<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, 1999 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 of (I.R.S. Employer Identification No.)
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:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share None
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 [ ] No [X] (by reason of late
filing of Form 10-K herein)
On April 18, 2000, as a result of the delinquent and unfiled Form
10-K, the American Stock Exchange halted trading in the registrant's stock; on
such last day of trading, the aggregate market value of the voting stock of The
Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $3,031,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,069,356 shares of Common Stock of the Registrant outstanding.
On August 10, 2000, the American Stock Exchange delisted the Company as a result
of the delinquent and unfiled Form 10-K.
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 ___.
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, 1999*
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, as a result of an
October 1991 sale of its manufacturing division located in New
Jersey, retained the real estate associated to that operation.
The Company maintained the property under a long-term lease
with the purchaser of the division until the purchaser filed
for Chapter XI protection in December 1999. At this time, the
Company is in the process of leasing the premises through the
use of a local real estate agent.
The operations of the Company are also conducted through its
wholly-owned subsidiary Wendt-Bristol Company ("W-B"),
currently a Delaware corporation that has been in existence
since 1903. W-B, through its approximately 86% owned
subsidiary Wendt-Bristol Diagnostics Company ("WBDC")
currently operates three multiple disciplinary medical
diagnostic centers that provide positron emission tomography
(PET), nuclear medicine, magnetic resonance imaging (MRI), CT
Scans, ultra-sound, x-ray, bone densitometry and mammography.
WBDC also owns 50% of Wendt-Bristol Diagnostic Co. L.P.
("WBDC-LP") and Wendt-Bristol Crosswoods Ltd. ("WBC") and
provides management services for a fee to these centers. These
centers provide similar modalities as WBDC but do not provide
PET which is only available at the Jasonway Avenue facility
(the only PET in central Ohio).
Additionally, WBDC provides management services for a fee to
two additional centers in which it owns a 22 1/2% equity
interest in the entity: Wendt-Bristol Oncology Centers, Inc.
("WB Oncology"). These centers provide radiation therapy. One
center is located adjacent to a hospital while the other is
located in the same building as WBDC's Jasonway facility that
provides PET.
In conjunction with its centers, WBDC also operates three
mobile mammography units which are placed at various
physicians offices on a scheduled short-term basis.
During June 1999, WBDC completed construction of a Women's
Health Center dedicated to early detection of breast disease
including an ambulatory surgery unit for breast surgery on
land adjacent to the WBDC-LP diagnostic and radiology
facility. The two facilities are connected as one building. It
is anticipated that the surgery unit will open in the fourth
quarter 2000.
---------------------------------------
* Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to this Form 10-K or otherwise filed with the
Securities and Exchange Commission. Each such statement is qualified in its
entirety by such reference.
I-1
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
During 2000, WBDC formed Positron Isotopes, LLC, a limited
liability company, in which the Company currently has a 50%
membership interest. Operations of a manufacturing facility
for radioactive isotopes is expected to begin in fall 2000.
These radioactive isotopes will be produced through use of a
cyclotron which has been ordered and financed by a bank (with
guarantees by each of the 50% members). Such isotopes are
essential to the operation of the PET unit and is expected to
provide more timely delivery enabling the Company to perform
increased number of patient procedures as well as additional
types of procedures. The cyclotron will also produce other
nuclear medicine material for use by WBDC and unrelated
third-party customers, including hospitals.
The nature of the Company's business has undergone changes
over the past several years. During the years from 1993
through 1998, the Company operated and subsequently sold or
ceased operations of three retail pharmacies, two nursing
homes, a Medicare-certified home health care agency and a
medical office building. On November 30, 1999, the Company
sold its remaining nursing home. In June 2000, the Company
ceased operations in the WB Oncology facility located in the
same building as WBDC's diagnostic center. Management is
exploring the possibility of obtaining an unrelated third
party for a "turn-key" operation or sale of the WB Oncology
facility. In the event the "turn-key" or sale is not
consummated, it is management's intent to vacate its corporate
office space and move into this facility.
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. 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 accept decreased reimbursement rates.
Moreover, hospitals in the Columbus, Ohio market have fairly
recently begun to expand and build new centers. The hospitals
are at a somewhat competitive advantage related to their
relationship with staff physicians and the ability to come
into contact with potential patients immediately when the
person is hospitalized. The Company's centers and their
respective potential patients, however, do not have to deal
with the inconvenience of admitting the patients but do have
access, free transportation and flexible hours of business
which appeals to many patients.
EMPLOYEES: LABOR RELATIONS. The Company had approximately 150
employees at June 30, 2000. The Company considers its
relations with its employees to be good.
PATENTS AND TRADEMARKS. The Company owns registered
trademarks, including "the Best of Health!", which are
utilized in connection with the marketing of Company services
and products.
INDUSTRY SEGMENTS. The operations of the Company and its
subsidiaries during 1999 fell within two industry segments:
Nursing homes; and Medical services and other. The nursing
home segment was discontinued in December 1999; therefore, the
financial statements have been restated to reflect the
discontinued operations in the Consolidated Statement of
Operations.
I-2
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
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 or benefit to the
operating segments. The following is a summary of key segment
information for the years ended December 31, 1999, 1998 and
1997, respectively.
<TABLE>
<CAPTION>
MEDICAL
NURSING SERVICES AND
HOMES (1) OTHER (2) TOTAL
----- ----- -----
<S> <C> <C> <C>
1999
----
Revenues/sales to unaffiliated customers $ 3,925,233 $ 4,593,619 $ 8,518,852
Interest income 24,444 37,626 62,070
Interest expense 14,359 1,083,469 1,097,828
Net interest expense (income) (10,085) 1,045,843 1,035,758
Depreciation and amortization 40,589 753,863 794,452
Segment profit (loss) 208,221 (6,942,595) (6,734,374)
Equity in earnings (losses) of affiliates - (163,483) (163,483)
Investments and related advances, net - 3,440,171 3,440,171
Segment assets 811,200 18,367,110 19,178,310
Expenditures for segment assets 24,225 4,968,086 4,992,311
1998
----
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
</TABLE>
(1) The nursing home segment has been classified as
discontinued operations in the consolidated statements of
operations.
(2) WBDC operates, as Manager, facilities which it owns 50% or
less and the above does not include those entities in the
consolidation other than "equity in earnings (losses) of
affiliates".
I-3
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
RISK FACTORS. The Company has a history of net losses and
negative cash flow and is currently unable to satisfy its
needs from operations. The Company has experienced net losses
for December 31, 1999 and 1998 it expects that losses will
continue for the year ended December 31, 2000. The Company
cannot know when, if ever, net cash generated by its internal
business operations will support its growth and continued
operations.
The Company needs substantial amounts of additional financing:
(a) The Company anticipates that cash will be required for:
- Operating expenses
- Debt service requirements
- Other corporate expenditures
The Company expects cash needs will exceed cash flows from
operating activities through 2000. In addition, operations may
need to be revised to respond to competitive and other factors
so the need for cash may increase.
(b) A current financing agreement contains certain
restrictions on additional financing that can adversely effect
operations. Current cash needs are greater than cash on hand
and availability under the existing financing agreements. As a
result, additional funds in the form of accounts receivable
financing, equity and/or debt financing will be required to
support current operations.
The Company's 5% bonds are registered with SG Ruegg Bank, Ltd.
in the original principle amount of 5,000,000 Swiss Francs
($3,416,934). The bonds include a restriction prohibiting
obtaining financing collateralized by accounts receivable. The
availability of any accounts receivable financing will be
subject to obtaining a waiver of the covenant that restricts a
grant lien on accounts receivable. Further, even if the
restriction is waived, there can be no assurance that such
financing can be obtained, or if obtained, that it will be on
favorable terms.
(c) Funding for operational and capital needs is not assured.
The Company currently has no legal binding commitments or
understandings with any third parties to obtain any material
amount of additional equity or debt financing. The Company
cannot be assured that additional financing can be obtained or
should the financing be obtained, that it will be on
acceptable terms. As a result, there is no assurance that
adequate capital will be available to maintain the current
levels of operation.
(d) As a result of the Company's inability to pay its outside
auditors the balance of prior year audit fees, the financial
statements included in this report do not contain the
auditors' opinion, however, a mutually acceptable payment
schedule has been negotiated. Upon successful completion of
the payment terms, the opinion will be rendered on a "going
concern" basis.
(e) The Company is in arrears on a number of payment
obligations to all it's secured creditors. Negotiations are
continuing with all such creditors, any failure to
successfully conclude negotiations will adversely affect the
Company's continuing operations.
(f) Although the Company has been in continuous negotiations
with a number of parties relating to possible sale-leasebacks,
strategic joint ventures and sale of a portion of assets, all
designed to alleviate the cash flow difficulties and, in
certain cases, improve operations, there can be no assurance
that such endeavors will be successful. Although negotiations
continue, the Company has been unable to enter into definitive
agreements at this time.
Forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs.
I-4
<PAGE> 6
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES FORM ACT
OF 1995. Some of the statements made in this annual report are
not historical or current facts, but deal with potential
future circumstances and developments. They can be identified
by the use of forward-looking word such as "believes",
"expects", "plans", "may", "will", "would", "could", "should"
or "anticipates" or other comparable words, or by discussions
of strategy that involves risk and uncertainties. These
forward-looking statements are only predictions , which are
subject to risks and uncertainties, including financial
variations. The Company has attempted to identify, in context,
some of the factors that it currently believes may cause
actual future experience and results to differ from our
current expectations regarding the relevant matter or subject
area. The Company's operations may also be subject to the
effect of other risks and uncertainties in addition to the
other qualifying factors identified in this "Risk Factors"
section and elsewhere in this annual report, including but not
limited to:
- General economic conditions in the geographic areas and
market segments in which the Company operates
- Ability to achieve and maintain market penetration
- Growth and levels of accounts receivables and collection
of accounts receivables
- Access to sufficient debt or equity capital to meet
operating and financing needs
REGULATION OF THE HEALTH CARE INDUSTRY. The Company must
comply with extensive federal, state and local government
regulations applicable to the health care industry.
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.
REQUIREMENT OF CERTIFICATE OF NEED. In recent years,
Certificate of Need ("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.
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.
I-5
<PAGE> 7
ITEM 2. PROPERTIES
The Company leases approximately 6,100 square feet of space in
a downtown Columbus, Ohio office building which serves as the
Company's and WBDC's general offices. It is management's
intent to terminate its lease and move into a facility leased
by WBDC. Certain operations were terminated at the equity
affiliates facility in Columbus, Ohio in June 2000. Management
is exploring the possibility of obtaining an unrelated third
party for a "turn-key" operation or sale of this facility. In
the event the "turn-key" or sale is not consummated, it is
management's intent to vacate the downtown property and move
into this facility thereby leasing approximately 10,600 square
feet of office space in Columbus, Ohio for its 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 nearby Granville, Ohio. This
one story center, Wendt-Bristol Erinwood, operates on leased
premises. Additional modalities were added in 1999 and
approximately 1,500 square feet of office space.
In October 1998, a subsidiary of the Company opened a 10,600
square foot diagnostic center in Columbus, Ohio. Jasonway
Diagnostics operates on leased facilities. In April 1999, WBDC
acquired from unconsolidated equity affiliates two properties
which include land and building. The Company rents the
properties to the equity affiliates.
The Company, through a subsidiary, opened in June 1999 its
Women's Health Center on Kenny Road. This 7,500 square foot
center focuses on women's health and imaging services and
includes an outpatient surgical suite for breast surgery
expected to open in fourth quarter 2000.
The present aggregate annual rentals of all property leases
referred to are approximately $461,000 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 coincided with the term of the lease. The tenant
vacated the premises and has filed for bankruptcy in 1999. The
Company is in the process of leasing the premises to one or
more new tenants and has established a working relationship
with the bank/mortgagor.
The New Jersey Department of Environmental Protection and
Energy ("NJ DEPE") 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 $1,119,000 related to environmental
matters in New Jersey, of which $208,000 was spent in the five
fiscal (calendar) years ended December 31, 1999. The Company
has been advised by its special New Jersey counsel and
independent environmental engineer that this matter is
expected to be completed by the end of 2000; estimated 2000
costs are approximately $125,000 (which are available in a
previously established escrow fund supervised by the NJ DEPE).
I-6
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
A judgment was entered against The Wendt-Bristol Health
Services Corporation on February 26, 2000, in favor of
Schottenstein, Zox & Dunn Co., L.P.A. in the case of
SCHOTTENSTEIN, ZOX & DUNN CO., L.P.A. V. THE WENDT-BRISTOL
HEALTH SERVICES CORPORATION, Case No. 00CVH02-1714, Court of
Common Pleas, Franklin County, Ohio. The judgment is in the
sum of $117,894 including interest. The action involves the
claim of the former legal counsel for the Company for unpaid
fees. The Company filed a Motion for Relief from Judgment,
which was denied by the Court's decision dated July 3, 2000.
The plaintiff has sought collection of the judgment, but thus
far has recovered only $1,643. On March 24, 2000,
Schottenstein, Zox & Dunn ("SZD") filed a Creditor's Bill and
Complaint in the Court of Common Pleas of Franklin County,
Ohio (Case No. 00CVH03-02642) wherein they sought a lien on
all outstanding shares (the "Shares") of the Wendt-Bristol
Company ("WB"). The shares were in the possession of Heller
Health Care Finance, Inc. ("Heller"). The shares had been
pledged as security for a loan transaction between Health Care
Financial Partners ("HCFP") and the Company entered into on or
about May 30, 1996. Heller Health Care Financing, Inc.
acquired Health Care Financial Partners (HCFP) subsequent to
the loan payoff. SZD obtained a default judgment against the
Company on August 25, 2000. The Company contends that proper
service was not obtained and the Company did not have proper
notice of the litigation. On or about July 18, 2000, Heller
assigned to Ike's Pond, Inc. ("Pond"), a wholly owned
subsidiary of SZD, all of its right, title and interest in and
to any indebtedness from the Company to Heller, the Shares,
the stock pledge, and the financing documents between Heller
and the Company. Pursuant to that assignment, Pond issued a
notice of sale of the Shares on August 25, 2000, advising
persons receiving the notice, of an auction of the Shares to
be held on September 5, 2000. The Wendt-Bristol Health
Services Corporation ("WBHS") filed a complaint in Franklin
County Court of Common Pleas against all of the above parties
on August 31, 2000 for a declatory judgement that the shares
pledged to HCFP be returned to the Company and seeking damages
for defamation, breach of fiduciary duty and conversion.
On September 25, 2000 both cases with SZD were settled whereby
the Company has agreed to pay past due legal fees with
interest in the amount of $140,000 as follows: $25,000 as a
down payment and $15,000 every other week until payment in
full is made. Pursuant to the settlement terms, the WB shares
are to be held by Marvin D. Kantor, Chairman of the Company,
in escrow, subject to SZD's Creditor's Bill with the
obligation to transfer the shares to SZD in the event of
default in payment of the settlement terms.
An action was filed in the Common Please Court of Montgomery
County, Ohio on April 27, 2000, captioned K-S NUCLEAR, INC.,
ET AL. V. WENDT-BRISTOL DIAGNOSTIC COMPANY (Case No.
2000CV1908). In that action, the plaintiffs claim that WBDC is
indebted to them for diagnostic and consulting services
rendered between May 1998 and January 2000, in the sum of
$174,100. WBDC has filed a Counterclaim in the action,
claiming the conversion of an item of equipment, and seeking
damages in the sum of $58,000. While WBDC acknowledges that
the plaintiff has not been paid in full for all services
rendered to WBDC, the exact amount of WBDC's obligation is in
dispute. Furthermore, WBDC believes that its claim of
conversion against the plaintiff is meritorious.
An action was filed in the Court of Common Pleas, Franklin
County, Ohio, captioned RED LINE MEDICAL SUPPLY V. THE
WENDT-BRISTOL COMPANY (Case No. 00CVH05-4336) on May 15, 2000.
The claim of the plaintiff is for sums allegedly owed on an
account for medical supplies, in the sum of $101,882. W-B has
defended on the basis that many of the goods for which the
plaintiff seeks payment were sold to affiliated companies, and
not W-B itself. W-B also asserts that a number of the invoices
for which the plaintiff seeks payments have been paid, and
W-B's account balance has not been reduced by a number of
credits. While W-B may ultimately be successful in defending
against a considerable portion of plaintiff's claim,
affiliated companies may ultimately be held liable for some of
the claimed amounts.
I-7
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
A lawsuit was filed in the Court of Common Pleas, Franklin
County, Ohio on May 26, 2000, captioned BADGER ACQUISITION OF
OHIO, LLC V. WENDT-BRISTOL HEALTH SERVICES CORP. (Case No.
00CVH05-4741), wherein the plaintiff claims the sum of
$160,871 for allegedly unpaid invoices for pharmaceutical
products. The Company has not yet filed its answer in this
case, but intends to do so. The claims filed by plaintiff are
not for goods purchased by the Company, but by companies
affiliated with the Company. The Company has not yet, at this
time, determined whether the claims, if brought against the
proper entities, have merit.
THREATENED LITIGATION AND RELATED MATTERS
The Company and/or Wendt-Bristol Diagnostics Company is
currently in default under 9 equipment leases and maintenance
agreements with Siemens Financial Services, Inc. and/or its
affiliates ("Siemens") pursuant to which the lessors are
claiming acceleration of $4,443,572 of lease obligations, plus
late charges and any other fees, costs and expenses, including
attorney fees, which may be due as a result of default. The
Company is continuing its negotiations with Siemens in an
attempt to refinance the leases and defer payments. Certain of
the equipment is material to the operations of the Company and
its business would be substantially impaired if a workout is
not consummated or not consummated on favorable terms.
Additionally, the Company and/or Wendt-Bristol Diagnostics
Company is currently in default under 25 equipment leases and
a maintenance agreement with G.E. Medical Systems ("G.E.")
pursuant to which the lessors are claiming acceleration of
$3,276,866 of lease obligations. Equipment maintenance is
maintained on a COD basis. The Company is continuing its
negotiations with G.E. in an attempt to refinance the leases
and defer payments. Certain of the equipment is material to
the operations of the Company and its business would be
substantially impaired if a workout is not consummated or not
consummated on favorable terms.
On August 17, 2000, a group of individuals alleging ownership
of 1,820,987 shares of common stock of the Company filed a
Schedule 13D with the Securities and Exchange Commission
indicating an intention to elect a slate of directors which
they intend to nominate. No slate has, as of yet, been
proposed by such parties. On August 30, 2000 the Company filed
a Complaint for Declaratory Injunctive and Other Relief in the
United States District Court for the Southern District of
Ohio, Eastern Division, Civil Action No. 200-996 against the
parties to the 13D, alleging, among other things (i) the
intentional and fraudulent omission of required information
rendering the 13D statement invalid and unenforceable and
asking for a declaratory judgment and injunctive relief and
(ii) breach of fiduciary duty by defendants Clemente Del
Ponte, a past director, and McBridge Advisory Ltd., an
affiliate of Del Ponte, by disclosing confidential and
proprietary financial and other information to third parties,
resulting in monetary damage to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted
to a vote of security holders.
The annual shareholders' meeting has not been scheduled
pending the completion and filing of its Annual Report Form
10-K. At such time, a meeting will be scheduled and a mailing
(including such report) will be sent to holders of record.
I-8
<PAGE> 10
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
---- ------------ --------
1999 HIGH LOW HIGH LOW
---- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1st Quarter 1 5/16 3/4 * *
2nd Quarter 1 7/16 11/16 3/8 1/16
3rd Quarter 1 11/16 1 (A) (A)
4th Quarter 1 1/8 5/8 (A) (A)
1998
----
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
</TABLE>
* Not Traded
(A) The warrants expired May 1, 1999. Series II warrants would
be issued upon exercise of the previous warrants.
Effectively, the Series II warrants expired with the
warrants on May 1, 1999 since a minimal amount of the
warrants were exercised prior to May 1, 1999. The Series
II warrants expired May 1, 2000.
As a result of the delinquency in filing the 1999 Form 10-K,
trading was suspended by the American Stock Exchange on April
18, 2000. On August 10, 2000, the American Stock Exchange
delisted the Company as a result of the delinquent filing.
Until such time as the Company completes the required filings
for application to another market maker, there is no market
for the Company's common stock.
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.
II-1
<PAGE> 11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS (CONTINUED)
(b) Approximate Number of Equity Security Holders
The number of holders of record for each class of equity
securities of the Company as of June 30, 2000 was as
follows:
NUMBER OF HOLDERS
TITLE OF CLASS OF RECORD (1)
-------------- -----------------
Common Stock, par value $.01
per share ("Common Stock") 696
Common Stock Purchase Warrants (A) n/a
Series No. 1 Warrants 1
(1) The number of stockholders of record includes shares
held in "nominee" or "street" name.
(A) The warrants expired May 1, 1999. Series II
warrants would be issued upon exercise of the
previous warrants. Effectively, the Series II
warrants expired with the warrants on May 1, 1999
since a minimal amount of the warrants were exercised
prior to May 1, 1999. The Series II warrants expired
May 1, 2000.
(c) Dividends
No cash dividends have been declared or paid by the
Company.
This chart shows the Company's performance in the form of
cumulative total return to shareholders from December 31, 1994
until December 31, 1999 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 95 DEC 96 DEC 97 DEC 98 DEC 99
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Wendt-Bristol Health Svc Cp 28.60 166.90 (16.67) 4.96 (52.36)
Health Care - 500 57.85 20.75 43.72 44.22 21.04
S & P 500 Index 37.58 22.96 33.36 28.58 (8.24)
INDEXED RETURNS
YEARS ENDING
-------------------------------------------------------------------
BASE
PERIOD
COMPANY/INDEX DEC 94 DEC 95 DEC 96 DEC 97 DEC 98 DEC 99
------------- ------ ------ ------ ------ ------ ------
Wendt-Bristol Health
Svc Cp 100 128.60 343.25 286.04 300.23 143.02
Health Care - 500 100 157.85 190.61 273.93 395.06 362.49
S & P 500 Index 100 137.58 169.17 225.60 290.08 351.12
</TABLE>
II-2
<PAGE> 12
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,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net sales $ - $ 1,092 $ 2,435 $ 2,816 $ 2,709
Service income 4,594 2,627 1,266 1,570 1,879
----------- ----------- ----------- ----------- -----------
4,594 3,719 3,701 4,386 4,588
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - 837 1,820 2,072 1,920
Selling, general and administrative expenses, net 5,332 2,982 2,482 2,914 2,682
Depreciation 754 334 150 155 147
Non-recurring items 4,869 - - - -
----------- ----------- ----------- ----------- -----------
10,955 4,153 4,452 5,141 4,749
----------- ----------- ----------- ----------- -----------
Operating income (loss) (6,361) (434) (751) (755) (161)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Minority interest in affiliates, net 166 (62) (102) (54) (23)
Equity in earnings of affiliates (163) (20) 349 425 502
Interest expense (1,046) (462) (307) (224) (231)
Gain on sale of assets 61 422 - - -
Other, net 6 107 6 92 (110)
----------- ----------- ----------- ----------- -----------
(976) (15) (54) 239 138
----------- ----------- ----------- ----------- -----------
Loss before income taxes (7,337) (449) (805) (516) (23)
Benefit for income taxes 175 75 333 52 66
----------- ----------- ----------- ----------- -----------
Net income (loss) from continuing operations (7,162) (374) (472) (464) 43
Income (loss) from discontinued operations, net
of tax and minority interest (65) 99 649 218 174
Gain on disposal of discontinued operations,
net of tax and minority interest 276 - 1,205 - -
----------- ----------- ----------- ----------- -----------
Income before extraordinary item and
cumulative effect of a change in accounting
principle (6,951) (275) 1,382 (246) 217
Extraordinary gain on forgiveness of debt,
net of tax and minority interest 337 - - - -
Cumulative effect of a change in accounting
principle, net of tax and minority interest (305) - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (6,919) $ (275) $ 1,382 $ (246) $ 217
=========== =========== =========== =========== ===========
</TABLE>
II-3
<PAGE> 13
Item 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
(In Thousands, Except Share Data)
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per share data - income (loss)
Basic:
Income (loss) from continuing operations $ (1.18) $ (0.06) $ (0.08) $ (0.08) $ 0.01
Income (loss) from discontinued operations 0.04 0.02 0.30 0.04 0.03
Extraordinary item 0.01 -- -- -- --
Cumulative effect of a change in accounting
principle (0.01) -- -- -- --
------------- ------------ ------------ ------------ ----------
$ (1.14) $ (0.04) $ 0.22 $ (0.04) $ 0.04
============= ============ ============ ============ ==========
Diluted:
Income (loss) from continuing operations $ (1.18) $ (0.06) $ (0.09) $ (0.08) $ 0.01
Income (loss) from discontinued operations 0.04 0.02 0.30 0.04 0.03
Extraordinary item 0.01 -- -- -- --
Cumulative effect of a change in accounting
principle (0.01) -- -- -- --
------------- ------------ ------------ ------------ ----------
$ (1.14) $ (0.04) $ 0.21 $ (0.04) $ 0.04
============= ============ ============ ============ ==========
Weighted average shares
Basic 6,059,464 6,113,646 6,224,241 5,825,686 6, 131,770
Diluted 6,059,464 6,113,646 6,916,241 5,825,686 6, 131,770
BALANCE SHEET DATA (at year end)
Working capital (deficiency) $ (7,941) $ 476 $ 2,526 $ (1,195) $ (3,887)
Total assets 19,178 20,218 17,507 19,910 19,394
Long-term debt and lease obligations, net of
current portion 9,324 11,014 6,034 9,084 6,432
Stockholders' equity (deficit) (1,353) 5,520 6,045 4,742 4,543
</TABLE>
NOTE: The selected financial data has been restated for discontinued operations
(see Note 2B 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>
<CAPTION>
SUPPLEMENTAL INFORMATION
<S> <C> <C> <C> <C> <C>
Revenues - consolidated, as above $ 4,594 $ 3,719 $ 3,701 $ 4,386 $ 4,588
Revenues - unconsolidated entities 7,625 7,204 5,667 4,218 4,087
------------- ------------ ------------ ------------ ----------
Combined revenues from continuing operations 12,219 10,923 9,368 8,604 8,675
Revenues from discontinued operations 3,925 3,894 13,429 13,148 12,605
------------- ------------ ------------ ------------ ----------
Combined revenues $16,144 $14,817 $22,797 $21,752 $21,280
============= ============ ============ ============ ==========
</TABLE>
NOTE: Reference should be made to the Notes to the Financial Statements herein.
II-4
<PAGE> 14
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.
<TABLE>
<CAPTION>
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
-----------------------------------------
1999 1998 1997
---- ---- - ----
OPERATIONS (In thousands, except per share data)
----------
<S> <C> <C> <C>
Revenues:
Net sales $ - $ 1,092 $ 2,435
Service income 4,594 2,627 1,266
----------- --------- ---------
Total revenues $ 4,594 $ 3,719 $ 3,701
=========== ========= =========
Operating income (loss) $ (6,361) $ (434) $ (751)
Percent of total revenues (74.7) (5.8) 5.0
Net loss from continuing
operations $ (7,162) $ (374) $ (472)
Net income (loss) from
discontinued operations (65) 99 649
Gain on disposal of
discontinued operations 276 - 1,205
Extraordinary gain on
forgiveness of debt 337 - -
Cumulative effect of a change
in accounting principle (305) - -
---------- --------- ---------
Net income (loss) $ (6,919) $ (275) $ 1,382
Percent of total revenues (81.2) (3.6) 8.1
</TABLE>
II-5
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
OPERATIONS (In thousands, except per share data)
----------
<S> <C> <C> <C>
Per share data -income (loss)
Basic:
Income (loss) from
continuing operations $ (1.18) $ (0.06) $ (0.08)
Income (loss) from
discontinued operations 0.04 0.02 0.30
Extraordinary item 0.01
Cumulative effect of a
change in accounting
principle (0.01)
---------- ---------- ----------
$ (1.14) $ (0.04) $ 0.22
========== ========== ==========
Diluted:
Income (loss) from
continuing operations $ (1.18) $ (0.06) $ (0.09)
Income (loss) from
discontinued operations 0.04 0.02 0.30
Extraordinary item 0.01
Cumulative effect of a
change in accounting
principle (0.01)
---------- ---------- ----------
$ (1.14) $ (0.04) $ 0.21
========== ========== ==========
NOTE: Reference should be made to the Notes to Consolidated Financial Statements herein.
</TABLE>
FINANCIAL CONDITION
Management has been focusing the Company on an aggressive
expansion of its Diagnostic business, nuclear medicine and
advanced imaging services, including the opening of a center
featuring the only Positive Emission Tomography ("PET")
technology in central Ohio. During this expansion, the
Company's revenues and profitability have been adversely
affected by the trend in the healthcare industry toward cost
containment, governmental constraints and reductions in rates
which have put downward pressure on revenue. Additionally, the
Company's expansion, through a minority interest in radiation
oncology business, proved to be costly both from a cash and
profitability perspective. Such venture is currently under
review for possible sale or "turn-key" lease.
The Company, through a subsidiary, opened in June 1999 its
Women's Health Center on Kenny Road. This 7,500 square foot
center focuses on women's health and imaging services and
includes an outpatient surgical suite for breast surgery
expected to open in fourth quarter 2000. Management believes
that the new centers, including the Fall 2000 opening of a
Cyclotron center, with a partner, (providing timely isotopes
for the PET) should produce increased revenues that lead to an
increase in operating earnings.
The Company sold its remaining nursing home on November 30,
1999.
II-6
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
-------------------------------
As discussed in Note 9, the Company has approximately
$8,240,000 in net operating loss carryovers available for
Federal income tax purposes. Such losses expire in years
commencing with 2006. Management has considered the need for a
valuation allowance (addressing the potential realizability),
related to the deferred tax assets. As noted herein and in
Note 1, the Company has incurred significant losses and
negative cash flow. As a significant portion of the deferred
tax asset relates to net operating loss carryforwards, a
valuation allowance was recorded as the realization of the
deferred tax assets were not assessed as more likely than not.
Additionally, management believes that the deferred tax
liabilities will be recognized and offset by the existing
deferred tax assets prior to the expiration of the net
operating loss carryforwards in 2014.
As further discussed in Note 1, the Company's continuation as
a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms of its financing agreements,
to obtain additional financing or refinancing as may be
required, and ultimately to attain profitability. The Company
is also actively pursuing additional equity financing through
discussions with potential business affiliations, vendors
and/or customers possessing related technological and/or
marketing capabilities that can help it develop the new
markets for its currently available technology as well as its
new cyclotron venture, with a partner, scheduled for the Fall
of 2000.
Working capital decreased approximately $8,417,000 from
$476,000 at December 31, 1998 to a deficit of $7,941,000 at
December 31, 1999. Current assets decreased approximately
$584,000 due mostly from decreases in cash and restricted
cash, notes receivable ($230,000), and miscellaneous
receivables ($962,000) offset by accounts receivable trade
increases ($831,000). 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 (see Note 4). The
increase in accounts receivable is attributable to the
increases in receivables at the new diagnostic centers.
Current liabilities increased approximately $7,833,000 due
primarily to increases in long-term debt ($5,394,000) as a
result of reclassifications (see Note 7), accounts payable
($218,000), taxes, other than federal income taxes
($1,338,000), other accrued liabilities ($532,000) and notes
payable - officer ($225,000). Such increases were a result of
the expansion of facilities, operating losses and the funding
of the radiation oncology business which is currently under
review for a possible "turn-key" sale involving the entity in
which the Company owns a minority interest.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity remains poor with a working capital
deficit of approximately $7,941,000 at December 31, 1999. In
order to address its liquidity needs during the year 2000, the
Company has undertaken a program to achieve a strategic
alliance with a major healthcare provider that would combine
utilization of its current facilities as well as achieve a
customer relationship for its new Cyclotron venture scheduled
for opening in the Fall of 2000 (with a partner currently in
the business, but not in Central Ohio). Additionally, the
Company is exploring financing packages that would, along with
the cooperation or repayment of current bond holders, provide
funds through the utilization of accounts receivable.
Separately, the Company is considering the possible sale of
certain centers involving the possible provision of a
"turn-key" sale or lease of its radiation oncology facility.
Although the Company is working to achieve one or more of the
aforementioned transactions in the near future, there can be
no assurance of the success of any of the possible
transactions.
II-7
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
-------------------------------------------
It should be further noted that as a result of the filing of
Chapter XI by the tenant of the Company's New Jersey facility
(formerly utilized by the Division that sold its assets to the
tenant), the Company has been seeking a new tenant or tenants
while satisfying a short-term "interest-only" arrangement with
the bank mortgage holder. A tenant for approximately 40% of
the space has been approved by the bank and a lease is
expected to be executed upon the prospective tenant's
contracting for the sale of its existing smaller facility.
Although it is anticipated that additional tenants will be
secured for the remainder of the property upon the initial
tenant's completion of approximately $200,000 of improvements,
no assurances can be secured that there will be success in the
completion of this project.
The Company, through a limited liability affiliate, has
committed to the purchase of a cyclotron (approximately
$1,500,000) which is being financed by a bank (through the
relationship of its limited liability partner).
Cash decreased approximately $478,000 during the year ended
December 31, 1999. Cash flow used in investing activities was
approximately $21,000 as compared to approximately $938,000
provided in the previous year. Significant utilization
occurred in advances to affiliates, net ($1,305,000),
increases to restricted cash ($230,000) and capital
expenditures ($533,000) offset primarily by collections on
sales of nursing home assets ($1,030,000), reductions in
amounts due from related parties and former affiliates
($402,000) and notes receivable ($231,000) as well as the
proceeds from the sale of property, plant and equipment and
investments ($295,000) and marketable securities ($90,000).
Net cash of approximately $175,000 was provided by financing
activities. This was achieved primarily through proceeds on
long-term borrowings ($871,000) and borrowings from an
officer, net ($225,000) offset by principal payments on
long-term borrowings ($872,000) and purchase of treasury stock
($47,000). There was a net use of funds by operating
activities of approximately $632,000. The net loss of
approximately $6,919,000 was offset primarily by amortization
and depreciation ($768,000) and increases to accounts payable
($292,000), accrued expenses ($1,848,000), asset impairment
reserve ($2,082,000, see Note 12A) and forgiveness of
affiliate's debt ($1,745,000, see Note11I).
During October 1998, the Company, along with a partner,
completed construction of a major 31,000 square feet,
two-building center including radiology, nuclear medicine,
cytology, radiation therapy, Positron Emission Tomography (the
first PET scanner in Central Ohio), and a therapy and rehab
center. A subsidiary of the Company has a relationship of a
22-1/2% interest and management control and responsibility in
the radiation therapy, and 100% ownership in the radiology,
PET, and nuclear. In addition, the Company, through a
subsidiary, has opened its Women's Health Center in June of
1999, which has a focus on women's health and imaging services
and includes an outpatient surgical suite for breast surgery
expected to open in the fourth quarter 2000.
Management believes that, despite the financial hurdles and
funding uncertainties going forward, it is exploring various
opportunities that, if successfully funded and executed, could
significantly improve operating results, but no assurance can
be given. The continued support of the Company's vendors,
customers, lenders, stockholders and employees will continue
to be key to the Company's future success. Other than as
indicated above there are no further material commitments for
capital expenditures.
II-8
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
---------
A potential problem existed for all companies that relied on
computers as the year 2000 approached. The "Year 2000" problem
is the result of the past practice in the computer industry of
using two digits rather that four to identify the applicable
year. The Company addressed its Year 2000 compliance needs by
implementing a new accounting software and other necessary
applications. The Company experienced no internal problems or
problems with third parties in regards to the "Year 2000"
problem. The Company spent approximately $45,000 on software
and hardware to ensure Year 2000 compliance.
The Company's payroll system is currently not Year 2000
compliant. Payroll is currently being processed by its
previously existing software until such time as the payroll
system associated to its other new software can be implemented
(expected to be January 1, 2001). No problems have occurred as
a result of this continuation of the existing software.
RESULTS OF OPERATIONS 1999-1998
-------------------------------
It should be noted that the following analysis reflects the
discontinuation of the nursing home operations.
Consolidated revenues from operations for the year ended
December 31, 1999 increased approximately $875,000 or 23.5%
from the previous year. Net sales decreased $1,091,000 or 100%
while service revenues increased $1,966,000 or 74.8% from the
comparable period in 1998. The decline in net sales is due to
the sale of the remaining pharmacy in 1998 (sold in December)
while the service revenues increase is due mostly to: the
opening of two new diagnostic centers during the prior year,
one in February and the other in October; opening of the
Women's Health Center in June 1999; and increases to equipment
at the existing centers.
Cost of sales decreased approximately $837,000 or 100% for the
year as compared to 1998, due to the 1998 sale of the
Company's last remaining pharmacy.
Selling, general and administrative expenses increased
approximately $2,350,000 or 78.8% for the year ended December
31, 1999 from the comparable period in 1998. The increase is
mostly due to increases in expenses of the new Granville and
Jasonway diagnostic centers, the new Woman's Center. 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,
1999. However, management anticipates each of the centers,
upon reaching its operating goals, to contribute profits to
the Company's results of operations.
As a result of the acquisition of the real estate of two
facilities formerly owned by affiliates (non-consolidated) and
the additional equipment at the new diagnostic centers,
depreciation expense increased approximately $421,000 or
126.2%.
Reference is made to Note 17 concerning approximately
$4,900,000 of non-recurring items of expense in 1999,
including asset impairment ($2,082,000) and write-off of
advances ($1,745,000).
Interest expense for the year ended December 31, 1999
increased approximately $584,000 or 126.6% as compared to the
same period a year ago. The increase is mostly due to the debt
from the mortgages on two facilities acquired from
non-consolidated affiliates and the interest expense on
additional equipment at the new diagnostic centers.
II-9
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS 1998-1997
-------------------------------
The analysis below appears in its original context from the
prior year report on Form 10-K. There have been no changes
reflected as a result of the 1999 reclassification of
discontinued operations.
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 $,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 margins 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 for 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.
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 and interest rates on certain
variable rate mortgages.
II-10
<PAGE> 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(CONTINUED)
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, 1999, the contract
amount of foreign currency forwards was $4,128,000 with an
average maturity of six months. The deferred loss on such
contracts at December 31, 1999 was approximately $541,000. A
10% fluctuation in exchange rates for these currencies would
change the fair value of the contracts by approximately
$413,000. 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 enters into interest rate swap agreements to
manage its exposure to interest rate changes on certain
variable rate mortgages. The swaps involve the exchange of
fixed and variable interest rate payments without exchanging
the notional principle amount. Payments or receipts on the
agreements are recorded as adjustments to interest expense. At
December 31, 1999, the Company had outstanding interest rate
swap agreements denominated in dollars maturing in 2020, with
an aggregate principle amounts approximating $2.5 million.
Subsequent to year end, the interest rate swap agreements were
terminated with the Company receiving approximately $66,000 in
proceeds.
Most of the Company's borrowings have interest rates that are
fixed for the duration of the loan. The Company has one
mortgage that is linked to the prime rate that is not
associated with an interest rate swap agreement. A 1% increase
from the prevailing prime rate at December 31, 1999 would have
an annual effect on interest expense to the Company of
approximately $13,000.
See Note 16 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-11
<PAGE> 21
This page is intentionally left blank
II-12
<PAGE> 22
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 99,558 $ 577,317
Restricted cash (Note 3) 460,813 230,347
Receivables (Note 4):
Trade, net of allowance for doubtful accounts of
$637,000 in 1999 and $227,000 in 1998 1,840,160 1,009,486
Notes receivable - current 6,076 236,353
Miscellaneous 233,627 1,196,056
--------------- ---------------
2,079,863 2,441,895
Prepaid expenses and other current assets 191,916 166,332
--------------- ---------------
Total current assets 2,832,150 3,415,891
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT (NOTES 2, 5 AND 7) 13,234,424 10,680,870
Less accumulated depreciation and amortization (2,414,890) (1,864,752)
--------------- ---------------
10,819,534 8,816,118
--------------- ---------------
INVESTMENTS AND OTHER ASSETS
Securities available for sale, at market - 52,500
Notes and other receivables, net of current portion 64,033 149,201
Notes receivable from officers and related parties (Notes11B & 11C) 735,107 1,013,658
Life insurance premiums receivable (Note 11D) 396,337 1,095,135
Investments and related advances, net (Note 6) 3,440,171 4,663,780
Excess of cost over assets of businesses and subsidiaries
acquired, less accumulated amortization 146,569 340,895
Deferred hedge losses (Note 2) 541,484 40,506
Deferred charges 177,879 558,743
Other assets 25,046 71,807
--------------- ---------------
5,526,626 7,986,225
--------------- ---------------
Total assets $ 19,178,310 $ 20,218,234
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-13
<PAGE> 23
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 1998
---------------------------------------------- ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations classified as current (Note 7) $ 5,881,325 $ 487,535
Accounts payable 1,987,196 1,768,848
Accrued expenses and other liabilities:
Salaries and wages 169,427 142,862
Taxes, other than federal income taxes 1,586,292 248,041
Interest 219,397 120,921
Other 704,127 171,937
Note payable - officer (Note 11F) 225,000 -
--------------- ---------------
Total current liabilities 10,772,764 2,940,144
--------------- ---------------
LONG-TERM OBLIGATIONS LESS AMOUNTS
CLASSIFIED AS CURRENT (NOTE 7) 9,324,236 11,014,477
--------------- ---------------
DEFERRED INCOME TAXES (NOTE 9) - 132,300
--------------- ---------------
Total liabilities 20,097,000 14,086,921
--------------- ---------------
MINORITY INTERESTS 433,900 611,390
--------------- ---------------
CONTINGENCIES AND COMMITMENTS (NOTES 6, 7, 8 AND 12)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 1 AND 10)
Preferred stock, $10 stated value, authorized 500,000
shares, issued, none - -
Common stock, $.01 par, authorized 12,000,000 shares;
issued 8,280,807 and 8,248,480 shares in 1999 and 1998 82,808 82,485
Capital in excess of par 10,261,735 10,260,927
Unrealized losses on securities available for sale,
net of tax - (83,709)
Retained deficit (8,931,297) (2,012,237)
--------------- ---------------
1,413,246 8,247,466
Treasury stock, at cost, 2,211,451 shares in 1999 and
2,179,301 shares in 1998 (2,765,836) (2,727,543)
--------------- ---------------
(1,352,590) 5,519,923
--------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 19,178,310 $ 20,218,234
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-14
<PAGE> 24
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- - ----
<S> <C> <C> <C>
REVENUES
Net sales $ - $ 1,091,351 $ 2,435,334
Service income 4,593,619 2,627,286 1,266,293
---------------- ---------------- ----------------
4,593,619 3,718,637 3,701,627
---------------- ---------------- ----------------
COSTS AND EXPENSES
Cost of sales - 836,899 1,820,352
Selling, general and administrative expenses 5,331,646 2,982,032 2,481,982
Depreciation 753,863 333,344 150,134
Non-recurring items (Note 17) 4,869,579 - -
---------------- ---------------- ----------------
10,955,088 4,152,275 4,452,468
---------------- ---------------- ----------------
OPERATING LOSS (6,361,469) (433,638) (750,841)
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Minority interests in affiliates, net of tax 165,728 (62,288) (102,393)
Equity in earnings (losses) of affiliates (Note 6) (163,483) (20,100) 348,206
Interest expense, net (Notes 4 and 7) (1,045,843) (461,537) (307,344)
Gain on sale of assets (Notes 2C and 7) 60,752 421,807 -
Other, net 6,632 106,762 6,045
---------------- ---------------- ----------------
(976,214) (15,356) (55,486)
---------------- ---------------- ----------------
LOSS BEFORE INCOME TAXES (7,337,683) (448,994) (806,327)
INCOME TAX BENEFIT (NOTE 9) 175,400 74,909 333,500
---------------- ---------------- ----------------
NET LOSS FROM CONTINUING
OPERATIONS (7,162,283) (374,085) (472,827)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAX AND
MINORITY INTEREST (NOTE 2B) (64,727) 99,331 649,295
GAIN ON DISPOSAL OF DISCONTINUED
OPERATIONS, NET OF TAX AND
MINORITY INTEREST (NOTE 2B) 275,774 - 1,205,145
---------------- ---------------- ----------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE (6,951,236) (274,754) 1,381,613
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-15
<PAGE> 25
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
EXTRAORDINARY GAIN ON
FORGIVENESS OF DEBT, NET OF
TAX AND MINORITY INTEREST (NOTES 5, 6 AND 17) 337,088 - -
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
AND MINORITY INTEREST (NOTE 18) (304,912) - -
------------- ----------- ------------
NET INCOME (LOSS) $ (6,919,060) $ (274,754) $ 1,381,613
============= =========== ============
INCOME (LOSS) PER COMMON SHARE (NOTE 2)
Basic:
Income (loss) from continuing operations $ (1.18) $ (0.06) $ (0.08)
Income (loss) from discontinued operations 0.04 0.02 0.30
Extraordinary item 0.01 - -
Cumulative effect of a change in accounting principle (0.01) - -
------------- ----------- ------------
$ (1.14) $ (0.04) $ 0.22
============= =========== ============
Diluted:
Income (loss) from continuing operations $ (1.18) $ (0.06) $ (0.09)
Income (loss) from discontinued operations 0.04 0.02 0.30
Extraordinary item 0.01 - -
Cumulative effect of a change in accounting principle (0.01) - -
------------- ----------- ------------
$ (1.14) $ (0.04) $ 0.21
============= =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 6,059,464 6,113,646 6,224,241
============= =========== ============
Diluted 6,059,464 6,113,646 6,916,241
============= =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-16
<PAGE> 26
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
1999 1998 1997
---- ---- ----
NET INCOME (LOSS) $ (6,919,060) $ (274,754) $ 1,381,613
UNREALIZED INCOME (LOSS) ON
SECURITIES AVAILABLE FOR SALE,
NET OF TAX 24,549 (83,709) -
RECLASSIFICATION ADJUSTMENT
FOR SECURITIES LOSSES INCLUDED
IN NET LOSS, NET OF TAX 59,160 - -
------------- ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (6,835,351) $ (358,463) $ 1,381,613
============= ============ ============
The accompanying notes are an integral part of the financial statements.
II-17
<PAGE> 27
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
<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, 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 1,381,613 1,381,613
------- ----------- --------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 82,485 10,244,805 (1,737,483) (2,544,681) 6,045,126
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
Shares contributed to Retirement Plan
(7,850 shares) 444 9,199 9,643
Stock options exercised by common stock
exchanging (31,327 shares, net) 313 (313)
Stock options exercised for cash (1,000 shares) 10 677 687
Treasury stock acquired (39,500 shares) (47,492) (47,492)
Reversal of unrealized loss on investments
available for sale due to sale of investment 83,709 83,709
Net loss (6,919,060) (6,919,060)
------- ------------ --------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $82,808 $ 10,261,735 $ - $(8,931,297) $(2,765,836) $(1,352,590)
======= ============ ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-18
<PAGE> 28
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,919,060) $ (274,754) $ 1,381,613
--------------- -------------- --------------
Adjustments required to reconcile net income
(loss) to net cash provided by operating
activities:
(Income) loss from discontinued operations 67,553 (105,815) (996,078)
(Gain) on sale of discontinued operations (275,774) - (1,778,007)
Amortization, depreciation and other, net 768,479 370,383 140,591
Provision for losses on notes and accounts
receivable 203,643 57,344 46,193
Provision for deferred income taxes (132,300) (87,200) 516,300
(Gain) loss on sale of other assets (60,752) (418,355) (99,038)
Minority interest in earnings (losses) of (163,483) 68,772 128,038
affiliates
Equity in (earnings) losses of affiliates 280,487 20,100 (348,206)
Extraordinary (gain) on debt forgiveness (392,556) - -
Cumulative effect of accounting change 238,082 - -
Asset impairment reserve 2,081,197 - -
Provision for losses on receivable due from
related parties 418,563 - -
Life insurance reserve 321,500 - -
Forgiveness of debt to affiliates 1,744,694 - -
Changes in assets and liabilities:
Receivables:
Sale (purchase) of receivables - - (269,176)
Other changes (608,905) (665,926) 902,484
Prepaid expenses and other current assets (7,865) 101,484 274,392
Accounts payable 292,077 (307,078) 310,640
Accrued expenses and other liabilities 1,847,890 127,811 (736,937)
Federal income taxes payable - (40,000) 40,000
Deferred charges and other (522,544) (55,740) 110,967
--------------- -------------- --------------
Cash provided by (utilized in) continuing
operations (819,074) (1,208,974) (376,224)
Cash provided by (utilized in) discontinued
operations 187,262 38,509 (538,678)
--------------- -------------- --------------
Net cash used in operating activities (631,812) (1,170,465) 914,902
--------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-19
<PAGE> 29
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds (purchase) of marketable securities 89,748 (179,309) -
Investment and advances to affiliates, net (1,305,309) (1,661,349) (1,892,782)
Collection on sale of nursing homes assets 1,030,073 2,923,794 750,000
Proceeds from sale of other property, plant and
equipment and investments 294,811 425,000 115,500
Decrease (increase) in notes receivable 231,153 (102,936) (170,911)
Disbursements to related parties and
former affiliates, net 402,032 (145,880) (62,669)
Deposit to restricted cash (230,466) (9,227) (104,882)
Capital expenditures (532,626) (312,460) (446,027)
---------- ---------- ----------
Net cash provided by (used) in investing activities (20,584) 937,633 (1,811,771)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITES
Distributions to limited partners, net - - 143,842
Purchase of common stock of subsidiary (3,000) - (85,730)
Proceeds from sale of treasury stock - 264,991 -
Treasury stock purchased (47,492) (443,547) (92,350)
Proceeds from officer obligation 446,000 50,000 90,000
Principal payments of officer obligation (221,000) (50,000) (145,000)
Proceeds from warrants and options exercised 687 - 4,375
Principal payments on long-term obligations (871,770) (442,706) (666,130)
Proceeds from borrowing on long-term obligations 871,212 806,302 3,604,934
Net payments to securitization program - - (392,287)
---------- ---------- ----------
Net cash provided by financing activities 174,637 185,040 2,461,654
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (477,759) (47,792) (265,019)
CASH - BEGINNING OF PERIOD 577,317 625,109 890,128
---------- ---------- ----------
CASH - END OF PERIOD $ 99,558 $ 577,317 $ 625,109
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest, net of interest income $ 991,272 $ 336,297 $ 917,105
Income taxes paid (received) $ (35,611) $ 95,037 $ 43,816
Supplemental Disclosures of Noncash
Investing and Financing Activity (Note 15)
</TABLE>
The accompanying notes are an integral part of the financial statements.
II-20
<PAGE> 30
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS CONTINUATION
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. As shown in the financial statements
during the years ended December 31, 1999 and 1998, the Company
incurred losses of $6,919,000 and $275,000, respectively, and
has classified a significant portion of its debt as current
for the year ended December 31, 1999. These factors among
others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments
relating to the recoverability and classification of assets
that might be necessary should the Company be unable to
continue as a going concern.
Management has been focusing the Company on an aggressive
expansion of its diagnostic imaging services, including the
opening of a center featuring the only Positive Emission
Tomography ("PET") technology in central Ohio. During this
expansion, the Company's revenues and profitability have been
adversely affected by the trend in the healthcare industry
toward cost containment, governmental constraints and
reductions in rates which have put downward pressure on
revenue. Additionally, the Company's expansion, through a
minority interest in a radiation oncology business, proved to
be costly both from a cash and profitability perspective. The
continuity of such venture is currently under review for
possible sale or "turn-key" lease.
The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its
financing agreements, to obtain additional financing or
refinancing as may be required, and ultimately to attain
profitability. The Company is also actively pursuing
additional equity financing through discussions with business
affiliations, vendors and/or customers possessing related
technological and/or marketing capabilities that can help it
develop the new markets for its currently available technology
as well as its new cyclotron venture, with a partner,
scheduled for the Fall of 2000.
NOTE 2. 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 Corporation, its
wholly-owned subsidiaries and the majority-owned and
controlled subsidiary, Wendt-Bristol Diagnostics Company
(WBDC), all of which are consolidated herein and referred to
as the "Company". The Company through a wholly-owned
subsidiary owns approximately 86% of WBDC at December 31,
1999, 1998 and 1997. 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
6).
II-21
<PAGE> 31
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
B. DISCONTINUED OPERATIONS
-----------------------
On December 31, 1997, the Company sold all of the operating
assets of two of its three nursing homes for a purchase price
of $9.9 million.
On November 30, 1999, the Company sold the operating assets of
its remaining nursing home for a purchase price of $1.15
million.
Components of amounts reflected in the "Consolidated Statement
of Operations" and "Consolidated Balance Sheets" as
discontinued operations are as follows:
<TABLE>
<CAPTION>
(in 000's)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income Statement Data (1)
-------------------------
Revenues $ 3,925 $ 3,894 $ 13,429
Operating income (loss) (93) (11) 1,612
Gain on disposal 276 - 1,778
Net income 208 106 2,774
</TABLE>
<TABLE>
<CAPTION>
(in 000's)
1999 1998
---- ----
<S> <C> <C>
Balance Sheet Data
------------------
Current assets $ 808 $ 956
Property, plant and equipment - 313
Other assets 1 67
Current liabilities (1,849) (1,519)
Long-term liabilities - (37)
Advances to affiliates 7,101 6,073
-------- --------
Net assets 6,061 5,853
Less: advances eliminated in
consolidation (7,275) (6,246)
-------- --------
Net liabilities of discontinued
operations $ (1,214) $ (393)
======== ========
(1) Income statement data is shown gross (no minority interest or income taxes have
been deducted from these amounts)
</TABLE>
C. ACQUISITIONS AND DISPOSITIONS OF PARTNERSHIP INTERESTS OR
OWNERSHIP INTERESTS
---------------------------------------------------------
During December 1996, WBDC formed Wendt-Bristol Crosswoods,
Ltd. a limited liability company ("LLC") in which the Company
has a 50% membership interest. Operations of this diagnostics
center began in January 1997 with an open MRI and was expanded
to include helical CT and additional modalities.
II-22
<PAGE> 32
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
C. ACQUISITIONS AND DISPOSITIONS OF PARTNERSHIP INTERESTS OR
OWNERSHIP INTERESTS (CONTINUED)
---------------------------------------------------------
During 1997, WBDC acquired a 22.5% membership interest in
Wendt-Bristol at Park Oncology Center, Ltd. (an 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. In October 1998, operations were added at a second
facility which was closed in June 2000.
During 1997, WBDC acquired a 50% membership interest in
Jasonway, Ltd. (an 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, WBDC sold its 50% membership 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 services. Loss from operations approximated $91,000 for
the year ended December 31, 1997, 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.
During 2000, WBDC formed Positron Isotopes, LLC, a limited
liability company, in which the Company currently has a 50%
membership interest. Operations of a manufacturing facility
for radioactive isotopes is expected to begin in fourth
quarter 2000. The operations will be in a building adjacent to
Jasonway Diagnostic Center.
D. 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 1999, 1998 or 1997.
E. 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.
F. ACCOUNTS RECEIVABLE
-------------------
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-23
<PAGE> 33
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(CONTINUED)
F. ACCOUNTS RECEIVABLE (CONTINUED)
-------------------------------
A significant portion of the income that was 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.
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 and 1997. The Company
recognized a charge to income for an impairment adjustment of
approximately $1,751,000 for the year ended December 31, 1999
(see Notes 5 and 12A).
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 a
nursing home to reduce the gain on the sale of the nursing
homes. Amortization expense excluding this one-time adjustment
for the years ended December 31, 1999, 1998, and 1997,
approximated $3,500, $14,500 and $28,400, respectively.
Accumulated amortization at December 31, 1999, 1998 and 1997,
was $46,300, $166,200, and $151,700, respectively. Goodwill
consists of an amount applicable to the manufacturing real
estate (see Note 17 for impairment adjustment) 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. The Company recognized a charge to
income for an impairment of goodwill associated with the
manufacturing real estate of approximately $185,000 for the
year ended December 31, 1999 (see Notes 5, 12A and 17)
II-24
<PAGE> 34
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. 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. Effective January
1, 1999, the Company changed its method of accounting for
start-up including staff training and opening new facilities
(see Note 18). Additionally, the rent adjustment was charged
to expense in 1999 (see Notes 5, 12A and 17).
J. ESTIMATES
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
K. INCOME (LOSS) PER SHARE
-----------------------
Per share amounts were computed using the weighted average
number of shares outstanding during each period for basic
which was adjusted for the effect of dilutive potential common
shares in the computation of diluted EPS. (See Note 10)
L. INCOME TAXES
------------
The Company utilizes the liability method of accounting for
income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income taxes, and are measured using the
enacted tax rates and laws that will be in effect or expected
to continue in effect when the differences are expected to
reverse. (See Note 9)
M. FINANCIAL INSTRUMENTS AND FAIR VALUE
------------------------------------
The estimated fair value of amounts reported in the financial
statements have been determined using available market
information and valuation methodologies, as applicable (see
Note 16).
The Company enters into foreign currency contracts and
interest rate swaps in order to reduce the impact of certain
foreign currency fluctuations and changes in interest rates.
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 (see Note 1O). At
December 31, 1999 and 1998, the Company has deferred
approximately $541,000 and $40,000 on the foreign currency
hedges which would reduce cash outflow if the related debt was
due.
II-25
<PAGE> 35
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. 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. The FASB requires
disclosure for new employee stock options of the impact to the
financial statements of utilizing the intrinsic value versus
the fair value based method (see Note 10).
O. ACCOUNTING PRONOUNCEMENTS FOR 2000 AND LATER
--------------------------------------------
Effective for fiscal years beginning after June 15, 2000, FASB
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities", as amended, 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, 1999 and 1998,
the Company has deferred approximately $541,000 and $40,500 of
losses on the foreign currency hedges ($357,000 and $27,000
net of tax, respectively).
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." The guidance in SAB 101
must be adopted during the fourth quarter of fiscal 2000 and
the effects, if any, are required to be recorded through a
retroactive, cumulative-effect adjustment as of the beginning
of the fiscal year, with a restatement of all prior interim
quarters in the year. Management has not completed its
evaluation of the effects, if any, that SAB 101 will have on
its income statement presentation, operating results, or
financial position.
P. FINANCIAL STATEMENT RESTATEMENT AND RECLASSIFICATIONS
-----------------------------------------------------
Certain prior year amounts have been reclassified to conform
to current year classifications, including the
reclassification to "Discontinued Operations" of the results
of operations of the nursing home segment.
NOTE 3. RESTRICTED CASH
The Company has restricted cash of $460,813 and $230,347 at
December 31, 1999 and 1998, respectively. The amounts in a
bank trust account were $134,563 and $129,044 at December 31,
1999 and 1998, 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 2. Properties and Note 12A.)
At December 31, 1999, the remaining balance of $326,250
represents funds in an escrow account from the State of Ohio
for the November 1999 reimbursement of Medicaid billings for
residents of the nursing home sold on November 30, 1999. The
funds were released from escrow on June 1, 2000. At December
31, 1998, the remaining balance of $101,303 was funds in a
brokerage margin account that was maintained related to the
foreign exchange futures contracts.
II-26
<PAGE> 36
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RECEIVABLES
The following schedule states current receivables by specific
groups as indicated at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Receivables:
Trade (net of allowance for doubtful
accounts) $ 1,840,160 $ 1,009,486
------------- ------------
Notes receivable - current:
Sale of LLC ownership interest (a) - 225,000
Others 6,076 11,353
------------- ------------
Total 6,076 236,353
------------- ------------
Miscellaneous receivables:
Medicare settlements 72,700 151,838
Pharmacy sale (b) - 111,814
Consulting agreement (c) - 251,250
Others - (d) 160,927 681,154
------------- ------------
Total 233,627 1,196,056
------------- ------------
Total current receivables $ 2,079,863 $ 2,441,895
============= ============
</TABLE>
(a) The balance consists of a note receivable from the
sale of a subsidiary's interest in an LLC (see Note
2C) due in June 1999. The amount was paid in full.
(b) The balance consists of the amount due from a third
party pertaining to the pharmacy sold in December
1998 (see Note 2C). The amount was collected in full
in January 1999.
(c) Amount relates to a consulting agreement which was
paid in full in 1999.
(d) The balance consists mostly (approximately $-0- and
$431,000 in 1999 and 1998, 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. The receivable was
collected in full when the remaining nursing home was
sold November 30, 1999.
Total interest income for the years ended December 31, 1999,
1998 and 1997, amounted to approximately $62,000, $240,000,
and $175,000, respectively of which approximately $24,000,
$104,000 and $34,000 has been allocated to discontinued
operations. Interest income is netted against interest expense
in the accompanying Consolidated Statements of Operations. See
Note 11 for related party interest income.
II-27
<PAGE> 37
WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998
and the estimated useful lives used in computing depreciation
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, USEFUL LIVES
------------
1999 1998 (IN YEARS)
---- ---- ----------
<S> <C> <C> <C>
Land and improvements $ 1,252,764 $ 1,209,773 30
Buildings and improvements 5,717,610 3,825,650 3-40
Machinery and equipment 6,264,050 5,645,447 3-14
------------ --------------
13,234,424 10,680,870
Accumulated depreciation
and amortization (2,414,890) (1,864,752)
------------ --------------
$ 10,819,534 $ 8,816,118
============ ==============
</TABLE>
In April 1999, WBDC purchased land and buildings approximating
$3,746,000 at net book value from equity affiliates (see Note
11H).
Included in property, plant and equipment at December 31, 1999
and 1998 are land, buildings and improvements of $2,812,460
and $4,540,556 with accumulated depreciation and amortization
of $1,377,081 and $1,285,373, respectively, leased to the
purchaser of its former manufacturing division. In the fourth
quarter 1999, an asset impairment charge was estimated of
approximately $1,751,000 and recorded in the Consolidated
Statement of Operations (see Note 12A).
Depreciation expense for the years ended December 31, 1999,
1998 and 1997 was $794,452, $375,031, and $359,636,
respectively, of which approximately $40,000, $42,000 and
$209,000 has been allocated to discontinued operations.
NOTE 6. 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 is a 50% member ("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 was a 50% member until
December 31, 1998 when the investment was sold.
Diagnostics LP operates a diagnostic center featuring magnetic
resonance imaging device ("MRI"), CT Scan, Sonography and
other modalities. Crosswoods is a diagnostic center acquired
in January 1997 with an MRI and has expanded 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 in a significant portion of this medical
complex. WBDC sold its interest in Jasonway Partners, Ltd. on
December 31, 1998 (see Note 2C). The second radiation therapy
practice ceased operations in second quarter 2000.
11-28
<PAGE> 38
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EQUITY IN AFFILIATES (CONTINUED)
Audited financial information of the affiliates which are
accounted for by the equity method (See Note 2) is summarized
below:
<TABLE>
<CAPTION>
(in 000's)
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
COMBINED BALANCE SHEETS
Current assets $ 2,365 $ 2,299 $ 2,153
Property, plant and equipment, net of accumulated
depreciation 6,637 10,483 9,568
Other non-current assets 264 705 722
------------- ------------ -----------
Total assets $ 9,266 $ 13,487 $ 12,443
============= ============ ===========
Liabilities $ 7,317 $ 12,416 10,213
Equity 1,948 1,071 2,230
-------------- ------------ -----------
Total liabilities and equity $ 9,266 $ 13,487 $ 12,443
============= ============ ===========
COMBINED STATEMENTS OF OPERATIONS
Service revenues $ 7,625 $ 7,204 $ 5,667
Operating income (loss) (1,221) (649) 580
Cumulative effect of accounting change (Note 18) (427) - -
Extraordinary gain from forgiveness of debt (Note 6) 1,745 - -
Net income (loss) (546) (1,150) 208
</TABLE>
A limited liability company in which the Company had a 50%
membership 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 LCC on December 31, 1998 (see Note 2C).
As a result of the limited liability companies and limited
partnership being taxed as partnerships for Federal income tax
purposes and the C corporation's net losses, with a valuation
allowance for the total deferred tax assets, there is no
provision for income taxes.
Consolidated retained earnings of WBDC represented by
undistributed earnings of these equity affiliates total
$2,008,000 and $1,896,000 at December 31, 1999 and 1998,
respectively. Consolidated retained earnings is greater than
total equity of the affiliates due to income allocations
prescribed by the LLC member and partnership agreements. As
defined in these agreements, WBDC is reinstated for its share
of allocated equity prior to the other parties receiving any
distributions. Management has reviewed its investments and
advances for impairment at December 31, 1999.
II-29
<PAGE> 39
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EQUITY IN AFFILIATES (CONTINUED)
At December 31, 1999 and 1998, the Company has investments and
related advances, net in these equity method affiliates of
approximately $3,294,000 and $4,664,000, respectively. During
1999, 1998 and 1997, the Company has made investments and
advances, net approximating $1,305,000, $1,661,000 and
$1,893,000, respectively. Advances have been made in excess of
amounts required by partnership and other agreements. Total
equity in these affiliates at December 31, 1999 and 1998
approximated $1,948,000 and $1,071,000, respectively.
In fourth quarter 1999, the Company forgave advances to
Oncology approximating $1,745,000. The expense in the
Consolidated Statements of Operations is included in
non-recurring costs (see Note 17). The Company's percentage of
the debt forgiveness based on ownership percentage of 22.5%
totals $392,556 ($337,088 net of minority interest) which has
been classified as an extraordinary gain in the Consolidated
Statement of Operation. The extraordinary item is not tax
effected due to the valuation allowance on deferred tax assets
for the year ended December 31, 1999; therefore, the income
tax effect after the valuation allowance would be zero.
Management utilized SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" which provides that once impairment has
been determined, future cash flows should be present valued
using the loan's effective interest rate. The advances do not
have a stated interest rate. The Company borrowed funds in the
form of bonds to fund the expansion into radiation therapy
with interest rates ranging from 5% to 7%. Management has
discounted estimated future cash flow with an interest rate of
8%. Management has estimated future cash flows assuming a
"turn-key" sale or lease of its radiation oncology facility.
The difference between the outstanding advances to Oncology
and the present valued future cash flows approximated
$1,745,000. At December 31, 1999, the net investment,
including advances, in Oncology approximates $490,000. While
the estimate is based upon management's estimate of cash
flows, there are no firm commitments by third parties at this
time. The amounts the Company will ultimately realize could
differ materially in the near term from the amounts assumed in
estimated future cash flows. As noted above, the debt
forgiveness based on ownership interest for the extraordinary
gain approximated $337,000, net of minority interest, for a
net expense of approximately $1,408,000 to the "Consolidated
Statement of Operations".
Management has determined that this transaction is debt
forgiveness instead of a capital contribution since original
capital contributions were in proportion to each stockholders'
ownership percentage; the Company or any other of the
stockholders were not required to put in additional capital;
and the Company utilized funds from bonds that were to fund
expansion into radiation therapy and other disciplines.
Management has determined the growth and focus of the Company
should be in diagnostic imaging, 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. The radiation therapy
practice in the new facility ceased operations in June 2000.
II-30
<PAGE> 40
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EQUITY IN AFFILIATES (CONTINUED)
The Company has significant advances to these entities in
excess of its proportionate share of equity in the affiliates
and in the total equity of the affiliates. Management believes
that projected operating results in the diagnostic facilities
and estimated cash flows from net rents as discussed above for
the oncology facility will ensure the collectibility of the
advances, as adjusted.
See Note 11E for management fee income received from these
affiliates.
See Note 12B for related debt guarantees.
NOTE 7. LONG-TERM OBLIGATIONS
At December 31, 1999 and 1998, long-term obligations are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<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, inventory and equipment 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 in New Jersey 1,075,380 806,300
Fixed rate mortgages utilizing interest rate swaps, with
bank - interest at 7.6%, payable in monthly installments
including interest through March, 2020 collateralized by
land, real estate and rent assignments 2,513,968 -
Variable rate mortgage - interest at 11.5% and 10.75% at
December 31, 1999 and 1998, respectively, payable in monthly
installments including interest through April, 2001, with
any remaining balance due May 1, 2001,
collateralized by land and real estate 1,325,410 1,433,516
9% to 13% notes payable in monthly
installments including interest, through
February, 2006, collateralized by equipment 5,673,869 4,845,262
</TABLE>
II-31
<PAGE> 41
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
7.75% note with bank due December, 1999 100,000 -
8% note with bank due on demand,
collateralized by accounts receivable and
equipment 100,000 -
------------- ------------
15,205,561 11,502,012
Less: current installments 5,881,325 487,535
------------- ------------
Long-term portion $ 9,324,236 $ 11,014,477
============= ============
</TABLE>
Subsequent to year-end, the Company was notified by two of its
equipment leasing finance companies that the equipment loans
were in default; therefore, the outstanding balance for these
equipment finance companies at December 31, 1999 of $5,137,680
is classified as current in the "Consolidated Balance Sheets".
FIXED RATE MORTGAGES WITH BANK
------------------------------
Debt covenants for the bank mortgages required the Company to
maintain certain financial ratios, restrictions on unfunded
capital expenditures and dividend restrictions. The Company
was in violation of the financial ratios at December 31, 1999.
A waiver was not received from the bank.
Related to the bank mortgages, the Company utilized interest
rate swaps to obtain a fixed rate of 7.6%. The interest rate
swap agreements were terminated in January, 2000 for a gain of
approximately $66,000.
Effective August 20, 2000, the bank modified the payment terms
on the mortgages provide for principal payments of $10,630
plus accrued interest at prime plus .5%. Prime was 8.5% at
December 31, 1999. The outstanding balance at December 31,
1999 has been classified between current and long-term debt in
accordance with the modified agreement.
VARIABLE RATE MORTGAGE
----------------------
In March 2000, the mortgagor provided for interest only
through June 1, 2000 which period may be extended through
September 1, 2000. As the Company complied with all of the
provisions of the modification agreement through June 1, 2000,
the interest only period was extended through September 1,
2000. Management is currently requesting a further extension
of the interest-only period through March, 2001 along with a
two year extension of the term (until April 2003). Although
not yet finalized, the mortgagor has approved a tenant that,
if finalized, would occupy approximately 40% of the building.
5.5% SUBORDINATED CONVERTIBLE BOND AND 5% BONDS
-----------------------------------------------
Beginning February 2, 1997 through December 30, 2001 and March
26, 1997 through February 15, 2000, the 5.5% subordinated
convertible bond and 5% bonds 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-32
<PAGE> 42
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
7% BONDS
--------
Through December 7, 2003, these bonds may be converted into
fully paid shares of the Company's common stock at a
conversion rate of 3.7037 Swiss Francs of principle for one
share of common stock. Total outstanding principle at December
31, 1999 totals 1.5 million Swiss Francs.
OTHER
-----
Aggregate future principal maturities of long-term debt and
capital lease obligations are as follows: 2000 - $5,881,324,
2001 - $2,293,229, 2002 - $3,507,694, 2003 - $1,092,335, and
thereafter - $1,695.
All land and real estate is collateralized by the mortgages
payable.
The Company incurred interest expense in the amount of
$1,080,379, $609,945, and $1,063,017 in 1999, 1998 and 1997,
respectively, of which approximately $14,000, $13,000 and
$619,000 has been allocated to discontinued operations.
COMMITMENTS
-----------
See Commitments and Contingencies Note 12B for debt guarantees
made by the Company for entities which the Company has equity
ownership interests.
NOTE 8. LEASE COMMITMENTS
The Company leases all of the locations (excluding the
Wendt-Bristol Diagnostics Company Women's Health Center) used
in its businesses under leases expiring on dates ranging
through July 2015.
As of December 31, 1999, minimum annual rental commitments
under noncancelable leases amount to:
OPERATING LEASES
2000 $ 695,696
2001 688,484
2002 662,742
2003 656,195
2004 521,821
Thereafter 4,282,990
------------
$ 7,507,928
============
In addition, the Company remains contingently liable for
certain leases on locations that have been sold. These
contingent leases include payments aggregating $26,000 over
the next year.
Rental expense included in the Consolidated Statements of
Operations for the years ended December 31, 1999, 1998 and
1997, was approximately $716,000, $620,000 and $543,000,
respectively, of which approximately $263,000, $303,000 and
$214,000 has been allocated to discontinued operations.
II-33
<PAGE> 43
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES
The Company has recognized a deferred tax liability, a
deferred tax asset and a valuation allowance against the
deferred tax assets. The components of these consolidated
deferred tax items at December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 2,801,700 $ 944,900
Investment tax credit carryforwards 9,500 15,600
Alternative minimum tax credits 64,600 64,600
Bad debt allowance 216,700 98,100
Costs capitalized in connection with
acquisitions net of impairment 17,800 -
adjustments
Related party reserves 142,300 -
Other - 46,400
----------- ----------
3,252,600 1,169,600
Less: valuation allowance 2,345,100 -
----------- ----------
907,500 1,169,600
----------- ----------
Liabilities:
Depreciation and amortization 145,300 251,200
Costs capitalized in connection
with acquisitions - 591,200
Income and expense recognition 762,200 455,000
Other - 4,500
----------- ----------
907,500 1,301,900
----------- ----------
Net deferred tax liability $ - $ 132,300
=========== ==========
</TABLE>
At December 31, 1998 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. For the
year ended December 31, 1998 and 1997, management 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-34
<PAGE> 44
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
For the year ended December 31, 1999, the Company has incurred
significant losses including an impairment adjustment for the
real estate (see Note 12A) that was utilized as part of the
tax planning strategies in prior years for a sale/leaseback
transaction which was estimated to generate a significant
gain. Due to circumstances as discussed in Note 12A, this tax
planning strategy is no longer available. As a significant
portion of the deferred tax asset at December 31, 1999 relates
to net operating loss carryforwards of which approximately
$5.5 million was generated in the current year, a valuation
allowance has been recorded to reduce deferred tax assets net
of deferred tax liabilities to zero. Management believes that
all deferred tax liabilities will be recognized and offset by
the existing deferred tax assets prior to the expiration of
the net operating loss carryforwards in 2014.
Consolidated net operating losses available for tax purposes
at December 31, 1999 are approximately $8,240,000, expiring
$967,000 in 2006, $335,000 in 2008 and $383,000 in 2009,
$1,036,000 in 2013 and $5,517,000 in 2014. Investment tax
credits available for tax purposes at December 31, 1999 are
approximately $9,500 expiring in 2000. In 1997 as a result of
consolidated taxable income the Company was able to utilize
net operating losses of $4,077,000, of which $730,000 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, 1999, 1998 and 1997 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
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (34.0) (34.0) 34.0
Minority interests (0.9) 8.1 2.5
Equity in unconsolidated affiliates (2.1) 2.4 6.7
State and local income taxes, net of federal
tax benefit - (7.5) 1.6
Alternative minimum tax - - 2.3
Tax effect of permanent differences 4.0 (1.8) (4.2)
Valuation allowance 35.7 - (9.1)
Other (5.2) (3.1) 0.1
------- ------- -------
Effective rate (2.5) (35.9) 33.9
======= ======= =======
</TABLE>
The expense (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing Operations
---------------------
Federal:
Current expense $ - $ - $ -
Deferred expense (benefit ) (175,400) (87,200) (337,700)
State and local:
Current expense (benefit) - 12,291 4,200
-------- -------- --------
(175,400) (74,909) (333,500)
-------- -------- --------
</TABLE>
II-35
<PAGE> 45
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discontinued Operations
-----------------------
Federal:
Current expense - - 40,000
Deferred expense (benefit ) - - 854,000
State and local:
Current expense (benefit) 5,000 (29,071) 36,800
--------- -------- ---------
5,000 (29,071) 930,800
--------- -------- ---------
Total
-----
Federal:
Current expense - - 40,000
Deferred expense - (87,200) 516,300
(benefit)
State and local:
Current expense (benefit) - (16,780) 41,000
--------- ---------- ---------
Total tax expense (benefit) $(170,400) $ (103,980) $ 597,300
========= ========== =========
</TABLE>
The principal differences between the income or loss reported
for financial reporting purposes and the income or loss
reported for federal income tax purposes results from (i)
accelerated depreciation methods being utilized for tax
purposes, (ii) inventory capitalization methods required for
tax purposes, (iii) reserving for doubtful accounts
receivable, asset impairments 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.
NOTE 10. 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.
II-36
<PAGE> 46
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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 elected to allow the warrants
to expire on May 1, 1999 and the Series II warrants
to expire on May 1, 2000.
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, 1999, 26,000 options were outstanding to Non-Employee
directors. The annual expense for these Non-Employee directors
using the fair value based method (SFAS No. 123) was
insignificant.
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.
II-37
<PAGE> 47
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
-------------------------
In May, 1996 the Board granted options totaling 130,000 shares
to certain officers and key employees of which 36,000 are
outstanding at December 31, 1999. 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 260,000 are
outstanding at December 31, 1999. 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.
In 1999, 62,000 options were exercised at prices ranging from
$.375 to $.875 per share for total cash proceeds of $687;
61,000 options were exercised in exchange for 29,673 shares
held by the employees/directors as provided for in the Plan.
Additionally, 110,000 options were terminated as the employees
are no longer employed by the Company.
At December 31, 1999 and 1998, options available for grant
were 219,000 and 43,000, respectively.
The Company utilizes the intrinsic value method under APB No.
25 to account for employee stock options. The Company has
utilized the Black Scholes option pricing model for proforma
footnote purposes with the following assumptions used for
grants in all years. Dividend yield of 0%, risk-free interest
rate of 6%, and expected option life of 5 years. Expected
volatility was 70% If the Company had utilized the fair value
based method under FASB No. 123, the impact would not be
significant to the financial statements.
II-38
<PAGE> 48
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
EARNINGS PER SHARE
------------------
The following is a reconciliation of the basic and diluted EPS
for December 31, 1997. As noted below, basic and diluted EPS
are the same for the years ended December 31, 1999 and 1998:
<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, 1999 and 1998, all potential common stock would
be anti-dilutive due to the net loss.
NOTE 11. RELATED PARTY TRANSACTIONS
A. PARTNERSHIP OWNERSHIP
---------------------
Certain officers and directors own, in the aggregate, less
than 6% of the outstanding limited partnership interests of a
limited partnership of which a subsidiary of the Company is
the managing general partner.
II-39
<PAGE> 49
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. 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 bearing
interest at 9% which accrues from July 1, 1996 until paid. The
note is payable in monthly installments, including interest,
of $1,987 from July 1, 1996 through June 1, 2006 with the
balance fully amortized.
The Company 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.
During 1999, MHK Corp. made cash payments on the note
receivable of $40,000 and applied $11,589 of interest expense
payable to one of the owners of MHK Corp. toward the note
receivable. Additionally, MHK Corp. retained cash payments on
various notes receivable due to the Company during 1998, 1999
and 2000 which approximated $180,000. At December 31, 1999,
the total outstanding balance for the note receivable, accrued
interest receivable and advances totals $943,563.
The Company has received collateral interests in certain
assets including assets of a lounge and retail liquor store;
security interest on real estate in Ohio, leases and rents
associated to that property; leasehold interest in a Florida
property leased by MHK Corp. and subleased to a third party;
and a potential gain on the sale/leaseback of real estate
associated with the lounge and liquor store; and reduction of
amounts owed to one of the owners of MHK Corp. and related
parties.
Management has evaluated future cash flows and /or use of
collateral to support the outstanding balances for the note
receivable, accrued interest receivable and advances. At
December 31, 1998 and 1997, management determined a reserve on
the note receivable and advances were not necessary. During
1999, due to changes in certain values of the collateral, the
note not being amortized in accordance with the revised note
schedule, and continued advances in 1999 and 2000, a reserve
of approximately $419,000 has been recorded in the
"Consolidated Statements of Operations" as non-recurring items
which represents the difference between the outstanding
balance at December 31, 1999 and the estimated fair market
value of the underlying collateral. The outstanding balance,
as reserved, at December 31, 1999 totals $525,000.
II-40
<PAGE> 50
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
B. SALE OF ASSETS TO A RELATED PARTY
---------------------------------
During 1999 and 1998, MHK paid $26,000 and $20,000,
respectively, of the total interest due on the notes. As a
result, the Company has not recorded income attributable to
the balance of 1999 and 1998 interest ($27,300 and $43,200,
respectively).
C. NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES
--------------------------------------------------
Interest income totaling $26,000, $20,000 and $68,328 for the
year ended December 31, 1999, 1998 and 1997, respectively, is
included in "interest expense, net". Interest income
receivable totaled $-0- and $1,056 at December 31, 1999 and
1998, respectively, and is included in "miscellaneous
receivables".
At December 31, 1999 and 1998, the President and CFO of the
Company had outstanding advances totaling approximately
$183,000 and $198,000, respectively. The President/CFO 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.
Subsequent to year-end, no payments have been made.
D. LIFE INSURANCE PREMIUMS RECEIVABLE
----------------------------------
The balance sheet includes $396,337, (net of a reserve of
$321,500), and $1,095,135 at December 31, 1999 and 1998
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.
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 $656,000 at December 31, 1999, 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.
Annual premiums for these policies total $107,000, $138,000
and $107,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Net cash surrender value on these policies
approximated $61,500 and $500,000 at December 31, 1999 and
1998, respectively. The reduction in cash surrender value
during 1999 represents loans against the policies totaling
$490,000 which were remitted to the Company by certain
officers as a reduction of the life insurance premiums
receivable. These funds were used for working capital.
II-41
<PAGE> 51
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
D. LIFE INSURANCE PREMIUMS RECEIVABLE (CONTINUED)
----------------------------------------------
Subsequent to year-end, certain of the life insurance policies
were replaced with policies of similar nature without
increases to premiums. The net cash surrender values were
received by the Company.
Management has evaluated the underlying collateral of Company
common stock, in accordance with SFAS No. 114, using the
trading price of its common stock at each year-end activity
subsequent to year-end to reflect any changes in the stock
market. At December 31, 1998 and 1997, a reserve on the life
insurance premiums receivable was not deemed necessary. At
December 31, 1999, the underlying collateral of common stock,
using the trading price of $.625 per share, represented
collateral approximating $418,000 for a collateral deficiency
of approximately $238,000. On August 10, 2000, the Company was
delisted from the American Stock Exchange for non-filing of
Form 10K for the year ended December 31, 1999 with the
Securities and Exchange Commission. As the common stock
subsequent to year-end does not have an available market for
trading, management has determined that a 20% reduction in the
trading price is reasonable for purposes of valuing its common
stock as collateral. The Company's common stock was trading on
April 18, 2000 (the last day of trading) at $.625; therefore,
with a 20% reduction in value, the common stock is valued at
$.50 per share for purposes of valuing collateral. Based on
this revised valuation, a reserve of $321,500 has been
recorded in the "Consolidated Statements of Operations" as
non-recurring items for the year ended December 31, 1999 (see
Note 17). Life insurance premiums receivable, as adjusted for
impairment, total $396,337 at December 31, 1999. Estimated
future cash flows of the underlying collateral utilize
estimates of the Company's ability to engage a market maker
for its common stock and that this new market will approximate
previous prices per share utilizing a 20% discount. The
amounts the Company will ultimately realize could differ
materially in the near term from the amounts assumed in
estimated the underlying collateral.
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 6), is the management agent for three of
the companies. Management fees totaling $696,000, $697,000 and
$491,000 were included in the Consolidated Statements of
Operations as a reduction of selling, general and
administrative expenses for the year ended December 31, 1999,
1998 and 1997, respectively.
F. NOTES PAYABLE TO OFFICER
------------------------
During 1999, an officer of the Company has advanced funds
totaling $446,000. The note is payable on demand and bears
interest at 8%. At December 31, 1999, the balance outstanding
is $225,000. These funds were used for working capital.
Subsequent to year-end, the officer reduced amounts owed by
$10,000 as a payment on the MHK receivable, and assumed
outstanding notes receivable in the approximate amount of
$160,000 (including an equity affiliate note) to further
reduce the note payable. As a result of the aforementioned
payments as well as additional borrowings by the Company, the
current outstanding balance due the officer is approximately
$150,000.
The notes payable are collateralized by 1,017,560 shares of
common stock of WBDC (85.871% of the outstanding shares).
II-42
<PAGE> 52
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
G. EMPLOYMENT AGREEMENTS
---------------------
Subsequent to year-end, the Board of Directors authorized
five-year employment agreements for the Chairman of the Board,
President and Executive Vice President. Effective June 15,
2000, the five-year employment agreements provide for combined
annual salaries approximating $465,000 per year which
represents the current compensation levels for these
employees. The agreements provide that unless terminated for
cause, as defined in the agreement, these officers will be
paid in a lump sum the remaining portion of their five year
compensation package.
H. TRANSFER OF BUILDINGS/DEBT AND RENTAL INCOME
--------------------------------------------
In April 1999, WBDC obtained bank mortgage debt for two
properties for its equity affiliates totaling $2,550,000.
Outstanding debt on these mortgages at December 31, 1999
approximated $2,514,000. The land and buildings ($3,746,000)
net of related outstanding debt of the equity affiliates
($2,990,000) approximated a reduction ($756,000) of
"Investments and related advances, net" on the Consolidated
Balance Sheet. No gain or loss was recognized in these
transactions as the assets were sold at net book value.
Included in property, plant and equipment at December 31, 1999
are land, buildings and improvements of $3,747,163 with
accumulated depreciation of $63,200. The Company has verbal
rental agreements with the equity affiliates.
Rental income approximated $219,000 for the year ended
December 31, 1999.
I. DEBT FORGIVENESS OF EQUITY AFFILIATE
------------------------------------
During 1999, the Company forgave advances to a 22.5% owned
equity affiliate approximating $1,745,000 which is included in
the "Consolidated Statements of Operations" as non-recurring
items (see Note 17). Additionally, the Company's percentage of
the debt forgiveness based on ownership percentage
approximates $393,000 as an extraordinary gain.
NOTE 12. COMMITMENTS AND CONTINGENCIES
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION
-----------------------------------------------
In October 1991, the Company sold substantially all of the
assets (other than real estate) of its manufacturing division
located in New Jersey.
As part of that transaction, the buyer entered into a lease on
the physical facilities. 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.
II-43
<PAGE> 53
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A. REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION (CONTINUED)
-----------------------------------------------------------
During the first quarter of 1999, the Company learned that the
buyer/tenant had vacated the premises. The buyer/tenant
continued to maintain its responsibilities under the lease
including the payment of rent, maintenance of the property and
insurance coverage. At December 31, 1998, management believed
the buyer/tenant would continue to recognize its obligations
under the lease while the buyer/tenant attempted to
consolidate its operations subsequent to several significant
acquisitions. Its options included the possibility of securing
an acceptable sub-tenant or providing a buyer with an offer
acceptable to the Company.
The buyer /tenant continued to meet its obligations under the
lease through October 1999. The Company was notified in
December 1999 that the buyer/tenant had filed for bankruptcy.
Based on the change in circumstances by the tenant filing for
bankruptcy, the Company has re-evaluated the building and
related assets for impairment loss utilizing undiscounted net
cash flows. It is management's intent to find suitable
tenants, therefore, management is using cash flows from rental
income and sale of the building. Utilizing revised fair market
value estimates of the building and related assets by a third
party and other cash flows, an impairment adjustment
approximating $1,751,000 has been recorded in the
"Consolidated Statements of Operations" as a component of
non-recurring items for the year ended December 31, 1999.
Land, buildings and improvements, after the impairment
adjustment, approximates $1,435,000 at December 31, 1999.
Outstanding mortgage debt on the land, building and
improvements approximates $1,325,000 at December 31, 1999.
While the estimate of net cash flows is based on management's
estimate of cash flows, there are no firm commitments by third
parties at this time. The amount the Company will ultimately
realize could differ materially in the near term from the
amounts assumed in estimating future cash flows.
Additionally, goodwill impairment approximating $185,000 was
expensed as non-recurring items as the goodwill related to the
manufacturing division. At December 31, 1999, deferred charges
including a rent adjustment to properly recognize rental
income on the lease manufacturing facility approximating
$85,000 and arbitration costs with the buyer/tenant
approximating $59,000 were expensed as non-recurring items.
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 $23,000, $18,000, and
$56,000 related to the clean-up during the years ended
December 31, 1999, 1998 and 1997, respectively. Costs
attributable to this project, incurred or accrued, have been
capitalized subject to the impairment adjustment at December
31, 1999. 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 $125,000. Refer to Note 3 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 by the end of 2000.
II-44
<PAGE> 54
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. DEBT GUARANTEES
---------------
At December 31, 1999 and 1998, the Company or its subsidiaries
is contingently liable as a guarantor of long-term debt and
capital lease obligations totaling $6,650,000 and $6,822,000,
respectively 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%.
These equity affiliates have been notified subsequent to
year-end by two of its equipment leasing financing companies
that the loans are in default. The Company or its subsidiaries
have guaranteed $3,036,000 of the long-term debt and capital
lease obligations.
C. TAXES, OTHER THAN FEDERAL INCOME TAXES
--------------------------------------
Primarily as a result of delays inherent in collection of
receivables related to newly-approved procedures associated to
the new facilities as well as costs of establishing the new
facilities, the Company or its subsidiaries has outstanding
Federal and state and local payroll tax liabilities
approximating $990,000 and $165,000, respectively on the
Consolidated Balance Sheets at December 31, 1999.
Approximately $155,000 and $33,000, respectively has been
recorded as management's estimates of penalties and interest.
Management believes an acceptable and reasonable payment
schedule will be achieved.
Subsequent to year end, the Company has incurred additional
federal, state and local payroll tax liabilities through June
30, 2000 approximating $408,000 and $150,000, respectively,
which remain unpaid.
On July 10, 2000, the Internal Revenue Service filed federal
tax liens on the Company and certain subsidiaries
approximating $1,327,000 of which $1,100,000 represents
amounts outstanding at December 31, 1999. The federal tax lien
attaches to all property the above mentioned companies
currently own and all property acquired in the future.
D. ACCRUED HEALTH INSURANCE CLAIMS
-------------------------------
The Company is self-funded for health insurance up to a
certain dollar amount per participant in its plan. At December
31, 1999, the Company owes the plan supervisor approximately
$201,000 for claim payments which is accrued in full and
included on the Consolidated Balance Sheets. The Department of
Labor ("DOL") reviewed certain items pertaining to compliance
with Employee Retirement Income Security Act (ERISA) in July
2000. Based on preliminary discussions with the DOL,
management believes an acceptable and reasonable payment
schedule will be achieved.
Subsequent to year end, the Company has incurred additional
health insurance liabilities through June 30, 2000
approximating $16,000 which remain unpaid.
II-45
<PAGE> 55
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
E. LATE CHARGES AND PENALTIES FOR DEBT AND ACCOUNTS PAYABLE
--------------------------------------------------------
Due to cash flow deficiencies, the Company has been assessed
late charges and penalties for long-term debt, taxes and trade
accounts payable. The Company has recorded approximately
$195,000 of these late charges. Additional late charges and
penalties assessed approximating $158,000 have not been
recorded at December 31, 1999. Subsequent to year-end, a
promissory note was signed incorporating $67,000 of late fees
associated with long-term debt. Management intends to
negotiate waivers of the fees and believes that the excess
charges will be waived upon payment.
F. LEGAL PROCEEDINGS
-----------------
Various legal proceedings pertaining to unpaid trade accounts
payable are pending against the Company. The Company has
accrued amounts that management believes are outstanding which
approximate $422,000. If the Company is unsuccessful in
defending its position in these matters and the plaintiff
prevails, additional amounts approximating $133,000 would need
to be accrued and paid.
NOTE 13. INDUSTRY SEGMENT DATA
Industry segment data for years ended December 31, 1999, 1998
and 1997 included in Item 1 ("Industry Segments") of this
report is an integral part of these financial statements. The
nursing home segment was discontinued in December 1999;
therefore, the financial statements have been restated to
reflect the discontinued operations in the Consolidated
Statement of Operations.
NOTE 14. RETIREMENT PLAN
The Company adopted, effective July 1, 1989, a retirement
plan, under Section 401(k) of the Internal Revenue Code,
covering substantially all employees with more than one year
of service. The plan provides for the Company 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 1999, 1998 and 1997, the
Company contributed 7,350, 9,453, and 6,306 shares, and
recorded an expense of $9,643, $11,816 and $9,458,
respectively.
II-46
<PAGE> 56
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITY
<S> <C> <C> <C>
A subsidiary purchased equipment which was financed by
entering into an installment finance agreement:
Increase in equipment cost, net $ 713,522 $ 4,471,090 $ 147,921
Increase in long-term obligations (713,522) (4,471,090) (147,921)
Property, plant and equipment and related debt was
transferred from equity affiliates:
Increase in property, plant and
equipment, net 3,746,163 302,963 --
Increase in debt (2,990,585) (288,496) --
Decrease in investments and related
advances, net (755,578) (14,467) --
Unrealized loss on securities available for sale:
Increase (decrease) in securities held
for sale 126,809 (126,809) --
Decrease (increase) in deferred tax
liability (43,100) 43,100 --
Decrease (increase) in net unrealized
losses on securities available for (83,709) 83,709 --
sale
</TABLE>
II-47
<PAGE> 57
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
- ---- ---- ----
<S> <C> <C> <C>
Two subsidiaries of the Company sold nursing
home assets. Additionally, HUD replacement
reserves are to be returned as part of the
sale.
Increase in notes receivable, current $ - $ - $ 2,923,794
Increase in miscellaneous receivables - - 261,327
Decrease in restricted cash - - (264,287)
Decrease in prepaid expenses - - (11,535)
Decrease in property, plant and
equipment, net - - (7,064,636)
Decrease in excess of cost over assets
of businesses and subsidiaries - - (189,096)
acquired
Decrease in deferred charges and other
assets - - (317,120)
Increase in accrued expenses - - (394,367)
Decrease in debt - - 6,083,927
Gain on sale of nursing home assets,
net of cash proceeds ($750,000) - - (1,028,007)
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)
</TABLE>
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount
at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced
sale or liquidation. Significant differences can arise between
the fair value and carrying amount of financial instruments
that are recognized at historical cost amounts.
The following methods and assumptions were used by the Company
in estimating fair value disclosures for financial
instruments:
- Cash and cash equivalents, trade receivables, certain
other current assets, short-term borrowings and current
maturities of long-term debt: Amounts reported in the
Consolidated Balance Sheets approximate fair value due to
their short maturities.
- Long-term notes receivable including related party and
life insurance premiums receivable: Amounts reported in
the Consolidated Balance Sheets approximate fair value
after reduction for reserves.
II-48
<PAGE> 58
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
- Long-term debt: Amounts reported in the Consolidated
Balance Sheets approximates fair value. Interest rates on
the majority of the debt is fixed; however, debt financed
within the current year approximates interest rates
obtained in previous years due to the relative stability
of the prime rate.
- Interest rate hedges: The fair value of interest rate
hedges reflects the estimated amounts that the Corporation
would receive or pay to terminate the contracts at the
reporting date.
- Foreign currency contracts: The fair value of forward
exchange contracts and options is estimated using prices
established by financial institutions for comparable
instruments. Amounts reported in the Consolidated Balance
Sheets approximates fair value.
The following table sets forth the carrying amounts and fair
values of the Company's financial instruments, except for
those noted above for which carrying amounts approximate fair
values:
<TABLE>
<CAPTION>
In 000's
--------
Assets (Liabilities) December 31, 1999 December 31, 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Derivatives relating to:
Debt $ - $ 66 $ - $ -
</TABLE>
NOTE 17. NON-RECURRING ITEMS AND FOURTH QUARTER ADJUSTMENTS
The Consolidated Statements of Operations for the year ended
December 31, 1999 include non-recurring expenses in the
financial statements approximating $4,870,000, which were
recorded in the fourth quarter 1999. The following summarizes
the items expensed:
<TABLE>
<S> <C>
Asset impairment for building, goodwill and related assets (see Note 12A) $ 2,081,196
Registration statement costs (A) 254,626
Life insurance premium receivable reserve (see Note 11D) 321,500
Investment and related advances, net write-off (see Note 6) 1,744,694
Notes receivable from officers and related parties reserve (see Note 11B) 418,563
Miscellaneous receivable - Medicare reserve (B) 49,000
---------------
$ 4,869,579
===============
</TABLE>
(A) The Company had announced plans to acquire the minority
interest of WBDC and the limited partnership interests of
Diagnostics LP by filing Form S-4's with the Securities and
Exchange Commission. On June 26, 1999, the Company announced
that it was withdrawing the Registration Statements.
II-49
<PAGE> 59
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. NON-RECURRING ITEMS (CONTINUED)
(B) Certain costs were initially disallowed by Medicare for
years 1994 and 1995 relating to the home health care
operations. The Company was contesting these claims based on
advice from legal counsel. Court dates were scheduled for
2000. Management, with advice from legal counsel, has
reassessed the likelihood of collection for these disallowed
costs and has determined that a reserve of 50% was deemed
necessary.
NOTE 18. ACCOUNTING CHANGE
Effective January 1, 1999, the Company changed its method of
accounting for start-up costs to be in compliance with
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities". The change involved expensing these costs as
incurred, rather than capitalizing and subsequently amortizing
such costs. The change in accounting resulted in the write-off
of the Company's costs of $238,083. In addition, entities
accounted for by the equity method have deferred start-up on
their balance sheets approximating $428,000. The Company's
portion of these costs for their ownership percentage totals
$117,005. Total costs expensed in the Consolidated Statement
of Operations total $355,087 (gross). The impact to the
financial statements net of minority interests totals
$304,913. The change in accounting has not been tax effected
in the current year due to a valuation allowance for the
entire deferred tax asset resulting in a current tax effect of
zero.
The pro forma effect on prior years had the new method been
used in the past is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations:
Earnings (loss) per share - basic $ (1.18) $ (1.18) $ (0.06) $ (0.11) $ (0.08) $ (0.11)
Earnings (loss) per share - diluted (1.18) (1.18) (0.06) (0.11) (0.09) (0.09)
Net income (loss):
Earnings (loss) per share - basic (1.14) (1.09) (0.04) (0.10) 0.22 0.19
Earnings (loss) per share - diluted (1.14) (1.09) (0.04) (0.10) 0.21 0.18
</TABLE>
II-50
<PAGE> 60
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 except Marvin D. Kantor,
Sheldon A. Gold and Reed A. Martin serves at the pleasure of
the Board. Messrs. Marvin D. Kantor, Sheldon A. Gold and Reed
A. Martin have entered into 5 year terms (see Item 11).
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITIONS WITH COMPANY
---- --- ------------------------------
<S> <C>
Marvin D. Kantor 71 Chairman of the Board, Chief Executive
Officer and Director
Sheldon A. Gold 57 President, Treasurer, Chief Financial Officer,
Director, member of Audit Committee
Reed A. Martin 46 Executive Vice President, Chief Operating
Officer and Director
Harold T. Kantor 66 Vice Chairman of the Board, Director
Paul H. Levine 59 Director, member of Audit Committee
Gerald M. Penn 63 Director, Vice President of Medical Affairs
(1998)
Clemente Del Ponte 48 Director (resigned June 16, 2000)
David E. Fernie 52 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 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 August 1999, he once again became chief financial and
accounting officer of the Company. 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 and subsequent to
August 1999.
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.
III-1
<PAGE> 61
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(CONTINUED)
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.
Paul H. Levine has been a Director since January, 1990 and
serves on the audit and stock option committee. He is
President of Lifetime Financial Strategies, Inc., a registered
investment advisor. Mr. Levine is a non-practicing attorney
and 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. He resigned from the Board of Directors effective
June 2000 and served until his resignation on June 16, 2000.
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 financial 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, 1999 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> 62
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
EMPLOYMENT AND SEVERANCE AGREEMENT WITH CERTAIN OFFICERS.
Subsequent to year end, the Company has entered into
Employment Agreements with Marvin D. Kantor, Chairman and
Chief Executive Officer; Sheldon A. Gold, President and Chief
Financial Officer, and Reed A. Martin, Executive Vice
President. These Employment Agreements set forth:
(a) the Executives compensation and benefits, the base
compensation of which has been frozen at 1999 levels
for five (5) years;
(b) the Company's right to terminate the Executive for
cause or otherwise;
(c) the amounts to be paid by the Company in the event of
the Executive's termination, death or disability
while rendering services;
(d) the Executive's duty of strict confidence;
(e) the Exectives obligation not to compete for the term
of the agreement plus two (2) years, unless the
Executive terminated his employment for "good reason"
or the employer terminates the Executive other than
for cause; and
(f) the Executive's right to receive severance payments
if he (i) is terminated during the term of the
Employment Agreement other than for cause, or (ii)
voluntarily terminates for defined "good reasons",
including a change of control. Specifically, under
the Employment Agreement they are entitled to
receive their base salary plus fringe benefits for
the balance of the term of their Agreement. A tax
gross-up on excise taxes will also be paid if the
severance pay exceeds the limit imposed by the
Internal Revenue Code. In addition, the Executive
will continue to be eligible for health benefits,
perquisites, and fringe benefits generally made
available to senior executives following his
termination.
The Company also entered into Indemnification Agreements with
each current member of the Board of Directors as well as each
of the Company's executive officers. These Agreements provide
that, to the extent permitted by Delaware law, the Company
will indemnify the director or officer against all expenses,
costs, liabilities and losses (including attorney fees,
judgments, fines and settlements) incurred or suffered by the
director or officer in connection with any suit in which the
director or officer is a party or is otherwise involved as a
result of the individual services as a member of the Board of
Directors or as an officer so long as the individual's conduct
that gave rise to such liability meets certain prescribed
standards.
III-3
<PAGE> 63
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) SARS (#) COMP. ($)**
------------------ ---- ---------- -------- -----------
<S> <C> <C> <C> <C>
Marvin D. Kantor 1999 188,462 * 65,028
Chairman of the Board 1998 152,885 * 65,028
and Chief Executive 1997 140,000 * 65,028
Officer
Sheldon A. Gold 1999 $ 160,000 * $ 23,298
President and Chief 1998 175,384 25,000/0 60,176
Financial Officer 1997 160,000 * 15,532
Reed A. Martin 1999 105,000 * 4,246
Executive Vice 1998 104,519 25,000/0 4,644
President and Chief
Operating Officer
</TABLE>
--------------
* Not applicable
** Includes life insurance premiums paid by the Company for
each of named persons (see Note 11D of the Notes to the
Consolidated Financial Statements herein). For the fiscal year
ended December 31, 1999, the amounts paid by the Company for
the benefit of each of the named persons is:
LIFE
NAME INSURANCE
---- ---------
Marvin D. Kantor $ 65,028
Sheldon A. Gold 23,298
Reed A. Martin 4,246
III-4
<PAGE> 64
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 ($/SH) DATE VALUE ($)
---- ----------- ----------- ------ ---- ---------
None
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 50,000 $43,750 25,000/0 N/A
</TABLE>
All options held by Mr. Gold were exercisable at December 31,
1999. No options were "in-the-money". American Stock Exchange
reported quotations for the Common Stock of the Company on
December 31, 1999, are: high, $.625; low $.625; and close,
$.625; such prices on April 18, 2000 are: high, $.625; low,
$.625; and close, $.625.
III-5
<PAGE> 65
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 June 30, 2000 options to purchase an aggregate of 219,000
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-6
<PAGE> 66
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, 1999, 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)(6) 06/08/92 $ 424,000
Sheldon A. Gold 375,000 (4) 09/11/86 74,000
Reed A. Martin 375,000 (3)(6) 06/08/92 15,000
</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, 1999.
(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.
(6) The policy was replaced subsequent to year-end with a
policy of similar nature, without increase to
premium and without the previous policy's loan. The
net cash surrender value was received by the
Company.
III-7
<PAGE> 67
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.
At December 31, 1999, the underlying collateral of common
stock, using the trading price of $.625 per share, represented
collateral approximating $418,000 for a collateral deficiency
of approximately $238,000. On August 10, 2000, the Company was
delisted from the American Stock Exchange for non-filing of
the Form 10K for the year ended December 31, 1999 with the
Securities and Exchange Commission. As the common stock
subsequent to year-end does not have an available market for
trading, management has determined that a 20% reduction in the
trading price is reasonable for purposes of valuing its common
stock as collateral. The Company's common stock was trading on
April 18, 2000 (the last day of trading) at $.625; therefore,
with a 20% reduction in value, the common stock is valued at
$.50 per share for purposes of valuing collateral. Based on
this revised valuation, a reserve of $321,500 has been
recorded in the "Consolidated Statements of Operations" as
non-recurring items for the year ended December 31, 1999.
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.
The Plan was amended January 1, 1997 to include employees of
affiliates accounted for on the equity method. 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.
III-8
<PAGE> 68
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
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.
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 07/11/95 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
Paul H. Levine 07/30/99 1,000 1.375
Gerald M. Penn 02/01/97 1,000 1.435
Gerald M. Penn 02/01/98 1,000 1.25
</TABLE>
III-9
<PAGE> 69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below presents as of June 30, 2000 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 909,320 (3) 14.98%
Two Nationwide Plaza
Suite 760
Columbus, Ohio 43215
Common Stock Harold T. Kantor 222,475 3.67%
Common Stock Sheldon A. Gold 65,702 1.08%
Common Stock Reed A. Martin 4,978 -
Common Stock Paul H. Levine 1,500 -
Common Stock Dr. Gerald M. Penn 16,250 -
Common Stock David E. Fernie 200 -
Common Stock All Directors and 1,220,425 20.11%
Executive Officers
As a Group (7 persons)
Common Stock McBridge Advisory Ltd. 668,200 (4) 11.01%
c/o Clemente Del Ponte
via Lavizzari 3
P.O. Box 2527
6901 Lugano, Switzerland
Common Stock Gerald F. Schroer 413,800 (4) 6.82%
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
(8) 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-10
<PAGE> 70
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 1999 was $846,959 (before a reserve adjustment); 1998 was
$796,561; and 1997 was $799,718. 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 June 30,
2000 a principal balance of $626,521 is outstanding. 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 7% totaling $26,000, $20,000 and
$68,328 has been charged, through December 31, 1999, 1998 and
1997, 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. Additional advances were
made in 1998, 1999 and 2000. 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 11B).
Management has evaluated future cash flows and/or use of
collateral to support the outstanding balances for the note
receivable and advances. During 1999, due to changes in
certain of the collateral, the note not being amortized in
accordance with the revised note schedule, and continued
advances in 1999 and 2000, a reserve of $419,000 has been
recorded in the "Consolidated Statements of Operations" as
non-recurring items.
The President and CFO of the Company, Mr. Sheldon Gold, has
incurred borrowings from the Company. The largest amount of
such indebtedness outstanding in 1999 was $198,000; 1998 was
$213,000; and 1997 was $243,412. On June 30, 2000, the amount
of such indebtedness was $198,000. No interest is paid or
charged on such indebtedness. The President/CFO 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. Additional collateral was obtained in
1999 to cover the reduced value of the Company's common stock.
The loan is evidenced by a promissory note providing for
minimum annual payments of $15,000, as amended (see Note 11C).
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 on following page)
III-11
<PAGE> 71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
-------------------
(Footnotes continued from previous Page)
(3) In addition to the shares indicated in the table of
Item 12, the following Directors and Executive
Officers may acquire shares of common stock by
exercising options granted under the Company's Stock
Option Plan. Such shares are not included in the
individual's total or in the calculation of percent
of class.
STOCK OPTION
SHARES
------
Harold T. Kantor 75,000
Sheldon A. Gold 25,000
Reed A. Martin 35,000
Paul H. Levine 14,000
Dr. Gerald M. Penn 2,000
David E. Fernie 10,000
--------
Total 161,000
--------
(4) Pursuant to a Schedule 13D filed with the Securities
Exchange Commission on August 17, 2000 filed by
McBride Advisory and Gerald F. Shroer, other parties
were listed thereon, none of which had a total number
of shares greater than 5%, but in the aggregate
represented an additional 738,987 shares (12.18%).
-------------------------
III-12
<PAGE> 72
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
<TABLE>
<CAPTION>
1. Financial Statements. The following financial statements are included in Part II, Item 8:
PAGE
----
<S> <C>
Report of Independent Auditors -
Consolidated Balance Sheets as of December II-13 and II-14
31, 1999 and 1998
Consolidated Statements of Operations for II-15 and II-16
the years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Comprehensive Income II-17
for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' II-18
Equity for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flow for II-19 and II-20
the years ended December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements II-21 through II-50
</TABLE>
<TABLE>
<CAPTION>
2. Financial Statement Schedules. The following financial statement schedules for the years
ended December 31, 1999, 1998 and 1997 are included in Part IV:
SCHEDULE PAGE
-------- ----
<S> <C>
II. Valuation and Qualifying Accounts and
Reserves IV-6
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the Financial Statements
or Notes thereto.
</TABLE>
<TABLE>
<CAPTION>
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
------ -----------
<S> <C>
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).
</TABLE>
IV-1
<PAGE> 73
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
<TABLE>
<CAPTION>
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to
those used in such Item 601). (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<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> 74
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
<TABLE>
<CAPTION>
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to
those used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<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> 75
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
<TABLE>
<CAPTION>
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to
those used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<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> 76
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) Documents filed as part of this Form 10-K: (Continued)
<TABLE>
<CAPTION>
3. Exhibits Filed Under Item 601 of Regulation S-K.
(Numbers assigned to the following correlate to
those used in such Item 601) (Continued)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<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).
10.18 Marvin D. Kantor note/collateral
10.19 Employment agreements
Marvin D. Kantor
Sheldon A. Gold
Reed A. Martin
21 List of Subsidiaries
27 EDGAR Financial Data Schedule
(b) Reports on Form 8-K filed during last fiscal (calendar)
quarter of 1999:
(1) Report dated December 31, 1999 relating to sale of
nursing home.
</TABLE>
IV-5
<PAGE> 77
SCHEDULE II
THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
<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, 1999
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 227,000 $ 773,756 $ 362,756 (a) $ 638,000
============ ============= ============= =============
Valuation allowance for deferred
tax assets $ - $ 2,428,000 $ - $ 2,428,900
============= ============= ============= =============
Life insurance premiums
receivable reserve $ - $ 321,500 $ - $ 321,500
============ ============= ============= =============
Allowance for doubtful accounts -
notes receivable related parties $ - $ 518,623 $ - $ 518,623
============ ============= ============= =============
December 31, 1998
Reserve deducted from asset to
which it applies:
Allowance for doubtful trade
accounts $ 101,000 $ 208,238 $ 82,237 (a) $ 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 $ 47,000 (a) $ 101,000
============ ============= ============= =============
Valuation allowance for deferred
tax assets $ 200,000 $ - $ 200,000 $ -
============ ============= ============= =============
Notes: (a) Write-off of uncollectible amounts
</TABLE>
IV-6
<PAGE> 78
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)
September 27, 2000 By: /s/ Sheldon A. Gold
--------------------------------
President
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, Principal
-------------------- Executive Officer and Director September 27, 2000
Marvin D. Kantor
/s/ Harold T. Kantor Vice Chairman of the Board September 27, 2000
--------------------- and Director
Harold T. Kantor
/s/ Sheldon A. Gold President, Chief Financial September 27, 2000
------------------- Officer and Director
Sheldon A. Gold
/s/ Reed A. Martin Executive Vice President, Chief September 27, 2000
------------------ Operating Officer and Director
Reed A. Martin
/s/ Paul H. Levine Director September 27, 2000
------------------
Paul H. Levine
/s/ Gerald M. Penn Director September 27, 2000
------------------
Gerald M. Penn
/s/ David E. Fernie Director September 27, 2000
-------------------
David E. Fernie
</TABLE>
IV-7
