10-Q 1 l81767be10-q.txt THE WENDT-BRISTOL HEALTH SERVICES CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------ For Quarter Ended March 31, 2000 Commission file number 0-11656 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION A Delaware Corporation I.R.S. No. 22-1807533 Two Nationwide Plaza, Suite 760, Columbus, Ohio 43215 Registrant's Telephone No. (614) 221-6000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. THE FOLLOWING CLASS IS TRADED IN THE OVER THE COUNTER MARKET AS "WMDB". CLASS OUTSTANDING AT OCTOBER 31, 2000 ----- ------------------------------- Common Stock, par value 6,069,356 $.01 per share 2 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES I N D E X PART I PAGE NO. ------ -------- Financial Statements: Consolidated Balance Sheets - March 31, 2000 (Unaudited) and December 31, 1999 (See Note 1) 3-4 Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2000 and 1999 5 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, 2000 and 1999 6 Consolidated Statements of Cash Flow (Unaudited) Three Months Ended March 31, 2000 and 1999 7-8 Notes to Consolidated Financial Statements 9-15 Management's Discussion and Analysis of Financial Condition and Results of Operations 16-20 PART II ------- Other Information 21 Signatures 21 Exhibits: Exhibit 27 EDGAR Financial Data Schedule 22 2 3 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS AT MARCH 31, 2000 AND DECEMBER 31, 1999 ASSETS

(Continued) The accompanying notes are an integral part of the financial statements. 3 4 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) AS AT MARCH 31, 2000 AND DECEMBER 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of the financial statements. 4 5 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 5 6 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)

The accompanying notes are an integral part of the financial statements 6 7 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 2000 AND 1999 (UNAUDITED)

(Continued) The accompanying notes are an integral part of the financial statements. 7 8 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE THREE MONTHS ENDED MARCH 31 2000 AND 1999 (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 8 9 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. MANAGEMENT'S REPRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal adjustments, cumulative effect of change in accounting principle re start-up costs and recurring accruals) necessary to present fairly The Wendt-Bristol Health Services Corporation ("Wendt-Bristol" or "Company") and subsidiaries consolidated financial position as at March 31, 2000 and December 31, 1999 and the consolidated results of its operations for the three months ended March 31, 2000 and 1999 as well as the cash flows for the respective three months. The results of operations for any interim period are not necessarily indicative of results for the full year. THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED IN THE WENDT-BRISTOL ANNUAL REPORT FILED AS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, WHICH IS HEREBY INCORPORATED BY REFERENCE. REFERENCE SHOULD ALSO BE MADE TO THE NOTE CONCERNING THE INDEPENDENT AUDITORS "GOING CONCERN" AND RECLASSIFICATIONS OPINION, WHEN ISSUED, CONTAINED THEREIN. 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 have not been reviewed as required by Rule 10-01(d). A mutually acceptable payment schedule has been negotiated and payments are being made. 2. FINANCIAL STATEMENTS 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. In addition, the 1999 continuing operations Federal income tax benefit ($216,000) and the Federal income tax benefit attributable to the cumulative effect of writing off start-up costs ($121,000) were reversed and offset by the reversal of the Deferred tax liability ($175,400) in order to conform with the determination presented in the Company's Form 10-K at December 31, 1999. (Continued) 9 10 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 3. WRITE-OFF OF START-UP COSTS On April 3, 1998 the Accounting Standards Executive Committee issued Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-up Activities" which states that the costs of start-up activities, including organization costs, should be expensed as incurred. Implementation of SOP 98-5 is required for financial statements issued for fiscal years beginning after December 15, 1998 as of January 1, 1999. The cumulative effect of the adoption of SOP 98-5 was a charge to earnings of $304,912 (including minority interests) for the quarter ended March 31, 1999. 4. INCOME TAXES Federal, state and local taxes are summarized as follows: Three Months Ended March 31, ---------------------------- 2000 1999 ---- ---- Federal taxes: Current expense (benefit) $ -- $ -- Deferred expense (benefit) -- (175,400) State and local taxes: Current expense 819 ------------ ---------- Total expense (benefit) $ 819 $(175,400) ============ ========== Reference is made to Note 2 herein. 5. EARNINGS PER SHARE In February 1997, the Financial Accounting Standard Board issued statement of Financial Accounting Standards No. 128, "Earnings per Share," which changed the method used to calculate earnings per share. Basic earnings per share has been calculated as income available to common stockholders divided by the weighted average number of common shares outstanding. Diluted earnings per share has been calculated as diluted income available to common stockholders divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares has been calculated using the treasury stock method for Common Stock equivalents, which includes Common Stock issuable pursuant to stock options and Common Stock warrants. The following is provided to reconcile the earnings per share calculations: (Continued) 10 11 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 5. EARNINGS PER SHARE (CONTINUED) Three Months Ended March 31, 2000 1999 ---- ---- Income (loss) from continuing operations $ (431,184) $ (475,205) Income (loss) from discontinued operations (22,224) (34,998) Cumulative effect of a change in accounting principle -- (304,912) ----------- ----------- Income (loss) available to common stockholders and assumed conversions $ (453,408) $ (815,115) =========== =========== Shares: Weighted average shares (basic) 6,069,356 6,056,255 Effect of dilutive securities Options -- -- Warrants -- -- Convertible Debt -- -- ----------- ---------- Diluted weighted average shares 6,069,356(1) 6,056,255(1) =========== ========== Income (loss) per common share-basic and diluted: Income (loss) from continuing operations $ (.07) $ (.08) Income (loss) from discontinued operations (.01) Cumulative effect of a change in accounting principle -- (.05) ----------- ---------- Net income (loss) $ (.07) $ (.14) =========== ========== (1) At March 31, 2000 and 1999 all potential common stock options, warrants, and options associated with convertible debt were excluded because they have expired or their exercise would be anti-dilutive due to the net loss. (Continued) 11 12 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 6. UNCONSOLIDATED AFFILIATES/MINORITY INTEREST Unaudited financial information of the affiliates which are accounted for by the equity method is summarized below: COMBINED BALANCE SHEETS March 31, 2000 December 31, 1999 ---------------- ----------------- Current assets $ 2,648,707 $ 2,364,919 Property, plant and equipment net of accumulated depreciation 6,428,513 6,636,526 Other non-current assets 315,839 264,201 ---------------- ---------------- Total assets $ 9,393,059 $ 9,265,646 ================ ================ Liabilities $ 8,803,817 $ 8,725,655 Equity 589,242 539,991 ---------------- --------------- Total Liabilities and equity $ 9,393,059 $ 9,265,646 ================ ================ COMBINED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2000 1999 ---- ---- Service Revenues $ 2,180,664 $ 1,914,512 Operating income (loss) $ 50,842 $ (273,678) Income (loss) before cumulative effect of a change in accounting principle $ 49,250 $ (472,832) Cumulative effect of a change in accounting principle $ -- $ (427,516) Net Income (loss)....@100% $ 49,250 $ (900,348) As a result of the limited liability companies being taxed as partnerships for Federal income tax purposes, there is no tax provided for earnings. See Note 4. Income Taxes. 7. MARKETABLE SECURITIES The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. At the beginning of the 1999 quarter, marketable securities were classified as available-for-sale and were carried at fair value, with unrealized holding gains and losses reported as a separate component of stockholders' equity. During the 1999 quarter the securities were sold and the realized loss of approximately $90,000 is included in the caption Other income (expense) in the Consolidated Statements of Operations. There have been no marketable securities held in the year 2000. (Continued) 12 13 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 8. NEW ACCOUNTING PRONOUNCEMENTS 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 transactions affects earnings. At March 31, 2000 the Company has deferred approximately $542,000 of losses on the foreign currency hedges . In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ('SAB") No. 101, "Revenue Recognition in Financial Statements." The guidelines 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. 9. LONG-TERM DEBT RECLASSIFICATION TO CURRENT Reference should be made to Note 7 in the Company's Form 10-K for the year ended December 31, 1999 concerning the re-classification of certain long-term debt to current installments. In addition to those items, at March 31, 2000, the Company has also re-classified the debt of an equipment lender ($177,500) to current as a result of the receipt of notices of default. A notice was received, by a Subsidiary, in September 2000 from its bank concerning a default on the mortgages on two facilities acquired from non- consolidated affiliates for failure of borrower to pay the scheduled payments when due. The total due under the obligations at the time of the notice was $2,581,300; the Company has reclassified the entire balance of March 31, 2000 ($2,603,200) as current. Management is currently addressing alternate payment schedules and other possible remedies to the defaults and remains cautiously optimistic of the outcome. 10. EQUITY IN AFFILIATES Reference should be made to Notes 6 and 11I in the Company's Form 10-K for the year ended December 31, 1999 concerning the forgiveness of debt ($1,745,000) of an unconsolidated entity. During the quarter ended March 31, 2000, approximately $330,000 additional advances occurred in order to sustain the entity (Continued) 13 14 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 10. EQUITY IN AFFILIATES (CONTINUED) during the transition period of restructuring and/or disposing of the business. Management will further review its estimate of the collectibility of the advances upon completion of the December 31, 2000 annual results to be included in its Form 10-K since the outcome will be more readily determinable based upon potential transactions currently under consideration. 11. LEGAL PROCEEDINGS (a) 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. In November 2000, the parties agreed to a settlement whereby all litigation would be dismissed without prejudice and the schedule 13D('s) would be re-filed to indicate such shareholders are currently holding shares for investment purposes only. (b) As a result of a class-action suit brought against one of the Company's equipment and maintenance vendors (by third parties), a tentative settlement has been proposed. The Company has not estimated its portion of the proposed settlement (approximately $20 million total to all customers); the proposed settlement is related to previously paid maintenance expenses ($2,000,000 paid over an 8 year period by the Company and affiliates). Such amount, when resolved, might result in either a credit against its open accounts payable or a credit toward future purchases, but no cash to be issued by the Vendor. Due to the uncertainty, the Company has NOT --- recorded the proposed settlement. (Continued) 14 15 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) 11. LEGAL PROCEEDINGS (CONTINUED) (c) A lawsuit was filed in the Court of Common Pleas, Franklin County, Ohio (Case no. 00CVH098642) on September 26, 2000, captioned Siemens Financial Services, Inc., f/k/a Siemens Credit Corporation v. Wendt-Bristol Health Services Corporation (and other named affiliates). Reference is hereby made to "Threatened Litigation" included in Item 3 of the Company's Form 10-K for the year ended December 31, 1999 concerning Siemens Financial Services, Inc. 15 16 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTE: REFERENCE SHOULD BE MADE TO THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HEREIN. Except for historical information contained herein, certain matters discussed herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, including but not limited to, economic, competitive, regulatory, growth strategies, available financing and other factors discussed elsewhere in this report and in other documents filed by the Company with the SEC. Many of these factors are beyond the Company's control. Actual results could differ materially from the forward-looking statements made. In light of these risks and uncertainties, there can be no assurance that the results anticipated in the forward-looking information contained in this report will, in fact, occur. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, 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. 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 (Continued) 16 17 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCIAL CONDITION (CONTINUED) 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. The radiation oncology business has been comprised of two centers. One of the centers ceased operations June 30, 2000 and the company intends to utilize those premises as its new corporate offices; the other center, which is adjacent to a hospital, is currently under review for possible sale or "turn-key" lease. The Company, through a subsidiary, opened in June 1999 it's 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. Management has considered the need for a valuation (addressing the potential realizability), related to the deferred tax assets. As noted herein 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 in 1999 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. 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, which opened in the Fall of 2000. Working capital decreased approximately $3,081,000 from a deficit of $7,941,000 at December 31, 1999 to a deficit of $11,022,000 at March 31, 2000. Current assets decreased approximately $176,000 due mostly from decreases in cash ($88,000), and accounts receivable trade ($124,000) offset by miscellaneous receivable (Continued) 17 18 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCIAL CONDITION (CONTINUED) increases ($36,000). Current liabilities increased approximately ($2,905,000), due primarily to increases in long-term debt ($2,250,000), (see Note 2.), accounts payable ($321,000), taxes, other than federal income taxes ($318,000) and other accrued liabilities ($16,000). 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. Reference should be made to the discussion in the first paragraph herein concerning the radiation oncology business. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity remains poor with a working capital deficit of $11,022,000 at March 31, 2000. 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 open 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 working capital funds through the utilization of accounts receivable as collateral. Separately, the Company is considering the possible sale of certain centers including a "turn-key" sale or lease of its remaining 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. Cash decreased approximately $86,000 during the quarter ended March 31, 2000. Cash flow used in investing activities was approximately $119,000 as compared to approximately $760,000 provided in the previous year. Significant utilization occurred in advances to affiliates, net (186,000), and capital expenditures ($48,000), offset by reductions in amounts due from related parties and former affiliates ($49,000) and proceeds from the disposition of mortgage interest rate hedge ($66,000). Net cash of approximately $191,000 was used in financing activities. This was achieved primarily through principal payments on long-term borrowings ($330,000), offset by proceeds in long-term borrowings ($139,000). There was net cash provided by operating activities of approximately ($223,000). The net loss of approximately $453,000 including discontinued operations of ($53,000) was offset primarily by amortization and depreciation ($185,000) and increases to accounts payable ($321,000) and accrued expenses ($304,000) and other items totaling ($118,000), offset by earnings of unconsolidated affiliates ($186,000) and proceeds from the disposition of mortgage interest rate hedge ($66,000). (Continued) 18 19 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) As a result of the June 30, 2000 closing of the radiation oncology center operated in the same building as the Diagnostic business which includes PET technology, the Company plans to vacate and move its corporate offices to such center in the fourth quarter of 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. 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 than 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 occured as a result of this continuation of the existing software. RESULTS OF OPERATIONS 2000 - 1999 It should be noted that the following analysis reflects the discontinuation of the nursing home operations. Service revenues increased $539,000 or 66%, from the comparable period in 1999. The service revenues increase is due mostly to: the opening of two new diagnostic centers during the prior year, (1998); opening of the Women's Health Center in June 1999; and increases to equipment at the existing centers. (Continued) 19 20 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- AND SUBSIDIARIES ---------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS 2000 - 1999 (CONTINUED) Equity in earnings (losses) of affiliates increased from a loss of $(47,500) in 1999 to a profit of $186,200 in 2000 primarily as a result of the pro rata results related to increased revenues ($332,200) attributable to additional modalities and procedures performed; decreases in depreciation ($49,700) and interest expense ($70,400) offset by an increase in rent expense ($71,600), each attributable to sales of the respective buildings to a consolidated subsidiary; decreased selling, general and administrative expenses ($81,300) attributable to cost control measures and the absence of the 1999 write-off of start-up costs ($427,500) which represented a change in accounting principle. Other income increased from a loss of $(80,500) in 1999 to a profit of $91,900 in 2000 primarily attributable to the 1999 loss on sale of marketable securities ($83,700) and the gain on the disposition of the mortgage interest rate hedge in 2000 ($66,000). Selling, general and administrative expenses increased approximately $616,000 or 63% for the quarter ended March 31, 2000 from the comparable period in 1999. The increase is mostly due to increases in expenses of the new Granville and Jasonway diagnostic centers, the new Women'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. 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 quarter ended March 31, 2000 increased approximately $76,000 or 38% 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. 20 21 THE WENDT-BRISTOL HEALTH SERVICES CORPORATION --------------------------------------------- FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ---------------------------------------------- PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 -EDGAR Financial Data Schedule (b) Reports on Form 8-K None ------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WENDT-BRISTOL HEALTH SERVICES CORPORATION (Registrant) November 17, 2000 By: /S/ MARVIN D. KANTOR -------------------- Marvin D. Kantor Chairman and CEO (Principal Executive Officer) November 17, 2000 By: /S/ SHELDON A. GOLD ------------------- Sheldon A. Gold President (Principal Financial and Accounting Officer) 21

WENDT BRISTOL HEALTH SERVICES CORP 10-Q