,208 599,737 609,945
Net interest expense 10,196 360,438 370,634
Depreciation and amortization 41,687 333,344 375,031
Segment profit (loss) (53,739) (390,760) (444,499)
Equity in earnings (losses) of affiliates - (20,100) (20,100)
Investments and related advances, net - 4,663,780 4,663,780
Segment assets 3,917,015 16,301,219 20,218,234
Expenditures for segment assets 47,889 5,038,623 5,086,512
1997
----
Revenues/sales to unaffiliated customers 13,428,624 3,701,627 17,130,251
Interest income 1,913 168,003 169,916
Interest expense 621,462 441,555 1,063,017
Net interest expense 619,549 273,552 893,101
Depreciation and amortization 209,502 150,134 359,636
Segment profit (loss) 1,560,091 (698,442) 861,649
Equity in earnings (losses) of affiliates - 348,206 348,206
Investments and related advances, net - 3,036,998 3,036,998
Segment assets 9,291,623 8,215,838 17,507,461
Expenditures for segment assets 278,606 315,341 593,947
1996
----
Revenues/sales to unaffiliated customers 13,147,964 4,386,166 17,534,130
Interest income 3,935 100,379 104,314
Interest expense 664,961 300,564 965,525
Net interest expense 104,314 200,185 861,211
Depreciation and amortization 354,152 155,844 509,996
Segment profit (loss) 865,837 (727,606) 138,231
Equity in earnings (losses) of affiliates - 425,176 425,176
Investments and related advances, net - 759,852 759,852
Segment assets 13,311,345 6,392,437 19,703,782
Expenditures for segment assets 184,143 34,900 219,043
</TABLE>
I-3
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
REGULATION OF THE HEALTH CARE INDUSTRY. The Company must
comply with extensive federal, state and local government
regulations applicable to the health care industry and the
pharmacy business.
Nursing homes are subject to federal and state government
regulation, including the necessity of obtaining and
maintaining a license, certification for participating in the
Medicare and/or Medicaid programs, and/or registration. There
are also licensing requirements for nurses and other
professional staff of the nursing home. The operations and
activities of nursing homes are also affected by the
Medicare/Medicaid conditions of participation and other
relevant federal and local laws. Activities of nursing homes
which are regulated, include, but are not limited to, release
of medical records, patient confidentiality rights and the
dispensing of drugs. In addition, there are federal and state
requirements as to patient rights. Failure to abide by the
Federal and State laws governing the operations of nursing
homes including the requirement governing the foregoing areas,
lead to termination of licensure and/or decertification and
loss of reimbursement, private enforcement rights by the
patient, and other sanctions.
The State of Ohio currently licenses nursing homes which are
privately owned and operated. A private owner cannot operate a
nursing home without a license. In addition to licensure
requirements, in the case of long-term care facilities, the
Ohio Department of Health, the Ohio Department of Human
Services, and the United States Department of Health and Human
Services are the principal regulatory agencies to whose
jurisdiction the Company is subject.
The Company remains in good standing with all requisite
agencies.
The Company also may be affected, directly or indirectly, by
legislation affecting medical cost reimbursements. In recent
years, Congress has enacted legislation aimed at controlling
the cost to certain patients of medical products and services
through the regulation of the primary federal and state
reimbursement programs: Medicare, a federal program for
certain elderly or disabled patients and certain patients
suffering from end stage renal disease, and Medicaid, a
jointly sponsored federal and state program which focuses on
assisting certain qualified recipients.
Legislative proposals to regulate or control health care costs
and to institute a national health insurance program have been
made from time to time and are currently receiving further
consideration. Because these proposals vary, their potential
effect on the health care industry also vary. If, in the
future, legislation or regulations were to be adopted that
would significantly reduce governmental reimbursement rates or
rates to be charged to private-pay patients, such legislation
or regulations could have a material adverse effect on the
Company. Because a significant portion of all nursing home
revenues on an industry-wide basis are derived from the
federal and state governments, the Company and the industry as
a whole will continue to be affected by changes in government
programs and regulations.
REQUIREMENT OF CERTIFICATE OF NEED. Under the current
Certificate of Need ("CON") law, codified in sections
3702.51-3702.68 of the Ohio Revised Code, there is a
moratorium on the approval of new nursing home beds until June
30, 1999. In recent years, CON laws and regulations have been
relaxed and even eliminated in certain instances.
The acquisition of an MRI does not require a CON and is not
reviewable (unless the cost is $2 million or more), but does
require filing a notice of intent with the Director of Health
and the local health care agency 60 days prior to the
purchase.
I-4
<PAGE> 6
ITEM 1. BUSINESS (CONTINUED)
New construction or renovation of a nursing home costing $2
million or more requires a CON. Capital expenditures of $2
million or more on behalf of a health care facility in
connection with the provision of a health service do require
filing a notice of intent with the Director of Health and the
local health agency 60 days prior to obligating the capital
expenditure.
The Company's business operations and plans must comply with
the foregoing laws. There can be no guarantee that such laws
will not be expanded in the future.
MANUFACTURE OF MEDICAL EQUIPMENT. Until October 1991, the
Company was also engaged in the business of manufacturing
durable medical equipment and furniture through its Healthcare
Division located in Passaic, New Jersey.
On October 1, 1991, the Company sold all of the assets (other
than the real estate and plant thereon) of its Healthcare
Division to a wholly-owned subsidiary of Graham-Field Health
Products, Inc., pursuant to an Agreement dated August 31,
1991, between the Company and Graham-Field, Inc., as amended
on October 1, 1991.
The New Jersey Department of Environmental Protection and
Energy (the "Department") determined that the Passaic, New
Jersey, real estate of the Company did not completely comply
with applicable New Jersey laws and regulations pertaining to
the environment. The contamination in question had resulted
primarily from underground tanks, long abandoned by prior
owners of the site, and the contents thereof. All of such
tanks have been removed by the Company. In part the
contamination was also attributable to the method, initiated
by prior operators, of disposal of solvents. The Company has
incurred total costs of $1,096,000 related to environmental
matters in New Jersey, of which $236,000 was spent in the five
fiscal (calendar) years ended December 31, 1998. The Company
has been advised by its special New Jersey Counsel and
independent environmental engineer that this matter is
expected to be completed in the second quarter of 1999;
estimated 1999 costs are approximately $40,000.
ITEM 2. PROPERTIES
The Company leases approximately 7,600 square feet of space in
a downtown Columbus, Ohio, office building which serves as the
Company's and WBDC's general offices.
In addition, a warehouse (1,000 square feet) is leased in
Columbus, Ohio to store records and durable medical equipment.
The Company closed two pharmacies during 1997; one leased
premises in Columbus, Ohio (4,000 square feet) and one leased
in Canal Winchester (4,000 square feet). The Company sold its
only remaining pharmacy in 1998, which leased space in a
department store in downtown Columbus, Ohio (3,300 square
feet).
In February 1998, a subsidiary of the Company opened a 3,200
square feet diagnostic center in Granville, Ohio. This one
story center, Wendt-Bristol Erinwood, operates on leased
premises.
I-5
<PAGE> 7
ITEM 2. PROPERTIES (CONTINUED)
The nursing homes of the Company operated during 1997 consist
of one owned 147-bed home in Columbus, Ohio, (sold at December
31, 1997), one owned 75-bed Alzheimer's and related syndromes
center (sold at December 31, 1997) and one 100-bed home with
leased facilities in Springfield, Ohio. The lease expires in
July, 2015. In November, 1994 the Company acquired
approximately 2 acres of land adjacent to the Alzheimer's
center for approximately $144,000. The property is not subject
to any mortgage indebtedness and is being held for investment
purposes.
The present aggregate annual rentals of all property leases
referred to are approximately $694,000 and their terms have
expiration dates ranging through July 2015.
The Company believes that the facilities described or referred
to above are adequate and sufficient for its present needs and
requirements.
The Company owns land and a plant located in Passaic, N.J.,
which were formerly used by its Healthcare Division
(manufacturer of durable medical equipment), which was sold on
October 1, 1991. This property was leased to the purchaser at
the time of the transaction and the mortgage amortization
schedule coincides with the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
There is no pending material litigation to which the Company
is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matters were submitted
to a vote of security holders.
I-6
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The high and low trade prices for the Company's Common
Stock and Common Stock Purchase Warrants as reported by
the American Stock Exchange for the periods indicated are
as follows:
<TABLE>
<CAPTION>
AMEX SYMBOL WMD WMD.WS (A)
YEAR COMMON STOCK WARRANTS
---- ------------ --------
1998 HIGH LOW HIGH LOW
---- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 1 3/8 1 1/16 1 1/4 3/8
2nd Quarter 1 5/8 1 1/8 7/8 1/4
3rd Quarter 1 5/8 1 1/4 3/4 5/8
4th Quarter 1 3/8 1 1/2 1/2
1997
----
1st Quarter 1 5/8 1 1/4 1 3/4
2nd Quarter 1 7/16 1 11/16 1/2
3rd Quarter 1 1/2 1 7/8 3/4
4th Quarter 1 7/16 1 1/16 3/4 5/8
</TABLE>
In conjunction with the issuance of these Series 1 Bonds, the
Company issued 33 Series No. 1 Warrants exercisable into a
total of 300,000 shares of the common stock of the Company for
two dollars ($2.00) per share. The Warrants were issued
pursuant to Regulation S of the Securities Act of 1933 and
there is no established public trading market for these
Warrants.
(b) Approximate Number of Equity Security Holders
The number of holders of record for each class of equity
securities of the Company as of March 1, 1999 was as
follows:
NUMBER OF HOLDERS
TITLE OF CLASS OF RECORD (1)
Common Stock, par value $.01
per share ("Common Stock") 745
Common Stock Purchase Warrants (A) 198
Series No. 1 Warrants 1
(1) The number of stockholders of record includes shares
held in "nominee" or "street" name.
(A) See Note 9A to the consolidated financial
statements herein concerning the expiration of
the Warrants.
(c) Dividends
No cash dividends have been declared or paid by the
Company.
II-1
<PAGE> 9
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(CONTINUED)
This chart shows the Company's performance in the form of
cumulative total return to shareholders from December 31, 1993
until December 31, 1998 in comparison to Standard and Poor's
500 and Standard and Poor's 500 Healthcare Composite Index.
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
YEARS ENDING
---------------------------------------------------------
COMPANY/INDEX DEC 94 DEC 95 DEC 96 DEC 97 DEC 98
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Wendt-Bristol Health Svc Cp (41.73) 28.60 166.90 (16.67) 4.96
Health Care - 500 13.12 57.85 20.75 43.72 44.22
S & P 500 Index 1.32 37.58 22.96 33.36 28.58
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
YEARS ENDING
--------------------------------------------------------------
BASE
PERIOD
COMPANY/INDEX DEC 93 DEC 94 DEC 95 DEC 96 DEC 97 DEC 98
------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Wendt-Bristol Health
Svc Cp 100 58.27 74.93 200.00 166.67 174.93
Health Care - 500 100 113.12 178.55 215.61 309.86 446.87
S & P 500 Index 100 101.32 139.40 171.40 228.59 293.91
</TABLE>
11-2
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net sales $ 1,092 $ 2,435 $ 2,816 $ 2,709 $ 3,694
Service income 6,521 14,695 14,718 14,484 12,330
----------- ------------ ----------- ----------- ------------
7,613 17,130 17,534 17,193 16,024
----------- ------------ ----------- ----------- ------------
Costs and expenses:
Cost of sales 837 1,820 2,072 1,920 2,554
Selling, general and administrative expenses, net 6,845 14,088 14,814 14,165 12,699
Depreciation 375 360 510 513 522
----------- ------------ ----------- ----------- ------------
8,057 16,268 17,396 16,598 15,775
----------- ------------ ----------- ----------- ------------
Operating income (loss) (444) 862 138 595 249
----------- ------------ ----------- ----------- ------------
Other income (expense):
Minority interest in affiliates, net (69) 21 (97) (52) (251)
Equity in earnings of affiliates (20) 198 425 502 410
Interest expense (371) (893) (861) (897) (1,155)
Gain on sale of stock of subsidiaries - - - - 135
Gain on sale of significant assets 422 1,778 - - 726
Other, net 103 13 103 6 132
----------- ------------ ----------- ----------- ------------
65 1,117 (430) (441) (3)
----------- ------------ ----------- ----------- ------------
Income (loss) before income taxes (379) 1,979 (292) 154 246
(Provision) benefit for income taxes 104 (597) 46 63 (42)
----------- ------------ ----------- ----------- ------------
Net Income (Loss) $ (275) $ 1,382 $ (246) $ 217 $ 204
=========== ============ =========== =========== ============
Per share data - Income (Loss)
Basic $ (0.04) $ 0.22 $ (0.04) $ 0.04 $ 0.03
=========== ============ =========== =========== ============
Diluted $ (0.04) $ 0.21 $ (0.04) $ 0.04 $ 0.03
=========== ============ =========== =========== ============
Weighted average shares
Basic 6,113,646 6,224,241 5,825,686 6,131,770 8,153,382
Diluted 6,113,646 6,916,241 5,825,686 6,131,770 8,153,382
BALANCE SHEET DATA (AT YEAR END)
Working capital (deficiency) $ 476 $ 2,526 $ (1,195) $ (3,887) $ (3,642)
Total assets 20,218 17,507 19,910 19,394 23,441
Long-term debt and lease obligations, net of
current portion 11,014 6,034 9,084 6,432 6,340
Stockholders' equity 5,520 6,045 4,742 4,543 7,200
</TABLE>
NOTE: The selected financial data has been restated (see Note 17 in Notes to
Consolidated Financial Statements).
The following supplemental information combines revenues from the consolidated
financial statements as above with total revenues of entities accounted for
under the equity method (see Note 5 in Notes to Consolidated Financial
Statements). The Company obtains management fees from the equity affiliates
based on net cash received for services from these equity affiliates.
<TABLE>
SUPPLEMENTAL INFORMATION
<S> <C> <C> <C> <C> <C>
Revenues - consolidated as above $ 7,613 $17,130 $17,534 $17,193 $16,024
Revenues - unconsolidated entities 7,204 5,667 4,218 4,087 3,824
------- ------- ------- ------- -------
Combined Revenues $14,817 $22,797 $21,752 $21,280 $19,848
======= ======= ======= ======= =======
</TABLE>
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<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
performances (often, but not always, through the use of words
or phrases such as will likely result, are expected to, will
continue, is anticipated, estimate, 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 expectation 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, unless necessary to prevent such
statements from becoming misleading. 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.
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
-----------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
OPERATIONS (In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Net sales $ 1,092 $ 2,435 $ 2,816
Service income 6,521 14,695 14,718
----------- ------------ ----------
Total revenues $ 7,613 $ 17,130 $ 17,534
=========== ============ ==========
Operating income (loss) $ (444) $ 862 $ 138
Percent of revenues (5.8) 5.0 0.8
Net income (loss) $ (275) $ 1,382 $ (246)
Percent of revenues (3.6) 8.1 (1.4)
Per common share - basic $ (.04) $ 0.22 $ (0.04)
Per common share - diluted $ (.04) $ 0.21 $ (0.04)
</TABLE>
NOTE: Reference should be made to the Notes to Consolidated
Financial Statements herein.
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<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
FINANCIAL CONDITION
-------------------
Management has positioned the Company to focus on continuing
the aggressive expansion of its Diagnostic and Radiology
business, including radiation therapy, nuclear medicine and
advanced imaging technology. During 1997 the Company ceased
operations of its unprofitable home health care business and
sold two of its three retail pharmacies. In the fourth quarter
of 1998, the Company sold its remaining pharmacy in order to
concentrate on its core business. In addition, on December 31,
1997, the Company sold its two Columbus nursing homes and
utilized the cash from the gain on the sale to further expand
into the diagnostic and radiology services industry. The sale
of these two homes along with the cost savings from the
closing of the home health operations further strengthened the
liquidity of the Company and will allow management to focus on
its diagnostic and radiology centers.
The Company continues to expand in radiation therapy,
diagnostics imaging and nuclear medicine. Such expansion
includes entities that involve other investors. In February
1998 the Company opened its third diagnostic center in Central
Ohio. This center, located in Granville, Ohio, provides
enhanced diagnostic imaging techniques including magnetic
resonance imaging (MRI), CT scans, ultrasound, bone
densitometry, x-ray and mammography. 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 during
the second quarter of 1999 its Women's Health Center on Kenny
Road. 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. Management believes that
the new centers added during 1998 will provide increased
revenues that will lead to an increase in operating earnings
in the second half of 1999.
As discussed in Note 8, the Company has approximately
$2,780,000 in net operating loss carryovers available for
Federal income tax purposes. Such losses expire in years
commencing with 2006. Recognition of these carryforwards is
included in the net deferred tax liability. Management has
considered the need for a valuation allowance (addressing the
potential realizability), related to the deferred tax assets,
including the aforementioned. Management has further
considered the provisions of SFAS No. 109 that allows for
utilization of tax planning strategies. These strategies, if
necessary, could consider a possible sales and/or
sale/leaseback of real estate as well as the possible sale of
its remaining nursing home business to preclude the expiration
of net operating losses without realization of a tax benefit.
Realization of the deferred tax asset, pertaining to net
operating losses, is dependent on generating sufficient
taxable income including use of management's tax planning
strategies prior to the expiration of the loss carryforwards.
Although realization is not assured, Management believes it is
more likely than not that a significant amount of the deferred
tax asset will be realized as a result of its tax planning
strategies, if necessary, that would generate estimated tax
gains of approximately $2,500,000. The amount of the deferred
tax asset considered realizable, however, could be reduced in
the near term if either the current estimates of future
taxable income are reduced or management would be unable to
effect an expected sale and/or sale/leaseback.
Working capital decreased approximately $2,050,000 from
$2,526,000 at December 31, 1997 to $476,000 at December 31,
1998. Current assets decreased approximately $3,733,000 due
mostly from decreases in notes receivable ($2,712,000),
accounts receivable trade ($890,000), and inventories
($180,000). The decrease in notes and miscellaneous
receivables is due mostly 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. The
decline in inventory is due to the sale of the pharmacy and
its related inventory. Current liabilities decreased
approximately $1,683,000 due mostly from reductions in
accounts payable ($1,021,000), accrued wages ($357,000) and
other accrued liabilities ($507,000), all primarily related to
the sale of the two nursing homes.
II-5
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity position for the year remains adequate
with working capital at $476,000 at December 31, 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 December 31, 1998
approximately $924,000 has been drawn against this lease line
with the remainder drawn in the first quarter of 1999.
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 $950,000.
Cash decreased approximately $48,000 during the year ended
December 31, 1998. Cash flows from investing activities
contributed $938,000, due mostly from the collection of notes
receivable relating to the year-end sale of two nursing homes
offset by advances to affiliates to assist them in their
start-up phase. A large portion of the proceeds from the note
was used to pay down current liabilities, resulting in a net
use of funds from operating activities of approximately
$1,169,000. Net cash provided by financing activities was
approximately $185,000 due mostly to net treasury stock
purchases of $179,000 and principal repayments of long-term
debt of $443,000 offset by long-term borrowings of $806,000.
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 an ownership interest
of 22-1/2% and management control and responsibility in the
radiation therapy, and 100% ownership in the radiology, PET,
and nuclear operations. In addition, the Company, through a
subsidiary, is scheduled to open its 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.
The Company announced plans to acquire all of the limited
partner interests in Wendt-Bristol Diagnostics L.P. and the
remaining 15% of the outstanding shares of the limited
partnership's sole general partner: Wendt-Bristol Diagnostics
Company. The proposed acquisitions, pending completion of
effective registration statements and shareholder/partner
approval, would be accomplished through an exchange of shares
of Series 1 preferred convertible stock, with cumulative
dividends at 6% per annum. Upon successful completion of the
acquisition, total future annual dividends relating to the
preferred shares would amount to approximately $138,000.
Management further believes the present resources will meet
anticipated requirements for operations of the business. Other
than as indicated above, and the purchase of a building as
described in Note 11B, there are no further material
commitments for capital expenditures.
II-6
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000
---------
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 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 is the process of implementing a new system with
implementation anticipated to be complete during the second
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 accounts 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.
The Company will utilize both internal and external resources
to reprogram or replace and test all of its software. The
Company preliminary 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 is going to spend $45,000 to replace its
existing accounting system. Such costs are being financed
through an existing line of credit and will not have a
material adverse effect on the Company's financial condition
or results of operations.
II-7
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS 1998-1997
-------------------------------
1998-1997
---------
Consolidated revenues from operations for the year ended
December 31, 1998 decreased approximately $9,518,000 or 55.6%
from the previous year. Net sales decreased $1,344,000 or
55.2% while service revenues declined $8,175,000 or 55.6% from
the comparable period in 1997. The decline in net sales is due
to the reduction in the number of pharmacies from three in
1997 to one in 1998 (sold in December) while the decrease in
service revenues is attributable to the sale of two nursing
homes at December 31, 1997. Excluding the two sold nursing
homes, service revenues for the year ended December 31, 1998
are up $1,352,000 or 26.1% over last year. The increase is due
mostly to the opening of two new diagnostic centers during the
year, one in February and the other in October.
Cost of sales decreased approximately $983,000 or 54.0% for
the year as compared to 1997. Gross margin for the year ended
December 31, 1998 was 23.3% as compared to 25.3% 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 $7,243,000 or 51.4% for the year ended December
31, 1998 from the comparable period 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 of the new Granville and Jasonway diagnostic
centers 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 the year ended December 31,
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 year ended December 31, 1998
decreased approximately $522,000 or 58.5% as compared to the
same period a year ago. 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 centers.
II-8
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS 1997-1996
--------------------------------
1997-1996
---------
Consolidated revenues from operations for the year ended
December 31, 1997 decreased approximately $404,000 or 2.3%
from the previous year. Net sales declined $381,000 or 13.5%
while service revenues decreased $23,000 or .2% from the
comparable period in 1996. The decline in sales was due to the
Company selling two of its retail pharmacies during 1997 while
the decrease in service revenue was due to the decline in
visits in the home health care subsidiary (which ceased
operations in April, 1997) offset by increased revenues at the
nursing homes.
Cost of sales decreased approximately $251,000 or 12.1% for
the year as compared to 1996. Gross margin for the year ended
December 31, 1997 was 25.3% as compared to 26.4% for the
comparable period in 1996. The decline is attributable to
pricing pressures in the competitive retail pharmacy markets
and price reductions at the locations that closed during the
year.
Selling, general and administrative expenses decreased
approximately $726,000 or 4.9% for the year ended December 31,
1997 as compared to 1996. The decrease is mostly due from
decreased visits in the home health care agency.
Interest expense increased approximately $32,000 or 3.7% for
the year ended December 31, 1997 as compared to 1996. In 1996
the Company did not have a working capital line of credit in
place until late May and therefore, incurred interest expense
relating only to equipment and mortgage for the first five
months of 1996. The 1997 amount includes the accounts
receivable securitization program interest costs through the
middle of March and the interest attributable to the
convertible subordinated and Series 1 bonds.
II-9
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company is exposed to various market risks, including
changes in foreign currency exchange rates and interest rates.
Market risk is the potential loss arising from adverse changes
in market rates and prices, such as foreign currency exchange
and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or
speculative purposes. The Company enters into financial
instruments to manage and reduce the impact of changes in
foreign currency exchange rates.
FOREIGN EXCHANGE RATE RISK
The Company enters into forward foreign exchange contracts to
hedge the currency fluctuations on the borrowings denominated
in Swiss francs, thereby limiting the Company's risk that
would otherwise result from changes in exchange rates. As
these futures contracts are not for trading or speculative
purposes, the gains and losses on forward foreign exchange
contracts and the offsetting losses and gains on hedge
borrowings have been deferred until 2002, the maturity date of
the bonds being hedged. At December 31, 1998, the contract
amount of foreign currency forwards was $4,490,000 with an
average maturity of 90 days. The deferred loss on such
contracts at December 31, 1998 was approximately $41,000. A
10% fluctuation in exchange rates for these currencies would
change the fair value of the contracts by approximately
$450,000. However, since these contracts hedge foreign
currency denominated transactions, any change in the fair
value of the contracts would be offset by changes in the
underlying value of the transactions being hedged.
INTEREST RATES
The Company does not hedge its risk against interest rate
fluctuations. Most of the Company's borrowings have interest
rates that are locked in for the duration of the loan. The
Company has one mortgage that is linked to the prime rate. A
1% increase from the prevailing prime rate at December 31,
1998 would have an annual effect on interest expense to the
Company of approximately $14,000.
See Note 15 for information on the fair value of financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the list of financial statement schedules included in Part
IV, Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
II-10
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
The Wendt-Bristol Health Services Corporation
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of The
Wendt-Bristol Health Services Corporation and Subsidiaries for the years ended
December 31, 1998 and 1997 and the related consolidated statements of income,
comprehensive income, cash flows and changes in stockholders' equity for each of
the three years in the period ended December 31, 1998. These financial
statements and schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Wendt-Bristol Health Services Corporation and Subsidiaries at December 31, 1998
and 1997 and the consolidated results of their operations, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
index to Item 14 relating to The Wendt-Bristol Health Services Corporation and
Subsidiaries are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
The supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements of The Wendt-Bristol
Health Services Corporation and Subsidiaries taken as a whole.
/s/ HAUSSER & TAYLOR LLP
Columbus, Ohio
April 12, 1999
II-11
<PAGE> 19
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 577,317 $ 625,109
Restricted cash (Note 2) 230,347 221,120
Receivables (Note 3):
Trade, net of allowance for doubtful accounts of
$227,000 in 1998 and $101,000 in 1997 1,009,486 1,899,967
Notes receivable - current 236,353 2,948,463
Miscellaneous 1,196,056 1,184,921
-------------- -----------
2,441,895 6,033,351
Inventories 22,816 202,951
Prepaid expenses and other current assets 143,516 66,655
-------------- -----------
Total current assets 3,415,891 7,149,186
-------------- -----------
PROPERTY, PLANT AND EQUIPMENT (NOTES 4 AND 6) 10,680,870 5,768,148
Less accumulated depreciation and amortization (1,864,752) (1,656,764)
-------------- -----------
8,816,118 4,111,384
-------------- -----------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at market 52,500 -
Notes and other receivables, net of current portion 149,201 257,949
Notes receivable from officers and related parties (Notes 10B and 10C) 1,013,658 990,462
Life insurance premiums receivable (Note 10D) 1,095,135 972,451
Investments and related advances, net (Note 5) 4,663,780 3,036,998
Excess of cost over assets of businesses and subsidiaries
acquired, less accumulated amortization 340,895 355,439
Deferred charges 599,249 535,138
Other assets 71,807 98,454
-------------- -----------
7,986,225 6,246,891
-------------- -----------
Total assets $ 20,218,234 $ 17,507,461
============== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-12
<PAGE> 20
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,768,848 $ 2,789,660
Accrued expenses and other liabilities:
Salaries and wages 142,862 499,571
Taxes, other than federal income taxes 248,041 192,974
Interest 120,921 77,565
Other 171,937 678,517
Long-term obligations classified as current (Note 6) 487,535 344,807
Federal income taxes payable (Note 8) - 40,000
----------- -----------
Total current liabilities 2,940,144 4,623,094
----------- -----------
LONG-TERM OBLIGATIONS LESS AMOUNTS
CLASSIFIED AS CURRENT (NOTE 6) 11,014,477 6,034,023
----------- -----------
DEFERRED INCOME TAXES (NOTE 8) 132,300 262,600
----------- -----------
Total liabilities 14,086,921 10,919,717
----------- -----------
MINORITY INTERESTS 611,390 542,618
----------- -----------
CONTINGENCIES AND COMMITMENTS (NOTES 5, 6, 7 AND 11)
STOCKHOLDERS' EQUITY (NOTES 2 AND 9)
Preferred stock, $10 stated value, authorized 500,000
shares, issued, none - -
Common stock, $.01 par, authorized 12,000,000 shares;
issued 8,248,480 shares in 1998 and 1997 82,485 82,485
Capital in excess of par 10,260,927 10,244,805
Unrealized losses on securities available for sale,
net of tax (83,709) -
Retained earnings (deficit) (2,012,237) (1,737,483)
----------- -----------
8,247,466 8,589,807
Treasury stock, at cost, 2,179,301 shares in 1998 and
2,067,254 shares in 1997 (2,727,543) (2,544,681)
----------- -----------
5,519,923 6,045,126
----------- -----------
Total liabilities and stockholders' equity $ 20,218,234 $ 17,507,461
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-13
<PAGE> 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net sales $ 1,091,351 $ 2,435,334 $ 2,816,386
Service income 6,521,288 14,694,917 14,717,744
------------- ------------ ------------
7,612,639 17,130,251 17,534,130
------------- ------------ ------------
COSTS AND EXPENSES
Cost of sales 836,899 1,820,352 2,071,596
Selling, general and administrative expenses 6,845,208 14,088,614 14,814,307
Depreciation 375,031 359,636 509,996
------------- ------------ ------------
8,057,138 16,268,602 17,395,899
------------- ------------ ------------
OPERATING INCOME (LOSS) (444,499) 861,649 138,231
------------- ------------ ------------
OTHER INCOME (EXPENSE)
Minority interests in affiliates, net of tax (68,772) (128,038) (97,308)
Equity in earnings (losses) of affiliates (Note 5) (20,100) 348,206 425,176
Interest expense, net (Notes 3 and 6) (370,634) (893,101) (861,211)
Gain on sale of assets (Note 1B) 421,807 1,778,007 -
Other, net 103,464 12,190 102,425
------------- ------------ ------------
65,765 1,117,264 (430,918)
------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (378,734) 1,978,913 (292,687)
INCOME TAX BENEFIT (EXPENSE) (NOTE 8) 103,980 (597,300) 46,409
------------- ------------ ------------
NET INCOME (LOSS) $ (274,754) $ 1,381,613 $ (246,278)
============= ============ ============
INCOME (LOSS) PER COMMON SHARE (NOTE 1)
Basic $ (.04) $ 0.22 $ (0.04)
============= ============ ============
Diluted $ (.04) $ 0.21 $ (0.04)
============= ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 6,113,646 6,224,241 5,825,686
============= ============ ============
Diluted 6,113,646 6,916,241 5,825,686
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-14
<PAGE> 22
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME (LOSS) $ (274,754) $ 1,381,613 $ (246,278)
UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE, NET OF TAX
OF $43,100 (83,709) - -
----------- ------------ ----------
COMPREHENSIVE INCOME (LOSS) $ (358,463) $ 1,381,613 $ (246,278)
=========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-15
<PAGE> 23
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
CAPITAL UNREALIZED RETAINED
COMMON IN EXCESS LOSS ON EARNINGS TREASURY
STOCK OF PAR SECURITIES (DEFICIT) STOCK TOTAL
----- ------ ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 82,435 $ 10,274,974 $ - $ (2,872,818) $ (2,942,016) $ 4,542,575
Shares contributed to Retirement Plan
(16,262 shares) (10,224) 18,957 8,733
Sale of treasury shares (500,000 shares) (Note 9) (26,000) 463,000 437,000
Net loss (246,278) (246,278)
------- ----------- --------- ------------ ------------ ----------
BALANCE AT DECEMBER 31, 1996 82,435 10,238,750 - (3,119,096) (2,460,059) 4,742,030
Shares contributed to Retirement Plan
(6,306 shares) 1,730 7,728 9,458
Treasury stock acquired (66,100 shares) (92,350) (92,350)
Stock options exercised (5,000 shares) 50 4,325 4,375
Net income 1,781,613 1,781,613
------- ----------- --------- ------------ ------------ ----------
BALANCE AT DECEMBER 31, 1997 82,485 10,244,805 - (1,337,483) (2,544,681) 6,445,126
Prior period adjustment (Note 17) (400,000) (400,000)
Shares contributed to Retirement Plan 180 11,636 11,816
(9,453 shares)
Treasury stock acquired (321,500 shares) (443,547) (443,547)
Sale of treasury shares (200,000 shares) 15,942 249,049 264,991
(Note 9)
Unrealized loss on investments available
for sale of $126,809, net of tax of $43,100 (83,709) (83,709)
Net loss (274,754) (274,754)
------- ----------- --------- ------------ ------------ ----------
BALANCE AT DECEMBER 31, 1998 $ 82,485 $ 10,260,927 $ (83,709) $ (2,012,237) $ (2,727,543) $ 5,519,923
======= =========== ========= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-16
<PAGE> 24
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (274,754) $ 1,381,613 $ (246,278)
------------ -------------- ------------
Adjustments required to reconcile net income
(loss) to net cash provided by operating
activities:
Amortization, depreciation and other, net 412,070 350,093 530,481
Provision for losses on notes and accounts
receivable 208,237 59,958 65,480
Provision for deferred income taxes (87,200) 516,300 (84,300)
Gain on sale of significant assets (421,807) (1,778,007) -
(Gain) loss on sale of other assets 6,749 (98,548) -
Minority interest in earnings of affiliates 68,772 128,038 97,308
Equity in (earnings) losses of affiliates 20,100 (348,206) (425,176)
Changes in assets and liabilities:
Receivables:
Sale (purchase) of receivables - (269,176) 494,188
Other changes 671,109 (68,328) (69,178)
Inventories 180,135 279,979 6,112
Prepaid expenses and other current assets (65,045) 103,672 324,052
Accounts payable (1,020,812) 491,994 282,693
Accrued expenses and other liabilities (764,866) (1,550,552) (1,520,547)
Federal income taxes payable (40,000) 40,000 (100,000)
Deferred charges and other (62,153) (153,732) (95,783)
------------ -------------- ------------
Total adjustments (894,711) (2,296,515) (494,670)
------------ -------------- ------------
Net cash used in operations (1,169,465) (914,902) (740,948)
------------ -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (179,309) - -
Investment and advances to affiliates, net (1,661,349) (1,892,782) 311,802
Collection on sale of nursing homes assets 2,923,794 750,000 -
Proceeds from sale of other property, plant and
equipment and investments 425,000 115,500 -
Decrease (increase) in notes receivable (102,936) (170,911) (57,701)
Disbursements to related parties and
former affiliates, net (145,880) (62,669) (236,575)
Deposit to restricted cash (9,227) (104,882) (217,063)
Capital expenditures (312,460) (446,027) (219,040)
------------ -------------- ------------
Net cash provided by (used) in investing activities 937,633 (1,811,771) (418,577)
------------ -------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-17
<PAGE> 25
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Distributions to limited partners, net - 143,842 -
Purchase of common stock of subsidiary - (85,730) (8,000)
Proceeds from sale of treasury stock 264,991 - 500,000
Treasury stock purchased (443,547) (92,350) -
Proceeds from officer obligation 50,000 90,000 (305,000)
Principal payments of officer obligation (50,000) (145,000) 360,000
Proceeds from warrants and options exercised - 4,375 -
Principal payments on long-term obligations (442,706) (666,130) (508,349)
Proceeds from borrowing on long-term obligations 806,302 3,604,934 1,583,390
Net advances from (payments to)
securitization program - (392,287) 392,287
---------- --------- ---------
Net cash provided by financing activities 185,040 2,461,654 2,014,328
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH (47,792) (265,019) 854,803
CASH - BEGINNING OF PERIOD 625,109 890,128 35,325
---------- --------- ---------
CASH - END OF PERIOD $ 577,317 $ 625,109 $ 890,128
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net of interest income $ 336,297 $ 917,105 $ 819,177
Income taxes $ 95,037 $ 43,816 $ 129,038
Supplemental Disclosures of Noncash
Investing and Financing Activity (Note 14)
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-18
<PAGE> 26
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
A. PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
-----------------------------------------------------------
The accompanying consolidated financial statements include the
accounts of The Wendt-Bristol Health Services Corporations,
its wholly-owned subsidiaries and the majority-owned and
controlled subsidiary, Wendt-Bristol Diagnostics Company
(WBDC), herein referred to as the "Company". The Company
through a wholly-owned subsidiary owns approximately 86%, 86%
and 83% of WBDC at December 31, 1998, 1997 and 1996,
respectively. All material intercompany accounts and
transactions have been eliminated in consolidation.
Investments in 22 1/2 to 50 percent owned affiliates
significantly influenced by management are accounted for by
the equity method of accounting, whereby the investment is
carried at cost of acquisition plus the Company's equity in
undistributed earnings or losses since acquisition. Reserves
are provided where management determines the investment,
advances or equity in earnings is not realizable. Investments
accounted for under the equity method include limited
liability companies, a limited partnership in which a
subsidiary is general partner and a C corporation (see Note
5).
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, SIGNIFICANT
----------------------------------------------------------
ASSETS, PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS
----------------------------------------------------
Effective at the close of business on December 31, 1997, the
Company sold all of the operating assets of two of its three
nursing homes for a total purchase price of approximately $9.9
million. This was financed with cash of $750,000; assumption
of mortgage debt of approximately $6.2 million and a note
receivable of approximately $2.9 million which was collected
in April 1998. The gain on sale of approximately $1,778,000 is
included in the 1997 "Consolidated Statement of Operations".
The following summarizes the operations of the two nursing
homes for the years ended December 31, 1997 and 1996:
(IN 000'S)
1997 (A) 1996
-------- ----
Revenues $ 9,123 $ 9,254
Operating income 1,091 1,049
Net income 495 110
(A) Excludes gain on sale of nursing home assets.
During December 1996, WBDC formed Wendt-Bristol Crosswoods,
Ltd. a limited liability company ("LLC") in which the Company
has a 50% interest. Operations of this new diagnostics center
began in January 1997 and has expanded to include helical CT
and additional modalities during 1997 and 1998.
During 1997, WBDC acquired a 22.5% interest in Wendt-Bristol
at Park Oncology Center, Ltd. (a LLC), a venture that was
formed to own and operate a radiation therapy center.
Operations began during the fourth quarter 1997. Effective
April 1, 1998, the Company exchanged its interest in this LLC
for the same ownership interest in a C corporation,
Wendt-Bristol Oncology Centers, Inc. which now owns 100% of
the LLC.
II-19
<PAGE> 27
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
B. ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, SIGNIFICANT
----------------------------------------------------------
ASSETS, PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS
----------------------------------------------------
(CONTINUED)
-----------
During 1997, WBDC acquired a 50% interest in Jasonway, Ltd. (a
LLC), a venture that was formed to construct and rent a
medical and office complex. Construction was completed in the
third quarter 1998. During the fourth quarter 1998,
Diagnostics sold its 50% interest resulting in a gain of
approximately $422,000 which is included in the 1998
"Consolidated Statement of Operations".
During 1997, the Company ceased to operate its home health
care delivery services. Loss from operations approximated
$91,000 and $124,000 for the years ended December 31, 1997 and
1996, respectively, which is included in the "Consolidated
Statements of Operations".
During the fourth quarter 1998, the Company sold its remaining
pharmacy to a competitor for $30,000 plus the cost of the
inventory.
C. STATEMENT OF CASH FLOWS
-----------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash. No such
investments were purchased during 1998, 1997 or 1996.
D. CONCENTRATIONS OF CREDIT RISK
-----------------------------
Credit risk associated with cash balances in excess of
federally-insured amounts is minimized by using several
accounts at major financial institutions.
E. ACCOUNTS RECEIVABLE
-------------------
In May, 1996 the Company and certain of its subsidiaries
entered into a financing arrangement involving the sale of
their trade accounts receivable. This financing arrangement
terminated through payment in March, 1997. The agreement
provided for the Company's sale of its health care trade
accounts receivable, subject to various terms and conditions,
with limited recourse, with the Company continuing to service
the accounts. A sale was recorded when the health care
accounts receivable were transferred to the purchaser, net of
contractual allowances. Such sales are not included in the
Consolidated Statement of Operations and no gain or loss
arises in the transaction.
Certain receivables from the Company's medical services
segment which include diagnostic and oncology centers are due
from third party payors, including Medicare, Medicaid and
commercial insurance carriers, under contractual arrangements
by which payment may be at a discount from billed charges, as
is customary within the health care industry. The Company
estimates and records allowances for such discounts to
recognize revenues net of the contractual allowance when the
service income is earned based on amounts expected to be
recovered.
II-20
<PAGE> 28
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
E. ACCOUNTS RECEIVABLE (CONTINUED)
-------------------------------
A significant portion of the income earned by the nursing home
is related to services provided to Medicaid patients. The
income reported for the nursing homes is based on cost reports
filed with the State of Ohio and such reports are subject to
audit and adjustment by Medicaid auditors. Management
estimates and records adjustments to recognize service income
based on amounts expected to be recovered when the service
income is earned.
F. INVENTORIES
-----------
Inventories are stated at the lower of cost or market,
determined on the first-in, first-out basis. Inventories at
December 31, 1998 and 1997 were $22,816 and $202,951,
respectively. These inventories consist of retail
pharmaceuticals, durable medical equipment and supplies in
1997 and durable medical equipment in 1998.
G. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are stated at cost. Depreciation
for financial reporting purposes is computed using principally
the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over
the primary lease term or the life of the related improvement,
whichever period is shorter. Expenditures for major renewals
and betterments that extend the useful lives of property,
plant and equipment are capitalized. Expenditures for
maintenance and repairs are charged to operations as incurred.
Long-lived assets held and used by the Company are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an assets may not be
recoverable. For purposes of evaluating the recoverability of
long-lived assets, the recoverability test is performed using
undiscounted net cash flows. There were no such impairment
adjustments at December 31, 1998, 1997 or 1996 (see Note 4).
H. EXCESS OF COST OVER ASSETS OF BUSINESSES AND SUBSIDIARIES
---------------------------------------------------------
ACQUIRED
--------
Costs of acquired businesses in excess of the value of net
assets (i.e., goodwill) are amortized over periods ranging
from 20 to 40 years, except for goodwill associated with the
manufacturing real estate, which is being amortized over the
estimated remaining life of the building. During the fourth
quarter of 1997, the Company deducted the remaining goodwill
of approximately $189,000 associated to its interest in Health
America against the gain on the sale of the nursing homes.
Amortization expense excluding this one-time adjustment for
the years ended December 31, 1998, 1997, and 1996,
approximated $14,500, $28,400 and $20,500, respectively.
Accumulated amortization at December 31, 1998, 1997 and 1996,
was $166,200, $151,700, and $123,000, respectively. Goodwill
consists of an amount applicable to the manufacturing real
estate and the purchase of common shares of Diagnostics
Company.
The Company periodically evaluates the recoverability of
intangibles resulting from business acquisitions and measures
the amount of impairment, if any, by assessing current and
future levels of income and cash flows as well as other
factors, such as business trends and prospects and market and
economic conditions. There were no such impairment adjustments
at December 31, 1998, 1997 and 1996.
II-21
<PAGE> 29
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
I. DEFERRED CHARGES
----------------
The Company has included in deferred charges costs that are
being amortized over future periods ranging from 5 to 11
years. Deferred charges are predominantly costs associated
with financing, costs incurred for staff training, opening new
facilities and a rent adjustment to properly recognize rental
income on the leased manufacturing facility (see Note 1O).
J. ESTIMATES
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
K. INCOME (LOSS) PER SHARE
-----------------------
Per share amounts were computed using the weighted average
number of shares outstanding during each period for basic
which was adjusted for the effect of dilutive potential common
shares in the computation of diluted EPS. (See Note 9)
L. INCOME TAXES
------------
The Company utilizes the liability method of accounting for
income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income taxes, and are measured using the
enacted tax rates and laws that will be in effect or expected
to continue in effect when the differences are expected to
reverse. (See Note 8)
M. FINANCIAL INSTRUMENTS AND FAIR VALUE
------------------------------------
The estimated fair value of amounts reported in the financial
statements have been determined using available market
information and valuation methodologies, as applicable (see
Note 15).
The Company enters into foreign currency contracts in order to
reduce the impact of certain foreign currency fluctuations.
The Company does not enter into financial instruments for
trading or speculative purposes. Gains and losses related to
qualifying hedges, measured by quoted market prices,
termination values or other methods of firm commitments are
deferred and are recognized as income or as adjustments of
carrying amounts when the hedged transaction occurs, except
that losses not expected to be recovered upon the completion
of the hedged transactions are expensed. On the balance sheet,
deferred gains and losses are included in long-term assets and
liabilities (see Note 15).
II-22
<PAGE> 30
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
N. STOCK BASED COMPENSATION
------------------------
The Company utilizes the provisions of Accounting Principles
Board ("APB") No. 25, "Accounting for Stock Issued to
Employees" which utilizes the intrinsic value based method.
The Financial Accounting Standards Board ("FASB") Statement
No. 123, "Accounting for Stock-Based Compensation", which
utilizes a fair value based method is effective for the
Company's year beginning January 1, 1996. The FASB requires
disclosure for new employee stock options of the impact to the
financial statements of utilizing the intrinsic value versus
the fair value based method (see Note 9).
O. ACCOUNTING PRONOUNCEMENTS FOR 1999 AND LATER
--------------------------------------------
Effective for fiscal years beginning after June 15, 1999, FASB
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" requires the recording of deferred gains
or losses on foreign currency hedge transactions for the
effective portion of the cash flow hedge as a component of
comprehensive income and reclassifies into earnings in the
same period as the hedged forecasted transaction affects
earnings. At December 31, 1998, the Company has deferred
approximately $40,500 of losses on the foreign currency hedges
($27,000 net of tax).
On April 3, 1998 the Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5 "Reporting on the
Costs and 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 cumulative effect of a change in
accounting principle. Currently, the Company has an asset of
approximately $240,000 included in the caption "Deferred
charges" on the balance sheet at December 31, 1998. If the SOP
was adopted early, there would be a cumulative charge to
earnings at this time of approximately $206,000 for the
consolidated entities, net of minority interest.
In addition, entities accounted for by the equity method have
deferred start-up charges on their balance sheets totaling
$428,000 at December 31, 1998. If SOP 98-5 was adopted early,
there would be a cumulative charge to earnings of the Company
relating to these affiliates at this time of approximately
$117,000, net of minority interest.
The Company will implement this effective January 1, 1999 with
a cumulative change in accounting principle approximating
$249,000 (net of tax of $128,000) and an increase of $37,000
in "minority interest in affiliates", net of tax for a total
impact to the financial statements of decreasing net income by
approximately $212,000.
P. FINANCIAL STATEMENT RESTATEMENT AND RECLASSIFICATIONS
-----------------------------------------------------
The financial statements for the years ended December 31, 1997
and 1996 have been restated (see Note 17). Additionally, other
reclassifications have been made to the 1997 and 1996
financial statements to conform with the presentation for the
year ended December 31, 1998.
II-23
<PAGE> 31
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. RESTRICTED CASH
The Company has restricted cash of $230,347 and $221,120 at
December 31, 1998 and 1997, respectively. The amounts in a
bank trust account were $129,044 and $179,934 at December 31,
1998 and 1997, respectively. These restricted assets were set
aside to satisfy the New Jersey Department of Environmental
Protection and Energy in connection with the reimbursement of
clean-up expenses at the leased manufacturing facility located
in Passaic, New Jersey. (See Item 1. Business and Note 11A.)
The remainder of the restricted cash represents amounts in a
brokerage margin account that is maintained in conjunction
with foreign exchange futures contracts.
NOTE 3. RECEIVABLES
The following schedule states current receivables by specific
groups as indicated at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Receivables:
Trade (net of allowance for doubtful
accounts) $ 1,009,486 $ 1,899,967
----------- -----------
Notes receivable - current:
Nursing homes sales (a) - 2,923,794
Sale of LLC ownership interest (b) 225,000 -
Others 11,353 24,669
----------- -----------
Total 236,353 2,948,463
----------- -----------
Miscellaneous receivables:
Nursing homes sale (a) - 326,990
Medicare settlements 151,838 259,202
Pharmacy sale (c) 111,814 -
Consulting agreement (d) 251,250 -
Others - (e) 681,154 598,729
----------- -----------
Total 1,196,056 1,184,921
----------- -----------
Total current receivables $ 2,441,895 $ 6,033,351
=========== ===========
</TABLE>
II-24
<PAGE> 32
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RECEIVABLES (CONTINUED)
(a) At December 31, 1997, the Company sold two of its
nursing homes assets. The current note receivable was
collected in full in April 1998. (See Note 1B) The
miscellaneous receivables represent escrow balances
related to HUD financing which also was collected in
April 1998.
(b) The balance consists of a note receivable from the
sale of a subsidiary's interest in an LLC (see Note
1B) due in June 1999.
(c) The balance consists of the amount due from a third
party pertaining to the pharmacy sold in December
1998 (see Note 1B). The amount was collected in full
in January 1999.
(d) Amount relates to a consulting agreement which is
expected to be collected in the second quarter of
1999.
(e) The balance consists mostly (approximately $431,000
and $400,000 in 1998 and 1997, respectively) of a
receivable due from the former owner of two of the
nursing homes regarding final collection of the
purchase price of the transaction.
Total interest income for the years ended December 31, 1998,
1997 and 1996, amounted to approximately $240,000, $175,000,
and $104,000, respectively, and is netted against interest
expense in the accompanying Consolidated Statements of
Operations. See Note 10C for related party interest income.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997
and the estimated useful lives used in computing depreciation
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
------------ USEFUL LIVES
1998 1997 (IN YEARS)
---- ---- ----------
<S> <C> <C> <C>
Land and improvements $ 1,209,773 $ 1,209,773 30
Buildings and improvements 3,825,650 3,748,139 3-40
Machinery and equipment 5,645,447 810,236 3-14
------------ ------------
10,680,870 5,768,148
Accumulated depreciation
and amortization (1,864,752) (1,656,764)
------------ ------------
$ 8,816,118 $ 4,111,384
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1998
and 1997 are land, buildings and improvements of $4,540,556
and $4,517,834 with accumulated depreciation and amortization
of $1,285,373 and $1,176,265, respectively, leased to the
purchaser of its former manufacturing division (see Note 11A).
II-25
<PAGE> 33
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Subsequent to year-end, the Company learned that the tenant
vacated the premises. Management has reviewed the property,
plant, equipment and related intangible assets including
goodwill in accordance with its policy on evaluating
long-lived assets and intangibles for recoverability.
Management believes that an impairment adjustment at December
31, 1998 is not deemed necessary due to the tenant's continued
recognition of its obligations under the lease, including the
maintenance of the property along with continued insurance
coverage and the payment of rent when due. Further, management
believes that the property will have a carrying value
equivalent to the estimated market value at the end of the
lease. Should the tenant desire an earlier termination of the
lease, the Company would expect the tenant to provide an
acceptable sub-tenant or buyer consistent with the value of
the assets.
Depreciation expense for the years ended December 31, 1998,
1997 and 1996 was $375,031, $359,636, and $509,996,
respectively.
NOTE 5. EQUITY IN AFFILIATES
WBDC is accounting for the following entities under the equity
method of accounting: Wendt-Bristol Diagnostics LP, a limited
partnership of which WBDC is the general partner ("Diagnostics
LP"); Wendt-Bristol Crosswoods, Ltd., a limited liability
company of which WBDC owns 50% ("Crosswoods"), Wendt-Bristol
Oncology Centers, Inc., a C corporation of which WBDC owns
22.5% ("Oncology"), and Jasonway Partners, Ltd., a limited
liability company of which WBDC owned 50% through December 31,
1998 when the investment was sold.
Diagnostics LP operates a diagnostic center featuring magnetic
imaging resonance device ("MRI"), CT Scan, Sonography and
other modalities. Crosswoods is a diagnostic center acquired
in January 1997 with an MRI and has expanded in 1997 and 1998
with additional modalities. Oncology operates radiation
therapy practices which began operations in one location in
fourth quarter 1997 and in a second location in fourth quarter
1998. Jasonway Partners, Ltd. constructed a medical complex
which was completed in the fourth quarter 1998 and Oncology
operates its second facility from a significant portion of
this medical complex. WBDC sold its interest in Jasonway
Partners, Ltd. on December 31, 1998 (see Note 1B).
11-26
<PAGE> 34
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EQUITY IN AFFILIATES (CONTINUED)
Audited financial information of the affiliates which are
accounted for by the equity method (See Note 1A) is summarized
below:
<TABLE>
<CAPTION>
(IN 000'S)
---------------------------------------
1998 1997 1996
---- ---- ----
COMBINED BALANCE SHEETS
<S> <C> <C> <C>
Current assets $ 2,299 $ 2,153 $ 643
Property, plant and equipment, net of accumulated
depreciation 10,483 9,568 3,793
Other non-current assets 705 722 1,268
-------- --------- --------
Total assets $ 13,487 $ 12,443 $ 5,704
======== ========= ========
Liabilities $ 12,416 $ 10,213 4,214
Equity 1,071 2,230 1,490
-------- --------- --------
Total liabilities and equity $ 3,487 $ 12,443 $ 5,704
======== ========= ========
COMBINED STATEMENTS OF OPERATIONS
Service revenues $ 7,204 $ 5,667 $ 4,218
Operating income (loss) (649) 580 648
Net income (loss) (1,150) 208 405
</TABLE>
A limited liability company in which the Company had a 50%
interest with assets of $875,000, liabilities of $840,000 and
equity of $35,000 is unaudited as of December 31, 1997. The
limited liability company had acquired land for which a
medical facility was under construction at December 31, 1998;
therefore, it had no operations. The Company sold its interest
in this LLC on December 31, 1998 (see Note 1B).
As a result of the limited liability companies and limited
partnership being taxed as partnerships for Federal income tax
purposes, there is no tax provided for earnings.
Consolidated retained earnings of the Company represented by
undistributed earnings of these equity affiliates total
$1,896,000 and $1,901,000 at December 31, 1998 and 1997,
respectively.
II-27
<PAGE> 35
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EQUITY IN AFFILIATES (CONTINUED)
The Company has investments and related advances, net at
December 31, 1998 and 1997 of these equity method affiliates
of approximately $4,664,000 and $3,037,000, respectively.
During 1998 and 1997, the Company has made investments and
advances, net totaling approximately $1,661,000 and
$1,893,000, respectively. Advances have been made in excess of
amounts required by the partnership and other agreements.
Total equity in these affiliates at December 31, 1998 and 1997
approximated $1,071,000 and $2,230,000, respectively.
Management has determined that the growth and focus of the
Company should be in diagnostic imaging, radiation therapy and
nuclear medicine. In this regard, the Company's expansion has
included entities that involve other investors; however, the
Company has retained operational control of the businesses.
During 1998, the Company, through these entities, has
aggressively added new locations, an addition to an existing
facility and the addition of new technology. The most
prominent addition is a new facility that opened in November
1998 containing radiation therapy, nuclear medicine and
diagnostic imaging, including the first and only P.E.T.
scanning device (for oncology and cardiac applications) in
Central Ohio.
Although the Company had significant advances to these
entities during their development and/or expansion, Management
believes that projected operating results as well as the
estimated value of the businesses will ensure the
collectibility of the advances and retain or increase the
value of the investments.
See Note 10E for management fee income received from these
affiliates.
See Note 11B for related debt guarantees.
II-28
<PAGE> 36
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM OBLIGATIONS
At December 31, 1998 and 1997, long-term obligations are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
5.5% subordinated convertible bond,
interest only payable in quarterly
installments, principal due December, 2001 $ 1,000,000 $ 1,000,000
5.0% bonds, denominated in Swiss francs,
interest only payable in quarterly
installments, principal due February, 2002,
collateralized by right to obtain lien on
accounts receivable and inventory 3,416,934 3,416,934
7.0% bonds, denominated in Swiss francs,
interest only payable in quarterly
installments, principal due December 2003,
collateralized by right to obtain lien on
mortgaged land and real estate 806,300 -
Variable rate mortgage - interest at 10.75%
and 11.50% at December 31, 1998 and 1997,
respectively, payable in monthly installments
including interest through April, 2001, with
any remaining balance due May 1, 2001 1,433,516 1,546,509
9% to 13% notes payable in monthly
installments including interest, through
October 2005, collateralized by equipment 4,845,262 415,387
----------- ----------
11,502,012 6,378,830
Less: current installments 487,535 344,807
----------- ----------
Long-term portion $ 11,014,477 $ 6,034,023
=========== ==========
</TABLE>
Subsequent to year-end, a 7% bond, denominated in Swiss
francs, for $269,000 (400,000 Swiss Francs) was issued with
interest only payable in quarterly installments with principal
due December 2003. The bond is collateralized by the
bondholder's right to obtain a lien on mortgaged land and real
estate.
SUBORDINATED CONVERTIBLE BOND
-----------------------------
Beginning February 2, 1997 through December 30, 2001, the
subordinated convertible bond may be converted in units of not
less than $100,000 into fully paid shares of the Company's
common stock at a conversion ratio of $2.00 of principle for
one share of common stock for the beneficial ownership of a
non United States person, pursuant to Regulation S of the
Securities Act of 1933.
II-29
<PAGE> 37
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM OBLIGATIONS (CONTINUED)
OTHER
-----
Aggregate future principal maturities of long-term debt and
capital lease obligations are as follows: 1999 - $487,535,
2000 - $791,626, 2001 - $2,949,755, 2002 - $4,211,438, and
thereafter - $3,061,658.
All land and real estate is collateralized by the mortgages
payable.
The Company incurred interest expense in the amount of
$609,945, $1,063,017, and $965,525 in 1998, 1997 and 1996,
respectively.
COMMITMENTS
-----------
The Company and its subsidiaries have committed to certain
equipment acquisitions that will be financed through a
combination of current equipment financing relationships,
vendor programs or newly available resources. The cost of such
equipment currently on order is approximately $950,000.
In April 1998, the Company secured an equipment lease line of
credit for $1,000,000 with a finance company. As of December
31, 1998, approximately $924,000 has been drawn against this
lease line with the remainder drawn in first quarter 1999.
See Commitments and Contingencies Note 11B for debt guarantees
made by the Company for entities which the Company has equity
ownership interests.
NOTE 7. LEASE COMMITMENTS
The Company leases all of the locations used in its businesses
under leases expiring on dates ranging through July 2015.
As of December 31, 1998, minimum annual rental commitments
under noncancelable leases amount to:
OPERATING
LEASES
------
1999 $ 803,810
2000 795,425
2001 786,183
2002 774,952
2003 705,318
Thereafter 5,944,605
-----------
$ 9,810,293
===========
In addition, the Company remains contingently liable for
certain leases on locations that have been sold. These
contingent leases include payments aggregating $51,000 over
the next two years.
Rental expense included in the Consolidated Statements of
Operations for the years ended December 31, 1998, 1997 and
1996, was approximately $620,000, $543,000, and $541,000.
II-30
<PAGE> 38
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES
The Company has recognized a deferred tax liability, a
deferred tax asset and a valuation allowance against the
deferred tax assets. The components of these consolidated
deferred tax items at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 944,900 $ 576,500
Investment tax credit carryforwards 15,600 20,700
Alternative minimum tax credits 64,600 64,600
Bad debt allowance 98,100 71,400
Other 46,400 6,300
----------- -----------
1,169,600 739,500
Less: valuation allowance - -
----------- -----------
1,169,600 739,500
----------- -----------
Liabilities:
Depreciation and amortization 251,200 120,600
Costs capitalized in connection
with acquisitions 591,200 605,000
Income and expense recognition 455,000 253,000
Other 4,500 23,500
----------- -----------
1,301,900 1,002,100
----------- -----------
Net deferred tax liability $ 132,300 $ 262,600
=========== ===========
</TABLE>
These deferred tax assets and liabilities have been offset for
balance sheet presentation except for the "net deferred tax
liability". Management has recognized a deferred tax benefit
of $87,200 which results from an increase in deferred tax
assets of $430,000 ($368,000 increase in net operating loss
carryforwards) and an offsetting increase of $300,000
($130,000 increase in excess tax depreciation and $200,000
increase in income and expense recognition). Management has
utilized approximately $2.3 million of net operating loss
carryforwards through the sale of two nursing home assets in
1997. Additionally, the valuation allowance was reduced by
$200,000 in 1997. These two factors combined to result in a
deferred tax expense of $516,300 in 1997. Management has
recognized a deferred tax benefit of $84,300 in 1996 by a
reduction in the valuation allowance for the expected
utilization of net operating losses during the carryforward
period. Management has considered the provisions of SFAS No.
109 that allows for utilization of tax planning strategies
associated with real estate. These strategies, if necessary,
could consider a possible sale and/or sale/leaseback of such
real estate to preclude the expiration of net operating losses
without realization of a tax benefit. Realization of the
deferred tax asset is dependent on generating sufficient
taxable income including use of management's tax planning
strategies prior to the expiration of the loss carryforwards.
Although realization is not assured, management believes it is
more likely than not that a significant amount of the deferred
tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the
near term if either the current estimates of future taxable
income are reduced or management would be unable to effect an
expected sale and/or sale/leaseback of real estate. Both of
these conditions are currently necessary for consideration in
the evaluation of the realizability of the deferred tax assets
and estimated valuation allowance.
II-31
<PAGE> 39
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
Consolidated net operating losses available for tax purposes
at December 31, 1998 are approximately $2,780,000, expiring
$967,000 in 2006, $335,000 in 2008 and $383,000 in 2009 and
$1,083,000 in 2013. Investment tax credits available for tax
purposes at December 31, 1998 are approximately $20,700
expiring at various dates from 1999 to 2000. In 1997 and 1996
as a result of consolidated taxable income the Company was
able to utilize net operating losses of $4,077,000 and
$27,000, respectively, of which $730,000 and $27,000,
respectively, was pre-operating losses of an acquired
subsidiary which was only to be used to offset taxable income
by that subsidiary.
For the years ended December 31, 1998, 1997 and 1996 a
reconciliation of the statutory rate and effective rate for
the provision for income taxes consists of the following based
on amounts that do not include minority interests:
<TABLE>
<CAPTION>
PERCENTAGE
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (34.0) 34.0 (34.0)
Minority interests 8.1 2.5 13.6
Equity in unconsolidated affiliates 2.4 6.7 -
State and local income taxes, net of federal
tax benefit (7.5) 1.6 6.3
Alternative minimum tax - 2.3 -
Tax effect of permanent differences (1.8) (4.2) 44.0
Valuation allowance - (9.1) (49.1)
Other (3.1) 33.8 -
------ ----- ------
Effective rate (35.9) 33.9 (19.2)
====== ===== ======
</TABLE>
The expense (benefit) for income taxes consists of the
following:
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal:
Current expense $ - $ 40,000 $ -
Deferred expense (benefit ) (87,200) 516,300 (84,300)
State and local:
Current expense (benefit) (16,780) 41,000 37,891
---------- -------- ---------
Total tax expense (benefit) $ (103,980) $ 597,300 $ (46,409)
========== ======== =========
</TABLE>
II-32
<PAGE> 40
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The principal differences between the income or loss reported
for financial reporting purposes and the income or loss
reported for federal income tax purposes results from (i)
accelerated depreciation methods being utilized for tax
purposes, (ii) inventory capitalization methods required for
tax purposes, (iii) reserving for doubtful accounts receivable
and certain other reserves, (iv) costs capitalized in
connection with certain acquisitions for financial reporting
purposes and not for tax purposes, and (v) income and expense
recognition difference between financial reporting and tax for
equity affiliates and start-up costs.
NOTE 9. STOCKHOLDERS' EQUITY
COMMON STOCK
------------
In July 1998, the Company sold at $1.32 per share 200,000
shares of common stock held in treasury, pursuant to
Regulation S of the Securities Act of 1933. The cost of such
shares sold totaled $265,000.
In October 1996, the Company sold at $1.00 per share 500,000
shares of common stock held in treasury, pursuant to
Regulation S of the Securities Act of 1933. The total cost of
such shares sold totaled $463,000.
WARRANTS
--------
A. At December 31, 1998, there were 414,538 warrants
outstanding. Each warrant, as a result of a November
1990 amendment, is exercisable for two and three
quarters (2-3/4) shares of The Wendt-Bristol Health
Services Corporation common stock. The Company has
reserved 1,139,980 shares for such issue. The
exercise price of $3.75 per warrant is the equivalent
of $1.36 per share. Other terms of the warrants
remain the same as when originally issued in 1986,
including the anti-dilution provisions, except that
the expiration date has been extended to May 1, 1999,
and the redemption feature has been removed. The
Board of Directors has voted not to further extend
the expiration date.
Also, as a result of the November 1990 amendment,
upon exercise of existing warrants, in addition to
the common shares to be received upon such exercise,
each warrant holder will receive, upon registration
under the Securities Act of 1933, a newly-created
Series II warrant which has been extended to May
2000, which enables the warrant holder upon exercise
of the Series II warrant to purchase 2 shares of
common stock at $3.00 per share.
The Board of Directors has elected to allow the
warrants to expire on May 1, 1999 and the Series II
warrants to expire on May 1, 2000.
II-33
<PAGE> 41
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)
B. In conjunction with the issuance, pursuant to
Regulation S of the Securities Act of 1933, of Series
No. 1 bonds issued on February 14, 1997, the Company
issued thirty-three (33) Series No. 1 warrants
exercisable into a total of 300,000 shares of the
common stock of the Company for $2.00 per share for
the beneficial ownership of non U.S. persons.
STOCK OPTIONS
-------------
The Company has previously adopted a qualified employee
incentive stock option plan (the "Plan"). The Plan provides
for 500,000 common shares to be made available for options
granted to eligible officers, directors and employees. The
options may be granted for a term not to exceed ten years
(five years with respect to a 10% shareholder) and are not
transferable or assignable. The exercise price of all options
must be at least equal to the fair market value of the common
stock at the date of grant, or 110% of such fair market value
with respect to any optionee who is a 10% shareholder of the
Company.
The Non-Employee Directors were granted options for 10,000
shares upon the first anniversary of their election. All such
options have expired except for one block of options to
purchase 10,000 shares at a price of $.375 with an expiration
date of February 1, 2000. Beginning in 1992, 1,000 options
were granted annually to each Non-Employee Director upon his
anniversary month as a Non-Employee Director. As of December
31, 1998, 37,000 options were issued to Non-Employee
directors. The annual expense for these Non-Employee directors
using the fair value based method (SFAS No. 123) approximated
$600.
In June, 1993 the Board of Directors granted 80,000 options to
purchase shares at a price of $1.25 to certain officers and
key employees. These options expired on June 3, 1998 and none
were exercised.
In May, 1996 the Board granted options totaling 130,000 shares
to certain officers and key employees of which 110,000 are
outstanding at December 31, 1998. Such options are exercisable
at a price of $.875 per share and expire on May 23, 2001.
In October 1998, the Board granted options totaling 305,000 to
certain officers and key employees of which all are
outstanding at December 31, 1998. Such options are exercisable
at a price of $1.3125 per share and expire on October 16,
2003.
In 1997, 5,000 options were exercised at $.875 per share for
total proceeds of $4,375. Additionally, 30,000 options with
exercise prices of $.875 to $1.25 were terminated as the
employees are no longer employed by the Company.
No options were exercised in 1998. There were 452,000 stock
options outstanding at December 31, 1998 at prices ranging
from $.375 to $1.4375 per share. At December 31, 1998 and
1997, options available for grant were 43,000 and 53,000,
respectively.
II-34
<PAGE> 42
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)
The Company utilizes the intrinsic value method under APB No.
25 to account for employee stock options. The Company has
utilized the Black Scholes option pricing model for proforma
footnote purposes with the following assumptions used for
grants in all years. Dividend yield of 0%, risk-free interest
rate of 6%, and expected option life of 5 years. Expected
volatility was 62.9%. If the Company had utilized the fair
value based method under FASB No. 123, the impact would not be
significant to the financial statements.
EARNINGS PER SHARE
------------------
The following is a reconciliation of the basic and diluted EPS
for December 31, 1997, as restated (Note 17). As noted below,
basic and diluted EPS are the same for the years ended
December 31, 1998 and 1996:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
BASIC EPS
---------
Income available to
common stockholders $ 1,381,613 6,224,241 $ .22
========
Effect of dilutive
securities (net of tax)
5.5% convertible bond 35,200 500,000
Options 15,017 192,000
------------ -----------
DILUTED EPS
-----------
Income available to
common stockholders and
assumed conversions $ 1,431,830 6,916,241 $ .21
============ =========== ========
</TABLE>
At December 31, 1997, 1,440,980 stock options and warrants not
associated with convertible debt were excluded from the
computation of diluted EPS because the exercise price was
greater than the average market price of the common shares. At
December 31, 1998 and 1996, all potential common stock would
be anti-dilutive due to the net loss.
NOTE 10. RELATED PARTY TRANSACTIONS
A. PARTNERSHIP OWNERSHIP
---------------------
Certain officers and directors own, in the aggregate, less
than 6% of the outstanding limited partnership interests of a
limited partnership of which a subsidiary of the Company is
the managing general partner.
II-35
<PAGE> 43
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS (CONTINUED)
B. SALE OF ASSETS TO A RELATED PARTY
---------------------------------
Effective January 1, 1995, the Company sold the operating
assets of a subsidiary's retail liquor store and two lounges
in Florida to MHK Corp., a company owned by certain of the
Company's officers and directors. The purchase price was
equivalent to the net book value of the net assets, with no
gain or loss recognized, totaling $574,949, as adjusted for
certain 1995 transactions.
The purchase price is evidenced by a promissory note bearing
interest at 9%. The note accrued interest from the effective
date of the sale through June 30, 1996 at which time the total
accrued interest of $77,618 was added to the original sale
price for a total amended principal sum of $652,567. The note
is payable in monthly installments of $8,266 including
interest, from July 1, 1996 through June 1, 2006 with the
balance fully amortized.
At April 15, 1996, the Company combined all advances to MHK
Corp. into a promissory note totaling $156,868 earning
interest of 9% which accrues from July 1, 1996 until paid. The
note will be payable in monthly installments, including
interest, of $1,987 from July 1, 1996 through June 1, 2006
with the balance fully amortized.
During 1998, MHK paid $20,000 of the total interest due on the
notes. As a result, the Company has not recorded income
attributable to the balance of 1998 interest ($43,200).
The Company has revised all obligations due from MHK into a
single promissory note ($790,600 at December 31, 1998)
providing for monthly payments commencing in 1999 of $9,180,
including interest at 7% per annum. As a result of this
modification, the Company has received additional collateral
and a commitment from one of the principals, a Company officer
and director, to provide personal payments of $3,000 per month
toward the MHK obligation.
The note receivable due from MHK Corp. is collateralized by
the assets of a lounge and a retail liquor store, including a
potential gain on the sale/leaseback of the associated real
estate. The Company has received additional collateral in the
form of a security interest on real estate in Ohio, leases and
rents associated to a tenant of that property as well as the
leasehold interest in a Florida property leased by MHK Corp.
and subleased to a third party, and a pledge of the common
stock of MHK Corp.
Management's current estimate of the business activities of
these Florida operations combined with the rental operations
and potential sale/leaseback is that they will earn sufficient
cash flow to amortize the notes. No further advances or
support is expected by the Company. If the notes are not being
amortized, based on the amortization schedule at the end of
1999, collection of one or both of the above-indicated rents
due from unrelated third parties will be assigned to the
Company commencing in the year 2000 and an allowance for
non-collectibility will be considered absent other remedies
not considered at this time.
II-36
<PAGE> 44
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS (CONTINUED)
C. NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES
--------------------------------------------------
Interest income totaling $20,000, $68,328 and $76,668 for the
year ended December 31, 1998, 1997 and 1996, respectively, is
included in "interest expense, net". Interest income
receivable totaled $1,056 and $616 at December 31, 1998 and
1997, respectively, and is included in "miscellaneous
receivables".
At December 31, 1998 and 1997, the President and CEO of the
Company had outstanding advances totaling approximately
$198,000 and $213,000, respectively. The President/CEO has
granted a security interest in certain collateral to enhance
the realization of the indebtedness, which is evidenced by a
non-interest bearing promissory note, which provides for
annual payments of $15,000 in 1998 and subsequent years.
In addition, pursuant to a ten year lease entered into in
1985, the Company leased a warehouse facility from two of the
officers and directors of MHK Corp. Effective May 1, 1992, a
renewal option was exercised on the lease, extending its term
to 2005. In January 1996, the officers sold a portion of the
property and terminated the lease with the Company. The
remaining parcel is pledged as additional collateral toward a
note due the Company from the sale of the liquor operations
(see Note 10B).
D. LIFE INSURANCE PREMIUMS RECEIVABLE
----------------------------------
The balance sheet includes $1,095,135 and $972,451 at December
31, 1998 and 1997 respectively, for policies with death
benefits totaling $2,750,000 under the caption "Life insurance
premiums receivable". The Company, pursuant to agreements, has
purchased life insurance on the lives of certain officers and
key employees on a "split-dollar" basis. The program is
designed so that payments the Company makes on behalf of each
officer are collateralized by assignments of the related life
insurance policies (i.e., the accumulated policy cash value,
the policy death benefit, or a combination thereof). The life
insurance premiums receivables are noninterest-bearing. The
insured parties own the policies and, with the consent of the
Company, are permitted to borrow from the cash surrender
values of the policies. Under the "split-dollar" agreements,
the Company advances the premium payments and upon the death
of the insured would receive the return of such advances from
the death benefits or from cash value (without termination of
the policy) at such other times (i.e. termination of
employment) prior to the death of the insured.
II-37
<PAGE> 45
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS (CONTINUED)
D. LIFE INSURANCE PREMIUMS RECEIVABLE (CONTINUED)
----------------------------------------------
Annual premiums for these policies total $138,000, $107,000
and $107,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Net cash surrender value on these policies
approximated $500,000 and $375,000 at December 31, 1997 and
1996, respectively.
By Amendment No. 1 to the "split-dollar" agreement, the
applicable officers of the Company recognize the premiums
receivable not collateralized by the policy cash surrender
values of $595,000 at December 31, 1998, are their personal
responsibility if not collected through the respective
policies as long as the Company continues to maintain the
policies. The Company has represented its intention and
obligation to maintain the policies. The individuals have
agreed to provide additional collateral to the Company, by
pledging common shares they own in the Company to enhance the
realization of these receivables.
Subsequent to year-end, loans against these policies totaling
$440,000 were remitted to the Company by certain officers as a
reduction of the life insurance premiums receivable. These
funds were used for working capital.
E. MANAGEMENT FEES FROM AFFILIATES
-------------------------------
A subsidiary of the Company, WBDC, which owns equity interests
in a limited partnership, limited liability companies and a
corporation (See Note 1B), is the management agent for three
of the companies. Management fees totaling $697,000, $491,000
and $360,000 were included in the Consolidated Statements of
Operations for the year ended December 31, 1998, 1997 and
1996, respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION
-----------------------------------------------
In October 1991, the Company sold substantially all of the
assets (other than real estate) of its manufacturing division
located in New Jersey.
As part of that transaction, the buyer entered into a lease on
the physical facilities. The buyer is responsible for taxes,
maintenance, and insurance costs. Rental income has been
recorded on a straight-line basis over the term of the lease.
During the first quarter of 1999, the Company learned that the
buyer/tenant had vacated the premises. The buyer/tenant
continues to maintain its responsibilities under the lease
including the payment of rent, maintenance of the property and
insurance coverage. Management believes that the buyer/tenant
will continue to recognize its obligations under the lease
while attempting to consolidate its operations subsequent to
several significant acquisitions. Its options include the
possibility of securing an acceptable sub-tenant or providing
a buyer with an offer acceptable to the Company.
II-38
<PAGE> 46
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION (CONTINUED)
-----------------------------------------------------------
As a result of compliance with the State of New Jersey
environmental laws and in connection with the sale of the
division, the Company is in the process of a clean-up of
contamination caused by prior ownership whereby the property
had been contaminated by leaking underground storage tanks and
the discharge of certain industrial fluids into the sewage
system. The Company spent approximately $18,000, $56,000, and
$50,000 related to the clean-up during the years ended
December 31, 1998, 1997 and 1996, respectively. Costs
attributable to the project, incurred or accrued, have been
capitalized. The Company's consulting engineers have completed
a study of the contamination and have submitted a clean-up
plan to the appropriate State of New Jersey department. The
remaining estimated costs to complete the plan are
approximately $40,000. Refer to Note 2 regarding restricted
cash set aside to satisfy the New Jersey Department of
Environmental Protection and Energy. The Company has been
advised that completion is expected during the second quarter
of 1999.
B. DEBT GUARANTEES
---------------
The Company or its subsidiaries is contingently liable as a
guarantor of long-term debt and capital lease obligations
totaling $4,315,000 for medical equipment that is currently in
or will be placed in service by entities that WBDC has
ownership interests varying from 22.5% to 50%.
The Company and WBDC are contingently liable for mortgages of
$1,107,000 of the Diagnostic Center and Women's Center under
construction on Kenny Road. WBDC is the general partner and
has a 50% interest in the limited partnership that operates
these facilities.
Additionally, the Company and WBDC are contingently liable for
a two year lease agreement and the purchase price ($1,400,000)
of a building used by an entity in which Diagnostics has a
22.5% ownership interest. Subsequent to year-end, the Company
has funded a non-refundable down payment of $200,000 of the
total purchase price of $1,400,000. Modified terms of the
purchase agreement require a $350,000 payment on April 15,
1999 with interest at 12%, the remaining payments totaling
$1,200,000 are due through and on June 15, 1999. Management
has arranged for the April 15, 1999 funding, in part through
the issuance of an additional Series 2 bond in the amount of
400,000 Swiss francs ($269,000). Management further believes
it will be successful in securing a mortgage on the property
on or before June 15, 1999.
NOTE 12. INDUSTRY SEGMENT DATA
Industry segment data for years ended December 31, 1998, 1997
and 1996 included in Item 1 ("Industry Segments") of this
report is an integral part of these financial statements.
NOTE 13. RETIREMENT PLAN
The Company adopted, effective July 1, 1989, a retirement
plan, under Section 401(k) of the Internal Revenue Code,
covering substantially all employees with more than one year
of service. The plan provides for the Company and its
affiliates accounted for on the equity method to contribute,
on an annual basis, 10% of the employees' eligible deferred
compensation; such employer contribution is in the form of
Company common stock. The Company values the actual shares
transferred to the Plan from the treasury at the respective
December 31 market value. During 1998, 1997 and 1996, the
Company contributed 9,453, 6,306, and 16,262 shares, and
recorded an expense of $11,816, $9,458, and $8,733,
respectively.
II-39
<PAGE> 47
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITY
A subsidiary purchased equipment
which was financed by entering into an
installment finance agreement.
Increase in equipment cost, net $ 4,471,090 $ 147,921
Increase in long-term obligations (4,471,090) (147,921)
Equipment and related debt was
transferred from a partnership, of which
the Company is managing general partner.
Increase in equipment, net $ 302,963
Increase in debt (288,496)
Decrease in investments and related
advances, net (14,467)
Two subsidiaries of the Company sold
nursing home assets. Additionally,
HUD replacement reserves are to be
returned as part of the sale.
Increase in notes receivable, current $ 2,923,794
Increase in miscellaneous receivables 261,327
Decrease in restricted cash (264,287)
Decrease in prepaid expenses (11,535)
Decrease in property, plant and
equipment, net (7,064,636)
Decrease in excess of cost over assets
of businesses and subsidiaries acquired (189,096)
Decrease in deferred charges and other
assets (317,120)
Increase in accrued expenses (394,367)
Decrease in debt 6,083,927
Gain on sale of nursing home assets,
net of cash proceeds ($750,000) (1,028,007)
</TABLE>
II-40
<PAGE> 48
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Note receivable from officers and
related parties was reduced by assigning
a non-related party note receivable
Increase in notes receivable $ 105,000
Decrease in notes receivable from
officers and related parties (46,826)
Decrease in accrued interest payable (58,174)
Subsidiaries of the Company sold trade
accounts receivable, a portion of which
was used for certain related fees
Increase in deferred costs $ 27,500
Increase in miscellaneous accounts
receivable reserves 185,507
Decrease in notes payable 53,155
Decrease in accounts receivable - sold (266,162)
</TABLE>
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") Statement No.
107, "Disclosure about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial
instruments. For certain of the Company's financial
instruments including cash, receivables, accounts and notes
payable, and other accrued liabilities the carrying amounts
approximate fair value due to their short maturities. For
long-term notes receivable and notes payable, the Company
believes the carrying value will approximate their fair value
as the interest rates are comparable to prime. For the
subordinated note, the Company believes the carrying amount
approximates fair value with the conversion feature to the
Company's common stock available.
At December 31, 1998 and 1997, management believes the
carrying amount of long-term receivables are not impaired and
will be realized in the normal course of business in
accordance with their contract terms. The fair value of debt
is believed to be approximately equal to their current
carrying value based on current market prices.
At December 31, 1998, the Company had outstanding multiples of
three month foreign exchange futures contracts that were to
expire March 1999. Management's intent is to continue to
repurchase these contracts (currently holding June 1999
expirations) as a hedge against the Swiss Franc on 5,000,000
Swiss Franc 5% bonds payable in February, 2002 and 1,100,000
Swiss Franc 7% bond payable in December 2003. The contract
amount of foreign currency forwards at December 31, 1998 is
$4,490,000. As these futures contracts are not for trading or
speculative purposes, the Company has deferred the current
loss of approximately $41,000 at December 31, 1998 until 2002
when the bond becomes due and a determination of the
cumulative gain or loss is known. The net cash outlay at
December 31, 1998 totaled $153,000. Future cash requirements
will be determined by future foreign currency exchange rates.
The potential loss for purchased foreign exchange option
contracts is limited to the premium paid.
II-41
<PAGE> 49
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. PROPOSED PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON
STOCK AND LIMITED PARTNERSHIP INTEREST
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.
Reference is hereby made to the respective preliminary Forms
S-4, filed with the Securities and Exchange Commission
concerning the issuance of preferred stock in exchange for the
above interests. Amended Forms S-4 will be filed containing
the updated information in this Form 10-K.
NOTE 17. 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 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.
II-42
<PAGE> 50
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. FINANCIAL STATEMENTS RESTATEMENT (CONTINUED)
The audited financial information of Wendt-Bristol Diagnostics
Co. L.P. that is subject to this restatement is as follows at
December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets $ 1,107,418 $ 643,009
Property, plant and equipment, net of
accumulated depreciation 4,227,612 3,792,908
Other non-current assets 341,536 1,268,503
----------- -----------
$ 5,676,566 $ 5,704,420
=========== ===========
Liabilities $ 4,629,552 $ 4,214,322
Equity 1,047,014 1,490,098
----------- -----------
$ 5,676,566 $ 5,704,420
=========== ===========
Service revenues $ 4,142,908 $ 4,217,924
Operating income $ 198,674 $ 648,266
Net income (loss) $ (155,400) $ 404,728
</TABLE>
The company's financial statements for the year ended December
31, 1997 have additionally been restated for temporary
differences between financial statement and tax income in
accordance with the liability method of reporting income
taxes.
The effect of the restatement for the year ended December 31,
1997 is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
-------- -----------
<S> <C> <C>
Consolidated Balance Sheet:
Deferred tax asset (liability) $ 137,400 $ (262,600)
Retained earnings (deficit) (1,337,483) (1,737,483)
Consolidated Statement of Operations:
Income tax benefit (expense) (197,300) (597,300)
Net income 1,781,613 1,381,613
Income per Common Share:
Basic $ 0.29 $ 0.22
Diluted 0.26 0.21
</TABLE>
II-43
<PAGE> 51
III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table and the text following the table set forth
certain information with respect to the Directors and
Executive Officers (being all of the Directors of the Company,
except for Dr. Penn, Mr. Del Ponte and Mr. Levine) of the
Company. Each Director serves until the next Annual Meeting of
Stockholders of the Company and until his successor is elected
and qualified, unless such Director resigns or dies prior
thereto. Each Executive Officer serves at the pleasure of the
Board.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITIONS WITH COMPANY
---- --- ------------------------------
<S> <C> <C>
Marvin D. Kantor 70 Chairman of the Board, Director
Sheldon A. Gold 56 President, Treasurer, Chief Executive Officer,
Director, member of Audit Committee
Reed A. Martin 45 Executive Vice President, Chief Operating
Officer and Director
Harold T. Kantor 65 Vice Chairman of the Board, Director
Paul H. Levine 58 Director, member of Audit Committee
Gerald M. Penn 61 Director, Vice President of Medical Affairs
(1998)
Clemente Del Ponte 47 Director
Charles R. Cicerchi 39 Vice President of Finance, Principal Financial
and Accounting Officer
David E. Fernie 51 Director, member of Audit Committee
</TABLE>
Marvin D. Kantor has been Chairman of the Board since May
1988; prior to June 1993 he had also been President and Chief
Executive Officer of the Company and W-B since May 1988. In
addition, he is a Director of all of the Company's
subsidiaries. He is a brother of Harold T.
Kantor.
Sheldon A. Gold is a certified public accountant and has been
President and Chief Executive Officer of the Company since
June 1993. Prior thereto and since March 1992 he had been Vice
Chairman of the Board and since May 1988 he had been Executive
Vice President, Treasurer, and Chief Financial and Accounting
Officer of the Company. He again became Treasurer and Chief
Financial and Accounting Officer of the Company in July 1992,
until May, 1996. In addition, he has been a Director of the
Company since May 1988. He has also been the President of W-B
since June 1993, Executive Vice President between 1979 and
June 1993, and Chief Financial and Accounting Officer of W-B
since 1979 through May 1996.
Reed A. Martin, elected as a Director in May 1992, has since
June 1993 been Executive Vice President and Chief Operating
Officer, since May 1991 he had been a Senior Vice President of
the Company supervising operations. Mr. Martin is a son-in-law
of Marvin D. Kantor.
Harold T. Kantor has been Vice-Chairman since June 1993 and a
Director of the Company since May 1988. In addition, he has
been Vice President of W-B since October 1985. He is a brother
of Marvin D. Kantor.
III-1
<PAGE> 52
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (CONTINUED)
Paul H. Levine has been a Director since January, 1990 and
serves on the audit and stock option committee. He is
President of Nichols and Levine Asset Management, Inc., a
registered investment advisor. Mr. Levine is an attorney and a
certified public accountant and has been active in venture
capital, investment banking and financial consulting since
1972. He is also a Director of Learning Technologies, Inc.,
and Bio-Catalytic Enterprises, Inc.
Dr. Gerald M. Penn, M.D., Ph.D., was elected as a director on
February 8, 1995 and became the Vice President of Medical
Affairs of the Company on January 1, 1998. He serves on the
stock option committee and also served on the audit committee
through December 31, 1997. Dr. Penn was previously Chairman
and Medical Director of the Department of Pathology at Grant
Medical Center 1981-1996. Educated at The Ohio State
University, Doctor Penn received his medical degree from the
College of Medicine and a doctoral degree in biochemistry. He
completed a pathology residency at University Hospital and
postgraduate training at The Rockefeller University, New York,
NY. He is board certified in clinical and anatomical
pathology, immunopathology and hematopathology. He serves on
the Board of Trustees of the Columbus Medical Association
Foundation and is Secretary/Treasurer of that organization.
Clemente Del Ponte was elected as a director of the Company on
June 18, 1997. For the past five years he has been the
managing director of McBridge Advisory, Ltd., an import/export
consulting agency. Prior thereto, he was an independent
consulting agent. Mr. Del Ponte resides in Lugano,
Switzerland.
Charles R. Cicerchi is a certified public accountant and has
been Vice President of Finance since joining the Company in
September, 1994. Prior thereto, he was Controller of Speer
Industries, a mechanical contractor, where he was responsible
for all accounting and treasury functions from the period 1990
to 1994. Since May, 1996 he has been the Principal Financial
and Accounting Officer of the Company.
David E. Fernie was elected as a director of the Company on
July 30, 1998 and is a member of the Audit Committee. He has
been Professor of Education at Ohio State University since
1984. Prior to that, he was an Assistant Professor at the
University of Houston. He received his Ed. D. from University
of Massachusetts at Amherst and his Bachelors degree in
political theory from Harvard College.
ITEM 11. EXECUTIVE COMPENSATION
GENERAL. The following table sets forth the total annual
compensation paid or accrued by the Company and its
subsidiaries to or for the account of (i) the President (the
chief executive officer) of the Company and (ii) for the
Company's most highly compensated executive officers other
than the chief executive officer who were serving as executive
officers at December 31, 1998 and with respect to each of whom
such compensation exceeded $100,000. The Chairman of the
Board, Marvin D. Kantor, determines executive officer
compensation including his own.
III-2
<PAGE> 53
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) SARS (#) COMP. ($)**
------------------ ---- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sheldon A. Gold 1998 $ 175,384 25,000/0 $ 60,176
President and Chief 1997 160,000 * 15,532
Executive Officer 1996 150,000 50,000/0 -
Marvin D. Kantor 1998 152,885 * 65,028
Chairman of the 1997 140,000 * 65,028
Board 1996 130,000 * 75,866
Reed A. Martin 1998 104,519 25,000/0 4,644
Executive Vice
President and Chief
Operating Officer
</TABLE>
--------------
* Not applicable
** Includes life insurance premiums paid by the Company for
each of named persons (see Note 10 of the Notes to the
Consolidated Financial Statements herein). For the fiscal year
ended December 31, 1998, the amounts paid by the Company for
the benefit of each of the named persons is:
<TABLE>
<CAPTION>
LIFE MEDICAL
NAME INSURANCE REIMBURSEMENT (A) TOTAL
---- --------- ----------------- -----
<S> <C> <C> <C>
Sheldon A. Gold $ 31,064 $ 29,112 $ 60,176
Marvin D. Kantor 65,028 - 65,028
Reed A. Martin 4,644 - 4,644
</TABLE>
(A) Payments made by the Company that, other than for
delinquency, would have been paid by the Company's medical
plans.
III-3
<PAGE> 54
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
OPTIONS. The following table sets forth information respecting
the grant by the Company of options to purchase shares of its
Common Stock and other information related to options granted
by the Company:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE VALUE ($)
---- ----------- ----------- ------ ---- ---------
<S> <C> <C> <C> <C> <C>
Sheldon A. Gold 25,000/0 8.2%/0 1.3125 10/15/03 $ 32,813
Reed A. Martin 25,000/0 8.2%/0 1.3125 10/15/03 32,813
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END-# SHRS AT FY END-$
SHARES --------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Sheldon A. Gold 0 0 75,000/0 $65,625
Reed A. Martin 0 0 35,000/0 13,125
</TABLE>
All options held by Mr. Gold and Mr. Martin were exercisable
at December 31, 1998. 50,000 options held by Mr. Gold and
10,000 options held by Mr. Martin were "in-the-money".
American Stock Exchange reported quotations for the Common
Stock of the Company on December 31, 1998, are: high, $1.3125;
low $1.125; and close, $1.3125; such prices on March 1, 1999
are: high, $1.00; low, $.9375; and close, $1.00. The exercise
price of the "in-the-money" options of Mr. Gold and Mr. Martin
is $.875 and the options expire on May 23, 2001.
III-4
<PAGE> 55
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
STOCK OPTION PLAN. In 1983, the Company adopted an Incentive
Stock Option Plan which was amended in 1989 and 1998 (as
amended, the "Plan"). Pursuant to the Plan, the Company is
authorized to grant stock options to purchase up to 500,000
shares of Common Stock of the Company, subject to
anti-dilution provisions, to key personnel, including eligible
directors, officers and employees of the Company. In the event
that any option granted under the Plan shall terminate prior
to its exercise in full for any reason, then the shares
subject to the option not acquired by exercise of the option
shall be added to the shares otherwise available for the grant
of options under the Plan. Options granted under the Plan may
be those intended to qualify as "incentive stock options", as
defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or those not intended so to qualify.
At February 28, 1999, options to purchase an aggregate of
43,000 shares of Common Stock of the Company, subject to
anti-dilution provisions, could still be granted under the
Plan.
The Plan is currently administered by a Committee of the Board
of Directors of the Company consisting of Messrs. Levine and
Penn, which have the authority (except with respect to stock
options to Non-Employee Directors which are mandated by the
Plan) to determine the grantees of the options, whether
options granted are to be "incentive stock options" or
non-incentive stock options except that Non-Employee Directors
must receive non-incentive stock options, the number of shares
to be covered by each option, the time at which each option is
exercisable, the method of payment, and certain other
provisions of the option. Options may be granted for a term
not to exceed 10 years (five years with respect to a 10%
stockholder) and are not transferable or assignable other than
by will or the laws of descent and distribution.
An option may be exercised within twelve months after the
death or disability of the optionee, to the extent the option
was exercisable at the time of death or disability. The
exercise price of all options (other than non-incentive stock
options granted to persons other than Non-Employee Directors)
must be at least equal to the fair market value of shares of
Common Stock of the Company on the date of grant, or 110% of
such fair market value with respect to any optionee who is a
10% stockholder of the Company.
The Plan will terminate on April 25, 2001. The Board of
Directors of the Company may, however, terminate the Plan at
any time prior to such date. Termination of the Plan will not
alter or impair, without the consent of the optionee, any of
the rights or obligations under any option theretofore granted
under the Plan.
The Plan provides that no option granted thereunder shall be
exercisable if the Company shall, at any time and in its sole
discretion, determine that (i) the listing upon any securities
exchange, registration or qualification under any state or
federal law of any shares otherwise deliverable upon such
exercise, or (ii) the consent or approval of any regulatory
body of the satisfaction of withholding tax or other
withholding liabilities, is necessary or appropriate in
connection with such exercise. In any of such events, the
exercisability of the option is suspended and is not effective
unless and until such withholding, listing, registration,
qualification or approval shall have been effected or obtained
free of any conditions not acceptable to the Company in its
sole discretion, notwithstanding any termination of any option
or any portion of any option during the period when
exercisability has been suspended.
III-5
<PAGE> 56
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
The Plan also provides that the Board or, if so designated,
the Committee (of directors of the Company appointed to
administer the Plan) may require, as a condition to the right
to exercise an option, that the Company receive from the
option holder, at the time of any such exercise, the
representation, warranties and agreements to the effect that
the shares acquired upon exercise of such options are being
purchased by the option holder only for investment and without
any present intention to sell or otherwise distribute such
shares and that the option holder will not dispose of such
shares in transactions which, in the opinion of counsel to the
Company, would violate the registration provisions of the
Securities Act of 1933 and the rules and regulations
thereunder. The certificates issued to evidence such shares
will bear appropriate legends summarizing such restriction on
the disposition thereof.
SPLIT-DOLLAR INSURANCE POLICIES. The following table sets
forth information as of December 31, 1998, concerning
split-dollar insurance policies on the lives of the named
persons in the Summary Compensation Table (1):
<TABLE>
<CAPTION>
INITIAL FACE INSURANCE PREMIUMS
AMOUNT OF ADVANCED IN EXCESS OF
NAME OF INSURED (2) POLICY ISSUED CASH VALUE (5)
------------------- ------ ------ --------------
<S> <C> <C> <C>
Marvin D. Kantor $ 1,500,000 (3) 06/08/92 $ 411,000
Sheldon A. Gold 375,000 (4) 09/11/86 73,000
Reed A. Martin 375,000 (3) 06/08/92 16,000
</TABLE>
The Company, pursuant to split-dollar agreements, has
purchased life insurance on the lives of certain officers
(including named persons in the Summary Compensation Table)
and key employees on a "split-dollar" basis. The program is
designed so that advances of premium payments (the "advances")
the Company makes on behalf of each insured are collateralized
by assignment of the related life insurance policy (i.e., the
accumulated policy cash value and the policy death benefit).
The insured person owns the policy and, with the consent of
the Company, is permitted to borrow from the cash surrender
value of the policy.
Under the "split-dollar" agreements, the Company upon death or
other separation from service of the insured receives the
return of the advances from the death benefits or cash
surrender value, if any, of the policy, as the case may be.
-------------------------
(1) See footnote to the Summary Compensation Table for
information respecting Company premium payments for
the fiscal year ended December 31, 1998.
(2) The beneficiaries of the policies are the spouses of
the insured.
(3) The policy is an increasing death benefit policy
(through use of dividends) and has replaced a
previous universal life policy.
(4) The policy is of the universal life nature, whereby
the cash value is added to the face value at all
times, including death.
(5) Represents monies advanced by the Company in excess
of cash value available in the policies.
III-6
<PAGE> 57
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
The Company has represented its intention and obligation to
maintain the policies. The individuals have enhanced the
realization of these receivables by pledging a portion of
their common stock ownership in the Company.
SECTION 401(k) PLAN. Effective July 1, 1989, the Company
established a Plan and Trust (the "Plan") intended to comply
with the provisions of Section 401(k) of the Internal Revenue
Code.
All full-time (as defined) employees of the Company and of its
subsidiaries (collectively referred to under this sub-caption
as the "Company") who were employees on July 1, 1989, and
persons who became employees thereafter and are continuously
employed for one year are eligible to participate in the Plan.
Under the Plan, an eligible employee who elects to participate
defers a portion (the "Portion") of his compensation, as
defined, the Portion being up to the maximum which will not
cause the Plan to favor Highly-Compensated Employees, as
defined, or cause the Plan to exceed the maximum amount
allowable as a deduction to the Company under Section 404 of
the Code. The Company contributes under the Plan, for the
account of such eligible employee, an amount equal to the
Portion; in substance the contribution is being made by the
eligible employee.
The Plan provides that the Company shall make a contribution
(which is in addition to the contribution referred to in the
preceding sentence and shall be in shares of Common Stock of
the Company) equal to 10% of the aggregate amount of all
contributions made by participants, except that for this
purpose a maximum of 10% of the compensation of each
participant is taken into account. The Plan also provides that
the Company may contribute a discretionary amount to all
participants out of its current or accumulated Net Profit, as
defined, for the applicable Fiscal Year, as defined.
All contributions of the participant vest immediately.
Contributions of the Company vest in accordance with the
number of Years of Service, as defined, of the participant
with vesting of 20% after one year of Service and thereafter
increasing by 20% increments for each Year so that after five
years or more of Service, the Company's contributions become
fully vested. Notwithstanding the foregoing, the Company's
contributions fully vest upon the retirement, death,
disability of a participant (all as defined in the 401(k)
Plan); or in the event that the 401(k) Plan is terminated in
whole, or to the extent particular participants are affected
thereby, in part.
The Trustee under the Plan, Merrill Lynch Trust Company,
invests cash contributed or otherwise held under the Plan as
it is instructed by the employee participants, who have the
discretion of fund selection.
Distributions from the Plan are made available on a
participant's retirement, death, disability, or the
termination of employment for any reason other than the
foregoing. Advance distributions on account of hardship may be
made in limited circumstances as provided in the 401(k) Plan.
Payment of vested amounts are made in accordance with
directions of the Committee, appointed by the Company to act
under the 401(k) Plan, either in one lump sum payment or in
annual cash installments over a period not to exceed 10 years.
III-7
<PAGE> 58
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
COMPENSATION OF DIRECTORS. Non-employee Directors of the
Company receive $650 for each meeting of the Board of
Directors of the Company which they attend and such Directors
are also reimbursed for any expenses incurred. In addition,
beginning January 1, 1995 all Non-Employee Directors are
compensated $500 per month for serving as director of the
Company. No additional amounts are paid for committee
participation.
In addition, Non-Employee Directors have been granted stock
options under the Plan to purchase shares of Common Stock of
the Company. "Non-Employee Directors" are defined in the Plan
as Directors of the Company who are not also employees of the
Company, who have served as Directors for twelve consecutive
full months, and who at the end of such period are continuing
to serve as Directors. The Plan also provides for a grant of
additional stock options to each Director who received an
option for 10,000 shares of Common Stock ("the Initial
Option"), each of such additional options to provide for the
purchase of an aggregate maximum of 1,000 shares of Common
Stock of the Company at a price per share equal to the fair
market value of the Common Stock of the Company on the date of
grant, subject to anti-dilution provisions, one of such
additional options to be granted on each successive
anniversary of the date of grant of the Initial Option,
provided that such Director continues on such anniversary to
be a Non-Employee Director. Pursuant to the Second Amendment
of the Stock Option Plan, on each fifth anniversary of
receiving the initial 10,000 stock option, such Non-Employee
director will receive an option for 10,000 shares instead of
1,000 shares. Each of the stock options set forth in the chart
below are exercisable commencing on the date of grant and
ending on the fifth anniversary of such date. None of the
options set forth in the chart below have been exercised. All
of the options are subject to anti-dilution provisions. The
following table illustrates the options issued as discussed
above.
<TABLE>
<CAPTION>
DATE OF SHARES SUBJECT OPTION
NON-EMPLOYEE DIRECTOR GRANT TO OPTION PRICE
--------------------- ----- --------- -----
<S> <C> <C> <C>
Paul H. Levine 07/11/94 1,000 $ 0.6875
Paul H. Levine 07/11/95 1,000 0.4375
Paul H. Levine 07/11/96 1,000 0.875
Paul H. Levine 07/11/97 1,000 1.1875
Paul H. Levine 07/30/98 10,000 1.375
Gerald M. Penn 02/01/95 10,000 0.375
Gerald M. Penn 02/01/96 1,000 0.375
Gerald M. Penn 02/01/97 1,000 1.435
Gerald M. Penn 02/01/98 1,000 1.25
Clemente Del Ponte 10/16/98 10,000 1.3125
</TABLE>
III-8
<PAGE> 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below presents as of February 28, 1999, certain
information (1) with respect to any person (including any
"group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ) who is known to
the Company to be the beneficial owner of more than five
percent of any class of the Company's voting securities and
(2) as to each class of equity securities of the Company or
any of its parents or subsidiaries, other than directors'
qualifying shares, beneficially owned by each director and
executive officer of the Company and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE AND PERCENT
TITLE OF CLASS NAME BENEFICIAL OWNERSHIP (1) OF CLASS (2)
-------------- ---- ------------------------ ------------
<S> <C> <C> <C>
Common Stock Marvin D. Kantor 888,120 14.02%
Two Nationwide Plaza
Suite 760
Columbus, Ohio 43215
Common Stock Harold T. Kantor 297,475 (3) 4.69%
Common Stock Sheldon A. Gold 131,375 (4) 2.07%
Common Stock Reed A. Martin 40,726 (5) -
Common Stock Charles R. Cicerchi 30,416 (6) -
Common Stock Paul H. Levine 14,500 (7) -
Common Stock Dr. Gerald M. Penn 21,000 (8) -
Common Stock Clemente Del Ponte 668,200 (9) 10.55%
Dollard House
Wellington Quay
Dublin 2 Ireland
Common Stock David E. Fernie 200 -
Common Stock All Directors and 2,061,596 (10) 32.53%
Executive Officers
As a Group (7 persons)
Common Stock Gerald F. Schroer 413,800 (11) 6.53%
25109 Detroit Road
Westlake, Ohio 44145
</TABLE>
-------------------
(1) The individuals named have direct ownership and sole
voting and investment power, except as otherwise
indicated.
(2) Percent of class shown net of treasury shares (see
(9) below). Except as otherwise indicated, shares
owned by the individuals named represent less than 1%
of the outstanding shares of Common Stock of the
Company.
-------------------
(Footnotes continued on following page)
III-9
<PAGE> 60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MHK Corp., of which Marvin D. Kantor and Harold T. Kantor are
the sole shareholders, has incurred indebtedness to the
Company. The largest amount of such indebtedness outstanding
in 1998 was $796,561; 1997 was $799,718; and 1996 was
$809,435. During April 1999, the Company revised, effective
January 1, 1999, all obligations due from MHK into a single
promissory note ($790,600 at December 31, 1998) providing for
monthly payments effective of $9,180, including interest at 7%
per annum. Through February 28, 1999, interest of $7,000 had
been received, leaving a principal balance of $790,600 and
accrued interest of $2,200. The April 1999 revision of the
obligations includes a commitment to achieve a current status
by the end of 1999. Also, the Company has received additional
collateral and a commitment from one of the principals, a
Company officer and director, to provide personal payments of
$3,000 per month toward the MHK obligation. Interest at 9%
totaling $20,000, $68,328 and $61,823 has been charged,
through December 31, 1998, 1997 and 1996, respectively.
A significant portion of this indebtedness arose, effective
January 1, 1995 when the Company sold the operating assets of
a subsidiary's retail liquor store and two lounges in Florida
to MHK Corp. The purchase price was equivalent to the net book
value of the net assets which totaled $574,949 as adjusted for
certain 1995 transactions. The remainder of the debt is
attributable to loans made to MHK Corp. for accrued interest
and working capital in 1995 and 1996. Collateral for this
indebtedness includes the operating assets of MHK Corp. and
additional commercial real estate property owned by the
Kantors in Dayton, Ohio (see Note 10C).
The President and CEO of the Company, Mr. Sheldon Gold, has
incurred borrowings from the Company. The largest amount of
such indebtedness outstanding in 1998 was $213,000; 1997 was
$243,412; and 1996 was $243,412. On February 28, 1999, the
amount of such indebtedness was $196,600. No interest is paid
or charged on such indebtedness. The President/CEO has granted
collateral to the Company to enhance the realization of the
indebtedness, in the form of stock in the Company and a
residential mortgage. The loan is evidenced by a promissory
note providing for minimum annual payments of $15,000, as
amended (see Note 10C).
Certain executive officers and directors of the Company are
limited partners owning less than an aggregate 10% interest in
Wendt-Bristol Diagnostics Company L.P. A subsidiary of W-B is
the general partner of Wendt-Bristol Diagnostics Company L.P.
-------------------
(Footnotes continued from previous Page)
(3) Includes 75,000 shares which Mr. Kantor may acquire
by exercising options granted to him under the
Company's Stock Option Plan.
(4) Includes 13,750 shares of Common Stock which Mr. Gold
may acquire by exercising Warrants and 75,000 shares
of common stock which Mr. Gold may acquire by
exercising options granted to him under the Company's
Stock Option Plan.
(5) Includes 1,100 shares of Common Stock which Mr.
Martin may acquire by exercising Warrants and 35,000
shares of Common Stock which he may acquire by
exercising options granted to him under the Company's
Stock Option Plan.
(6) Includes 30,000 shares of Common Stock which Mr.
Cicerchi may acquire by exercising options granted
under the Company's Stock Option Plan.
(7) Includes 14,000 shares of Common Stock which Mr.
Levine may acquire by exercising options granted
under the Company's Stock Option Plan.
-------------------
(Footnotes continued on following page)
III-10
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
(Footnotes continued from previous page)
(8) Includes 13,000 shares of Common Stock which Dr. Penn
may acquire by exercising options granted under the
Company's Stock Option Plan.
(9) Includes 10,000 shares of Common Shares which Mr. Del
Ponte may acquire by exercising options granted to
him under the Company's Stock Option Plan. The
remainder of the shares are in the record name of
McBridge Advisory, Ltd. of which Mr. Del Ponte is the
managing director of said company.
(10) Includes 14,850 shares of Common Stock which may be
acquired by exercise of Warrants and 222,000 shares
which may be acquired by exercise of options granted
under the Company's Stock Option Plan.
(11) Pursuant to a July 6, 1998 letter received from Mr.
Schroer.
-------------------------
III-11
<PAGE> 62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements. The following financial
statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors II-11
Consolidated Balance Sheets as of December II-12 and II-13
31, 1998 and 1997
Consolidated Statements of Operations for II-14
the years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Comprehensive II-15
Income for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Stockholders' II-16
Equity for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flow for II-17 and II-18
the years ended December 31, 1998, 1997
and 1996
Notes to Consolidated Financial Statements II-19 through II-43
</TABLE>
2. Financial Statement Schedules. The following financial
statement schedules for the years ended December 31,
1998, 1997 and 1996 are included in Part IV:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C> <C>
II. Valuation and Qualifying Accounts and
Reserves IV-6
</TABLE>
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the Financial Statements
or Notes thereto.
3. Exhibits Filed Under Item 601 of Regulation S-K. (Numbers assigned
to the following correlate to those used in such Item 601).
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Merger Agreement among the Wendt-Bristol Health Services
Corporation, Wendt-Bristol Acquisition, Inc. and
Wendt-Bristol Diagnostics Company dated September 25,
1998 filed as Exhibit 2.1 to Form S-4 filed February 5,
1999 and incorporated herein by reference pursuant to
Rule 411(c).
IV-1
<PAGE> 63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to those
used in such Item 601). (Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.2 Merger Agreement among the
Wendt-Bristol Health Services
Corporation, Wendt-Bristol Acquisition
LLC and Wendt-Bristol Diagnostics
Company L.P. dated September 25, 1998
filed as Exhibit 2.2 to Form S-4 filed
February 5, 1999 and incorporated
herein by reference pursuant to Rule
411(c).
3.1 Certificate of Incorporation of
registrant. Filed as Exhibit B to the
Company's Proxy Statement (June 27,
1988) and incorporated herein by
reference pursuant to Rule 411(c).
3.2 By-Laws of the Company. Filed as
Exhibit C to the Company's Proxy
Statement (June 27, 1988) and
incorporated herein by reference
pursuant to Rule 411(c).
4.1 See Exhibits numbered Exhibit 3.1 and 3.2
4.2 Warrant Agreement, dated April 29,
1988, between The Wendt-Bristol
Company, Corna & Co., Inc. and
Mellon Securities Trust Company, as
Warrant Agent. Filed as Exhibit 4.2
to Registration Statement on Form
S-1 of The Wendt-Bristol Company
(Reg. No. 33-8399, filed October 15,
1986) and incorporated herein by
reference to Rule 411(c).
4.3 Warrant Agreement, dated April 29,
1988, between The Wendt-Bristol
Company, Pittsburgh National Bank,
N.A., and The Fifth Third Bank, as
Warrant Agent. Filed as Exhibit 4.3 to
the Company's Annual Report on Form
10-K for the year ended December 31,
1992 and incorporated herein by
reference pursuant to Rule 411(c).
4.4 The Wendt-Bristol Health Services
Corporation Terms of Series 1
Cumulative Dividend Convertible
Preferred Stock. Files as Exhibit 4 to
Company registration statement on Form
S-4 (Reg. No. 333-64423, filed
February 5, 1999) and incorporated
herein by reference pursuant to Rule
411(c).
9 Voting Trust Agreement, dated December
4, 1992, between The Wendt-Bristol
Health Services Corporation, Corporate
Life Insurance Company and Marvin D.
Kantor, as Voting Trustee. Filed as
Exhibit 9 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1993 and incorporated
herein by reference pursuant to Rule
411(c).
10.1 Employee Stock Option Plan, as
amended. Filed as Exhibit 28.1 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1991,
and incorporated herein by reference
pursuant to Rule 411(c).
</TABLE>
IV-2
<PAGE> 64
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (
CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation
S-K. (Numbers assigned to the following
correlate to those used in such Item 601)
(Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.2 Temco National Corporation 401(k)
Profit Sharing Plan. Filed as Exhibit
28.2 to the Company's Annual Report on
Form 10-K for the Year Ended December
31, 1991, and incorporated herein by
reference pursuant to Rule 411(c).
10.3 Sale and Subservicing Agreement, dated
as of February 5, 1993, among The
Wendt-Bristol Company, et al, NPF IV,
Inc. and National Premier Financial
Services, Inc., relating to the health
care receivables securitization
program. Filed as Exhibit 28.6 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1992,
and incorporated herein by reference
pursuant to Rule 411(c).
10.4 Stock Purchase Agreement, dated June
4, 1993, between The Wendt-Bristol
Health Services Corporation and
Corporate Life Insurance Company.
Filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1993 and
incorporated herein by reference
pursuant to Rule 411(c).
10.5 Installment Business Loan Note, dated
January 30, 1996, between The
Wendt-Bristol Company and Marvin D.
Kantor related to working capital
loan. Filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1995
and incorporated herein by reference
pursuant to Rule 411(c).
10.6 Stock Pledge Agreement dated January
30, 1996, between The Wendt-Bristol
Company and Marvin D. Kantor related
to working capital loan. Filed as
Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1995 and incorporated
herein by reference pursuant to Rule
411(c).
10.7 Loan and Security Agreement, dated
March 27, 1996, between Wendt-Bristol
Diagnostics Company, L.P. and DVI
Capital Company relating to equipment
financing. Filed as Exhibit 10.7 to
the Company's Annual Report on Form
10-K for the year ended December 31,
1995 and incorporated herein by
reference pursuant to Rule 411(c).
10.8 Loan and Security Agreement, dated
March 27, 1996, between Health
America, Inc. dba Wendt-Bristol Center
and DVI Capital Company relating to
equipment financing. Filed as Exhibit
10.8 to the Company's Annual Report on
Form 10-K for the year ended December
31, 1995 and incorporated herein by
reference pursuant to Rule 411(c).
</TABLE>
IV-3
<PAGE> 65
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation
S-K. (Numbers assigned to the following
correlate to those used in such Item 601)
(Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.9 Loan and Security Agreement, dated
March 27, 1996, between American Care
Center, Inc. dba Bristol House of
Columbus and DVI Capital Company
relating to equipment financing. Filed
as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1995 and
incorporated herein by reference
pursuant to Rule 411(c).
10.10 Loan and Security Agreement, dated
March 27, 1996, between Ethan Allen
Care Center, Inc. dba Bristol House of
Springfield and DVI Capital Company
relating to equipment financing. Filed
as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1995 and
incorporated herein by reference
pursuant to Rule 411(c).
10.11 Asset Purchase Agreement, dated April
15, 1996, between Congress Liquors,
Inc. and MHK Corp. Filed as Exhibit
10.11 to the Company's Annual Report
on Form 10-K for the year ended
December 31, 1995 and incorporated
herein by reference pursuant to Rule
411(c).
10.11 Mortgage and security agreement dated
April 1, 1996, between Wendt-Bristol
Diagnostics Co. L.P. and National City
Bank. Filed as Exhibit 10.11 to the
Company's Form 10-Q for the quarter
ended June 30, 1996 and incorporated
herein by reference pursuant to Rule
411(c).
10.12 Mortgage and security agreement dated
April 19, 1996 between The
Wendt-Bristol Health Services
Corporation and Grand Pacific Finance
Corp. Filed as Exhibit 10.12 to the
Company's Form 10-Q for the quarter
ended June 30, 1996 and incorporated
herein by reference
pursuant to Rule 411(c).
10.13 Receivables purchase and sale
agreement dated May 30, 1996 between
The Wendt-Bristol Company, et al, and
HealthPartners Funding L.P., relating
to the health care receivables
securitization program. Filed as
Exhibit 10.13 to the Company's Form
10-Q for the quarter ended June 30,
1996 and incorporated herein by
reference pursuant to Rule 411(c).
10.14 Amendment to Receivables Purchase and
Sale Agreement dated August 29, 1996
between The Wendt-Bristol Company, et
al, and HealthPartners Funding L.P.,
relating to the health care
receivables financing program. Filed
as Exhibit 10.14 to the Company's Form
10-Q for the quarter ended September
30, 1996 and incorporated herein by
reference pursuant to Rule 411(c).
</TABLE>
IV-4
<PAGE> 66
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to
those used in such Item 601) (Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.15 Convertible subordinated bond, dated
December 23, 1996, by and between The
Wendt-Bristol Health Services
Corporation and Societe Generale Bank
& Trust, or registered assigns. Filed
as Exhibit 1 to the Company's Form 8-K
dated December 23, 1996 and
incorporated herein by reference
pursuant to Rule 411(c).
10.16 Series 1 Bond dated February 14, 1997,
by and between The Wendt-Bristol
Health Services Corporation and
Societe Generale Bank & Trust, or
registered assigns, with Schedule 1.
Filed as Exhibit 1 to the Company's
Form 8-K dated February 14, 1997 and
incorporated herein by reference
pursuant to Rule 411(c).
10.17 Series 1 Warrant dated February 14,
1997, by and between The Wendt-Bristol
Health Services Corporation and
Societe Generale Bank & Trust, or
registered assigns, with Schedule 1.
Filed as Exhibit 2 to the Company's
Form 8-K dated February 14, 1997 and
incorporated herein by reference
pursuant to Rule 411(c).
21 List of Subsidiaries
27 EDGAR Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K filed during last fiscal (calendar)
quarter of 1998:
(1) Report dated December 7, 1998 related to the sale
of Series 2 Bonds pursuant to Regulation S.
IV-5
<PAGE> 67
SCHEDULE II
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------- ------------- ------------ ----------
ADDITIONS
---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1998
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 101,000 $ 208,238 $ (a) 82,237 $ 227,000
Valuation allowance for deferred
tax assets $ - $ - $ - $ -
December 31, 1997
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 90,000 $ 58,000 $ (a) 47,000 $ 101,000
Valuation allowance for deferred
tax assets $ 200,000 $ - $ 200,000 $ -
December 31, 1996
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 264,700 $ 65,480 $ (a)240,180 $ 90,000
Valuation allowance for deferred
tax assets $ 400,000 $ - $ 100,000 $ 300,000
=====================================================================================================================
</TABLE>
Notes: (a) Write-off of uncollectible amounts
IV-6
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
(Registrant)
April 15, 1999 By: /s/ Sheldon A. Gold
- -------- -------------------------------
Shelton A. Gold
President
By: /s/ Charles R. Cicerchi
April 15, 1999 -------------------------------
- -------- Charles R. Cicerchi
Vice-President, Finance and Principal
Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Marvin D. Kantor Chairman of the Board and
------------------------------- Director April 15, 1999
Marvin D. Kantor
/s/ Harold T. Kantor Vice Chairman of the Board April 15, 1999
-------------------------------- and Director
Harold T. Kantor
/s/ Sheldon A. Gold President (Principal Executive April 15, 1999
---------------------------------- Officer) and Director
Sheldon A. Gold
/s/ Reed A. Martin Executive Vice President, Chief April 15, 1999
---------------------------------- Operating Officer and Director
Reed A. Martin
/s/ Paul H. Levine Director April 15, 1999
---------------------------------
Paul H. Levine
/s/ Gerald M. Penn Director April 15, 1999
---------------------------------
Gerald M. Penn
Director ________, 1999
- ----------------------------------
Clemente Del Ponte
/s/ David E. Fernie Director April 15, 1999
---------------------------------
David E. Fernie
</TABLE>
IV-7
<PAGE> 1
EXHIBIT 21
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
STATE OF OWNERSHIP OF
NAME INCORPORATION VOTING SECURITIES
---- ------------- -----------------
<S> <C> <C>
Consolidated Subsidiaries:
The Wendt-Bristol Company Delaware 100% by The Wendt-Bristol Health
("Wendt-Bristol") Services Corporation
Wendt-Bristol Home Health Ohio 100% by Wendt-Bristol
Care Company
Wendt-Bristol Diagnostics Ohio 85.5% by Wendt-Bristol
Company
Wendt-Bristol Organizational Ohio 100% by Wendt-Bristol
L.P., Inc.
1275 Olentangy River Road Ohio Wendt-Bristol is the sole general and
Limited Partnership(1)(2) limited partner
Wendt-Bristol Diagnostics Delaware Wendt-Bristol Diagnostics Company is
Company L.P.(1) the sole general partner
Consolidated Medical Ohio 100% by Wendt-Bristol Home Health
Services, Inc. Care Company
CMSI Medco Limited Ohio Consolidated Medical Services is the
Partnership (1)(2) sole general partner
American Living Centers, Inc. Ohio 100% by Wendt-Bristol
American Care Centers, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Columbus
Ethan Allen Care Center, Inc. Ohio 100% by American Living Centers, Inc.
dba Bristol House of Springfield
Congress Liquors, Inc. (2) Florida 100% by Wendt-Bristol
Health America, Inc. Ohio 100% by Wendt-Bristol Diagnostics
dba The Wendt-Bristol Center Company
American Hospital of Ohio 100% by Health America, Inc.
Athens, Inc.(2)
Wendt-Bristol Acquisition, Inc. Ohio 100% by Wendt-Bristol
Wendt-Bristol Acquisition, Delaware 100% by Wendt-Bristol
LLC(3)
</TABLE>
(1) Limited partnership
(2) Inactive
(3) Limited Liability Company
IV-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 807,664
<SECURITIES> 0
<RECEIVABLES> 1,236,486
<ALLOWANCES> 227,000
<INVENTORY> 22,816
<CURRENT-ASSETS> 3,415,891
<PP&E> 10,680,870
<DEPRECIATION> 1,864,752
<TOTAL-ASSETS> 20,218,234
<CURRENT-LIABILITIES> 2,940,144
<BONDS> 11,014,477
0
0
<COMMON> 82,485
<OTHER-SE> 5,437,438
<TOTAL-LIABILITY-AND-EQUITY> 20,218,234
<SALES> 1,091,351
<TOTAL-REVENUES> 7,612,639
<CGS> 836,899
<TOTAL-COSTS> 836,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,634
<INCOME-PRETAX> (378,734)
<INCOME-TAX> (103,890)
<INCOME-CONTINUING> (274,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,754)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 846,229
<SECURITIES> 0
<RECEIVABLES> 2,000,967
<ALLOWANCES> 101,000
<INVENTORY> 202,951
<CURRENT-ASSETS> 7,149,186
<PP&E> 5,768,148
<DEPRECIATION> 1,656,764
<TOTAL-ASSETS> 17,507,461
<CURRENT-LIABILITIES> 4,623,094
<BONDS> 6,034,023
0
0
<COMMON> 82,485
<OTHER-SE> 5,962,641
<TOTAL-LIABILITY-AND-EQUITY> 20,218,234
<SALES> 2,435,334
<TOTAL-REVENUES> 17,130,251
<CGS> 1,820,352
<TOTAL-COSTS> 1,820,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893,101
<INCOME-PRETAX> 1,978,913
<INCOME-TAX> 597,300
<INCOME-CONTINUING> 1,381,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,381,613
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
