<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                           ANNUAL REPORT AND FORM 10-K

                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


FOR THE YEAR ENDED
DECEMBER 31, 1998                               COMMISSION FILE NUMBER 0-11656

                            THE WENDT-BRISTOL HEALTH
                              SERVICES CORPORATION

             (Exact name of Registrant as specified in its charter)

          DELAWARE                                      22-1807533
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or organization)

TWO NATIONWIDE PLAZA, SUITE 760
       COLUMBUS, OHIO                                     43215
(Address of principal executive offices)                (Zip Code)

                   REGISTRANT'S TELEPHONE NO.: (614) 221-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>

<S>                                         <C>
        Title of Each Class                     Name of each exchange on which registered
        -------------------                     -----------------------------------------
Common Stock, par value $.01 per share                   American Stock Exchange
   Common Stock Purchase Warrants                              Same as above
</TABLE>


 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None

          Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___

          On February 28, 1999, the aggregate market value of the voting stock
of The Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $3,960,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,049,279 shares of Common Stock of the Registrant and 414,538
Common Stock Purchase Warrants outstanding.

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K   X

                      DOCUMENTS INCORPORATED BY REFERENCE:

                            See Part IV, Item 14(a)3


<PAGE>   2


                           ANNUAL REPORT ON FORM 10-K
                     FOR THE YEAR ENDED DECEMBER 31, 1998 *

                                     PART I


ITEM 1.           BUSINESS

                  The Company, a Delaware corporation, was originally organized
                  under the laws of the State of New Jersey on January 19, 1966
                  under the name of Temco Products, Inc. and assumed its present
                  name on October 26, 1992. The Company, through its 100%
                  subsidiary Wendt-Bristol Company ("W-B"), a Delaware
                  corporation that has been in existence since 1903, has evolved
                  through the years as an outpatient health care provider. The
                  Company's operations consist of ownership and operation of a
                  nursing home, acting as managing partner of two
                  multi-disciplinary diagnostic/radiology centers and two
                  radiation therapy centers, and wholly-owning two diagnostic
                  centers. These centers provide diagnostic imaging techniques,
                  including magnetic resonance imaging (MRI), CT Scans,
                  ultra-sound, x-ray, bone densitometry, mammography,
                  fluoroscopy, out-patient angiography and, where applicable,
                  radiation therapy.

                  The nature of the Company's business has undergone changes
                  over the past several years. In 1993, the Company owned and
                  operated three retail pharmacies, two of which were located in
                  Columbus, Ohio and one of which was located in Canal
                  Winchester, Ohio. The two nursing homes the Company owned and
                  operated were located in Columbus and Springfield, Ohio and
                  had 147 and 100 beds, respectively. Through a wholly-owned
                  subsidiary, Wendt-Bristol Home Health Care Company, the
                  Company conducted a Medicare-certified home health care
                  agency, which provided home health care services throughout
                  the Franklin County, Ohio area. Wendt-Bristol Diagnostics
                  Company ("WBDC"), a subsidiary of the Company, was the general
                  partner in Wendt-Bristol Diagnostics Company L.P.
                  ("Partnership"), which owns and operates a multi-disciplinary
                  diagnostic center. Finally, W-B was a general partner in the
                  limited partnership that owned a medical office building
                  located in Columbus, Ohio. These businesses activities
                  employed approximately 350 people.

                  By the end of 1994, that number had grown to approximately 400
                  employees. The Company, through WBDC, opened its Alzheimer
                  Patient Care Center in October of that year in Columbus, a 75
                  bed long-term care facility that also contained a geriatric
                  day care center and physician offices for geriatric
                  assessment. In December of 1994, the medical office building
                  referred to above was sold. By early 1996 the Company employed
                  approximately 450 people and in the fourth quarter of that
                  year, the center owned and operated by the Partnership opened
                  a remodeled suite to accommodate a new angiography/fluoroscopy
                  unit.

                  In 1997, the Company sold, through its subsidiaries, two of
                  its three nursing homes, including its Alzheimer's and related
                  syndromes facility, and two of its three retail pharmacies.
                  The Company also ceased operations of its Medicare-certified
                  home health agency, which had conducted business through
                  Wendt-Bristol Home Health Care Company, a wholly-owned
                  subsidiary of the Company. The number of persons employed by
                  the Company stood at approximately 400 in early 1997.
                  Additionally, in the fourth quarter of 1997, the Company
                  opened a radiation therapy center in which it is a partner and
                  manages the facility.



                                      I-1

<PAGE>   3


ITEM 1.           BUSINESS (CONTINUED)

                  The Company plans to selectively and aggressively expand its
                  diagnostics and radiation therapy business activity. During
                  October of 1998, the Company completed construction of a major
                  31,000 square feet, two-building center including radiology,
                  nuclear medicine, cytology, radiation therapy and Positron
                  Emission Tomography (the first PET scanner in central Ohio).
                  WBDC has an ownership interest of 22 1/2% and management in
                  the radiation therapy, and 100% ownership in the radiology,
                  PET, and nuclear operations. The Company is constructing, on
                  previously acquired land adjacent to its Kenny Road diagnostic
                  and radiology facility, a Women's Health Center dedicated to
                  the early detection of breast disease including an ambulatory
                  surgery unit for breast surgery. This center is expected to
                  open in the second quarter of 1999. The Company's final retail
                  pharmacy, located in a downtown Columbus, Ohio department
                  store, was sold in December 1998.

                  The Company receives a fee (percentage of collected revenues)
                  for those operations where it serves as a managing partner.

                  The Company's primary activities are currently located in
                  Central Ohio.

                  COMPETITION. Though the Company's business activities are
                  subject to a number of competitive forces, they are fairly
                  regional in scope. Generally speaking, the Company's nursing
                  home faces competition primarily from nursing homes located
                  within driving distance of Springfield, Ohio. Similarly, the
                  customers of diagnostic and radiation therapy centers
                  generally do not travel far from home to have those services
                  performed, and the competitors of the Company are, therefore,
                  located in the metropolitan Columbus and Newark, Ohio area.

                  The diagnostic and radiation therapy centers component of the
                  Company's business is subject to competition from not only
                  other independent centers, but hospitals and
                  hospital-affiliated centers as well. In recent years, the
                  pressures imposed by "managed care" insurers have forced the
                  Company's centers to reduce their prices significantly.
                  Moreover, hospitals in the Columbus, Ohio market have fairly
                  recently begun to expand and build new centers. The hospitals
                  are at a competitive advantage related to their ability to
                  come into contact with potential customers immediately when
                  the patient is hospitalized when they become aware of the need
                  for therapy. The Company's centers, however, do not have to
                  deal with the complications of admitting their customers and
                  they also have more flexible hours of business, which appeals
                  to many customers.

                  The nursing home operated by the Company faces competition
                  from both long and short-term care facilities. The Springfield
                  area has recently renovated facilities, which gives those
                  nursing homes an advantage in attracting new residents.
                  However, the Company's facility has recently converted one
                  wing in order to accommodate Alzheimer's patients.

                  NURSING HOMES. The Company owned and operated two nursing
                  homes in Columbus, Ohio (147 beds and 75 beds) until December
                  31, 1997 and leases (with an option to buy) the premises and
                  operates the one remaining nursing home in Springfield, Ohio
                  (100 beds).

                  MEDICAL AND RELATED SERVICES. During February 1987, W-B formed
                  WBDC for the purpose of establishing an outpatient medical
                  diagnostic imaging center. The center was financed through the
                  formation of the Partnership, of which WBDC is the general
                  partner and currently receives management fees in addition to
                  its share of the profits. The center opened in April 1988 in
                  Columbus, Ohio. The center specializes in diagnostic imaging
                  techniques, including magnetic resonance imaging (MRI), CT
                  Scans, Ultrasound, X-ray, Mammography, Bone Densitometry and
                  3-D imaging. In the fourth quarter of 1996, the Center opened
                  a suite to accommodate a new angiography/fluoroscopy unit.

                  EMPLOYEES: LABOR RELATIONS. The Company had approximately 228
                  employees at February 28, 1999. The Company considers its
                  relations with its employees to be good.

                                       I-2
<PAGE>   4


ITEM 1.           BUSINESS (CONTINUED)

                  PATENTS AND TRADEMARKS. The Company owns registered
                  trademarks, including "the Best of Health!", which are
                  utilized in connection with the marketing of Company services
                  and products.

                  INDUSTRY SEGMENTS. The operations of the Company and its
                  subsidiaries fall within two industry segments: Nursing homes;
                  and Medical services and other. Additional information about
                  each of the industry segments, for the respective periods
                  indicated, follows:

                  The Company has adopted Statement of Financial Accounting
                  Standards (SFAS) No. 131, "Disclosures about Operating
                  Segments". The operations of the Company and its subsidiaries
                  are all located in Central Ohio and fall within two industry
                  segments: Nursing homes; and Medical services and other.
                  Management considers income taxes as a corporate expense and
                  accordingly does not allocate this cost to the operating
                  segments. The following is a summary of key segment
                  information for the years ended December 31, 1998, 1997 and
                  1996, respectively.

<TABLE>
<CAPTION>
                                                                                         MEDICAL
                                                                        NURSING        SERVICES AND
                                                                         HOMES            OTHER            TOTAL
                                                                         -----            -----            -----
                                       1998
                                       ----
                 <S>                                             <C>              <C>              <C>         
                    Revenues/sales to unaffiliated customers        $  3,894,002     $  3,718,637     $  7,612,639
                    Interest income                                           12          239,299          239,311
                    Interest expense                                      10,208          599,737          609,945
                      Net interest expense                                10,196          360,438          370,634
                    Depreciation and amortization                         41,687          333,344          375,031
                    Segment profit (loss)                                (53,739)        (390,760)        (444,499)
                    Equity in earnings (losses) of affiliates             -               (20,100)         (20,100)
                    Investments and related advances, net                 -             4,663,780        4,663,780
                    Segment assets                                     3,917,015       16,301,219       20,218,234
                    Expenditures for segment assets                       47,889        5,038,623        5,086,512

                                       1997
                                       ----
                    Revenues/sales to unaffiliated customers          13,428,624        3,701,627       17,130,251
                    Interest income                                        1,913          168,003          169,916
                    Interest expense                                     621,462          441,555        1,063,017
                      Net interest expense                               619,549          273,552          893,101
                    Depreciation and amortization                        209,502          150,134          359,636
                    Segment profit (loss)                              1,560,091         (698,442)         861,649
                    Equity in earnings (losses) of affiliates            -                348,206          348,206
                    Investments and related advances, net                -              3,036,998        3,036,998
                    Segment assets                                     9,291,623        8,215,838       17,507,461
                    Expenditures for segment assets                      278,606          315,341          593,947

                                       1996
                                       ----
                    Revenues/sales to unaffiliated customers          13,147,964        4,386,166       17,534,130
                    Interest income                                        3,935          100,379          104,314
                    Interest expense                                     664,961          300,564          965,525
                      Net interest expense                               104,314          200,185          861,211
                    Depreciation and amortization                        354,152          155,844          509,996
                    Segment profit (loss)                                865,837         (727,606)         138,231
                    Equity in earnings (losses) of affiliates            -                425,176          425,176
                    Investments and related advances, net                -                759,852          759,852
                    Segment assets                                    13,311,345        6,392,437       19,703,782
                    Expenditures for segment assets                      184,143           34,900          219,043

</TABLE>




                                       I-3


<PAGE>   5


ITEM 1.           BUSINESS (CONTINUED)

                  REGULATION OF THE HEALTH CARE INDUSTRY. The Company must
                  comply with extensive federal, state and local government
                  regulations applicable to the health care industry and the
                  pharmacy business.

                  Nursing homes are subject to federal and state government
                  regulation, including the necessity of obtaining and
                  maintaining a license, certification for participating in the
                  Medicare and/or Medicaid programs, and/or registration. There
                  are also licensing requirements for nurses and other
                  professional staff of the nursing home. The operations and
                  activities of nursing homes are also affected by the
                  Medicare/Medicaid conditions of participation and other
                  relevant federal and local laws. Activities of nursing homes
                  which are regulated, include, but are not limited to, release
                  of medical records, patient confidentiality rights and the
                  dispensing of drugs. In addition, there are federal and state
                  requirements as to patient rights. Failure to abide by the
                  Federal and State laws governing the operations of nursing
                  homes including the requirement governing the foregoing areas,
                  lead to termination of licensure and/or decertification and
                  loss of reimbursement, private enforcement rights by the
                  patient, and other sanctions.

                  The State of Ohio currently licenses nursing homes which are
                  privately owned and operated. A private owner cannot operate a
                  nursing home without a license. In addition to licensure
                  requirements, in the case of long-term care facilities, the
                  Ohio Department of Health, the Ohio Department of Human
                  Services, and the United States Department of Health and Human
                  Services are the principal regulatory agencies to whose
                  jurisdiction the Company is subject.

                  The Company remains in good standing with all requisite
                  agencies.

                  The Company also may be affected, directly or indirectly, by
                  legislation affecting medical cost reimbursements. In recent
                  years, Congress has enacted legislation aimed at controlling
                  the cost to certain patients of medical products and services
                  through the regulation of the primary federal and state
                  reimbursement programs: Medicare, a federal program for
                  certain elderly or disabled patients and certain patients
                  suffering from end stage renal disease, and Medicaid, a
                  jointly sponsored federal and state program which focuses on
                  assisting certain qualified recipients.

                  Legislative proposals to regulate or control health care costs
                  and to institute a national health insurance program have been
                  made from time to time and are currently receiving further
                  consideration. Because these proposals vary, their potential
                  effect on the health care industry also vary. If, in the
                  future, legislation or regulations were to be adopted that
                  would significantly reduce governmental reimbursement rates or
                  rates to be charged to private-pay patients, such legislation
                  or regulations could have a material adverse effect on the
                  Company. Because a significant portion of all nursing home
                  revenues on an industry-wide basis are derived from the
                  federal and state governments, the Company and the industry as
                  a whole will continue to be affected by changes in government
                  programs and regulations.

                  REQUIREMENT OF CERTIFICATE OF NEED. Under the current
                  Certificate of Need ("CON") law, codified in sections
                  3702.51-3702.68 of the Ohio Revised Code, there is a
                  moratorium on the approval of new nursing home beds until June
                  30, 1999. In recent years, CON laws and regulations have been
                  relaxed and even eliminated in certain instances.

                  The acquisition of an MRI does not require a CON and is not
                  reviewable (unless the cost is $2 million or more), but does
                  require filing a notice of intent with the Director of Health
                  and the local health care agency 60 days prior to the
                  purchase.







                                       I-4


<PAGE>   6


ITEM 1.           BUSINESS (CONTINUED)

                  New construction or renovation of a nursing home costing $2
                  million or more requires a CON. Capital expenditures of $2
                  million or more on behalf of a health care facility in
                  connection with the provision of a health service do require
                  filing a notice of intent with the Director of Health and the
                  local health agency 60 days prior to obligating the capital
                  expenditure.

                  The Company's business operations and plans must comply with
                  the foregoing laws. There can be no guarantee that such laws
                  will not be expanded in the future.

                  MANUFACTURE OF MEDICAL EQUIPMENT. Until October 1991, the
                  Company was also engaged in the business of manufacturing
                  durable medical equipment and furniture through its Healthcare
                  Division located in Passaic, New Jersey.

                  On October 1, 1991, the Company sold all of the assets (other
                  than the real estate and plant thereon) of its Healthcare
                  Division to a wholly-owned subsidiary of Graham-Field Health
                  Products, Inc., pursuant to an Agreement dated August 31,
                  1991, between the Company and Graham-Field, Inc., as amended
                  on October 1, 1991.

                  The New Jersey Department of Environmental Protection and
                  Energy (the "Department") determined that the Passaic, New
                  Jersey, real estate of the Company did not completely comply
                  with applicable New Jersey laws and regulations pertaining to
                  the environment. The contamination in question had resulted
                  primarily from underground tanks, long abandoned by prior
                  owners of the site, and the contents thereof. All of such
                  tanks have been removed by the Company. In part the
                  contamination was also attributable to the method, initiated
                  by prior operators, of disposal of solvents. The Company has
                  incurred total costs of $1,096,000 related to environmental
                  matters in New Jersey, of which $236,000 was spent in the five
                  fiscal (calendar) years ended December 31, 1998. The Company
                  has been advised by its special New Jersey Counsel and
                  independent environmental engineer that this matter is
                  expected to be completed in the second quarter of 1999;
                  estimated 1999 costs are approximately $40,000.

ITEM 2.           PROPERTIES

                  The Company leases approximately 7,600 square feet of space in
                  a downtown Columbus, Ohio, office building which serves as the
                  Company's and WBDC's general offices.

                  In addition, a warehouse (1,000 square feet) is leased in
                  Columbus, Ohio to store records and durable medical equipment.
                  The Company closed two pharmacies during 1997; one leased
                  premises in Columbus, Ohio (4,000 square feet) and one leased
                  in Canal Winchester (4,000 square feet). The Company sold its
                  only remaining pharmacy in 1998, which leased space in a
                  department store in downtown Columbus, Ohio (3,300 square
                  feet).

                  In February 1998, a subsidiary of the Company opened a 3,200
                  square feet diagnostic center in Granville, Ohio. This one
                  story center, Wendt-Bristol Erinwood, operates on leased
                  premises.



                                       I-5


<PAGE>   7


ITEM 2.           PROPERTIES (CONTINUED)

                  The nursing homes of the Company operated during 1997 consist
                  of one owned 147-bed home in Columbus, Ohio, (sold at December
                  31, 1997), one owned 75-bed Alzheimer's and related syndromes
                  center (sold at December 31, 1997) and one 100-bed home with
                  leased facilities in Springfield, Ohio. The lease expires in
                  July, 2015. In November, 1994 the Company acquired
                  approximately 2 acres of land adjacent to the Alzheimer's
                  center for approximately $144,000. The property is not subject
                  to any mortgage indebtedness and is being held for investment
                  purposes.

                  The present aggregate annual rentals of all property leases
                  referred to are approximately $694,000 and their terms have
                  expiration dates ranging through July 2015.

                  The Company believes that the facilities described or referred
                  to above are adequate and sufficient for its present needs and
                  requirements.

                  The Company owns land and a plant located in Passaic, N.J.,
                  which were formerly used by its Healthcare Division
                  (manufacturer of durable medical equipment), which was sold on
                  October 1, 1991. This property was leased to the purchaser at
                  the time of the transaction and the mortgage amortization
                  schedule coincides with the term of the lease.


ITEM 3.           LEGAL PROCEEDINGS

                  There is no pending material litigation to which the Company
                  is a party.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  During the fourth quarter of 1998, no matters were submitted
                  to a vote of security holders.




                                       I-6

<PAGE>   8



                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED 
                  STOCKHOLDER MATTERS

                  (a)      Price Range of Common Stock

                      The high and low trade prices for the Company's Common
                      Stock and Common Stock Purchase Warrants as reported by
                      the American Stock Exchange for the periods indicated are
                      as follows:

<TABLE>
<CAPTION>

                         AMEX SYMBOL                      WMD                             WMD.WS (A)

                             YEAR                    COMMON STOCK                          WARRANTS
                             ----                    ------------                          --------
                             1998                HIGH              LOW              HIGH               LOW
                             ----                ----              ---              ----               ---
 
                       <S>                  <C>                <C>               <C>                <C>  
                         1st Quarter           1 3/8              1 1/16            1 1/4              3/8
                         2nd Quarter           1 5/8              1 1/8              7/8               1/4
                         3rd Quarter           1 5/8              1 1/4              3/4               5/8
                         4th Quarter           1 3/8                1                1/2               1/2

                             1997
                             ----

                         1st Quarter           1 5/8              1 1/4               1                3/4
                         2nd Quarter           1 7/16               1               11/16              1/2
                         3rd Quarter           1 1/2                1                7/8               3/4
                         4th Quarter           1 7/16             1 1/16             3/4               5/8
</TABLE>


                  In conjunction with the issuance of these Series 1 Bonds, the
                  Company issued 33 Series No. 1 Warrants exercisable into a
                  total of 300,000 shares of the common stock of the Company for
                  two dollars ($2.00) per share. The Warrants were issued
                  pursuant to Regulation S of the Securities Act of 1933 and
                  there is no established public trading market for these
                  Warrants.

                  (b) Approximate Number of Equity Security Holders

                      The number of holders of record for each class of equity
                      securities of the Company as of March 1, 1999 was as
                      follows:
                                                     NUMBER OF HOLDERS
                  TITLE OF CLASS                       OF RECORD (1)

                    Common Stock, par value $.01
                     per share ("Common Stock")            745

                    Common Stock Purchase Warrants (A)     198

                    Series No. 1 Warrants                   1

                      (1) The number of stockholders of record includes shares
                          held in "nominee" or "street" name.

                              (A) See Note 9A to the consolidated financial
                                  statements herein concerning the expiration of
                                  the Warrants. 

                    (c) Dividends

                        No cash dividends have been declared or paid by the
                        Company.



                                      II-1

<PAGE>   9


ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED 
                  STOCKHOLDER MATTERS 
                  (CONTINUED)

                  This chart shows the Company's performance in the form of
                  cumulative total return to shareholders from December 31, 1993
                  until December 31, 1998 in comparison to Standard and Poor's
                  500 and Standard and Poor's 500 Healthcare Composite Index.

<TABLE>
<CAPTION>

                                                                           ANNUAL RETURN PERCENTAGE
                                                                                  YEARS ENDING
                                                        ---------------------------------------------------------

                               COMPANY/INDEX                DEC 94       DEC 95     DEC 96     DEC 97      DEC 98
                               -------------                ------       ------     ------     ------      ------

                 <S>                                     <C>           <C>       <C>        <C>          <C> 
                    Wendt-Bristol Health Svc Cp             (41.73)       28.60     166.90     (16.67)      4.96
                    Health Care - 500                        13.12        57.85      20.75      43.72      44.22
                    S & P 500 Index                           1.32        37.58      22.96      33.36      28.58
</TABLE>

<TABLE>
<CAPTION>

                                                                              INDEXED RETURNS
                                                                               YEARS ENDING
                                               --------------------------------------------------------------
                                                 BASE
                                                PERIOD
                          COMPANY/INDEX         DEC 93    DEC 94     DEC 95      DEC 96     DEC 97     DEC 98
                          -------------         ------    ------     ------      ------     ------     ------

                 <S>                            <C>    <C>        <C>         <C>        <C>        <C> 
                    Wendt-Bristol Health
                    Svc Cp                        100      58.27      74.93      200.00     166.67     174.93
                    Health Care - 500             100     113.12     178.55      215.61     309.86     446.87
                    S & P 500 Index               100     101.32     139.40      171.40     228.59     293.91
</TABLE>




                                      11-2


<PAGE>   10


ITEM 6.     SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA
         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>



                                                                                    YEAR ENDED DECEMBER 31,
                                                               1998          1997             1996            1995            1994
<S>                                                   <C>          <C>               <C>            <C>              <C> 
INCOME STATEMENT DATA
Revenues:
  Net sales                                              $     1,092  $      2,435      $     2,816     $     2,709     $     3,694
  Service income                                               6,521        14,695           14,718          14,484          12,330
                                                         -----------  ------------      -----------     -----------     ------------
                                                               7,613        17,130           17,534          17,193          16,024
                                                         -----------  ------------      -----------     -----------     ------------
Costs and expenses:
  Cost of sales                                                  837         1,820            2,072           1,920           2,554
  Selling, general and administrative expenses, net            6,845        14,088           14,814          14,165          12,699
  Depreciation                                                   375           360              510             513             522
                                                         -----------  ------------      -----------     -----------     ------------
                                                               8,057        16,268           17,396          16,598          15,775
                                                         -----------  ------------      -----------     -----------     ------------

Operating income (loss)                                         (444)          862              138             595             249
                                                         -----------  ------------      -----------     -----------     ------------
Other income (expense):
  Minority interest in affiliates, net                           (69)           21              (97)            (52)           (251)
  Equity in earnings of affiliates                               (20)          198              425             502             410
  Interest expense                                              (371)         (893)            (861)           (897)         (1,155)
  Gain on sale of stock of subsidiaries                           -             -                -               -              135
  Gain on sale of significant assets                             422         1,778               -               -              726
  Other, net                                                     103            13              103               6             132
                                                         -----------  ------------      -----------     -----------     ------------
                                                                  65         1,117             (430)           (441)             (3)
                                                         -----------  ------------      -----------     -----------     ------------

Income (loss) before income taxes                               (379)        1,979             (292)            154             246

(Provision) benefit for income taxes                             104          (597)              46              63             (42)
                                                         -----------  ------------      -----------     -----------     ------------

Net Income (Loss)                                        $      (275) $      1,382      $      (246)    $       217     $       204
                                                         ===========  ============      ===========     ===========     ============
Per share data - Income (Loss)
  Basic                                                  $     (0.04) $       0.22      $     (0.04)    $      0.04     $      0.03
                                                         ===========  ============      ===========     ===========     ============
  Diluted                                                $     (0.04) $       0.21      $     (0.04)    $      0.04     $      0.03
                                                         ===========  ============      ===========     ===========     ============

Weighted average shares
  Basic                                                    6,113,646     6,224,241        5,825,686       6,131,770       8,153,382
  Diluted                                                  6,113,646     6,916,241        5,825,686       6,131,770       8,153,382

BALANCE SHEET DATA (AT YEAR END)
  Working capital (deficiency)                           $       476  $      2,526      $    (1,195)    $    (3,887)    $    (3,642)
  Total assets                                                20,218        17,507           19,910          19,394          23,441
  Long-term debt and lease obligations, net of
   current portion                                            11,014         6,034            9,084           6,432           6,340
  Stockholders' equity                                         5,520         6,045            4,742           4,543           7,200

</TABLE>


NOTE: The selected financial data has been restated (see Note 17 in Notes to
        Consolidated Financial Statements).

The following supplemental information combines revenues from the consolidated
financial statements as above with total revenues of entities accounted for
under the equity method (see Note 5 in Notes to Consolidated Financial
Statements). The Company obtains management fees from the equity affiliates
based on net cash received for services from these equity affiliates.


<TABLE>
                            SUPPLEMENTAL INFORMATION

<S>                                <C>                <C>               <C>               <C>              <C>
Revenues - consolidated as above   $ 7,613            $17,130           $17,534           $17,193          $16,024

Revenues - unconsolidated entities   7,204              5,667             4,218             4,087            3,824
                                   -------            -------           -------           -------          -------

Combined Revenues                  $14,817            $22,797           $21,752           $21,280          $19,848
                                   =======            =======           =======           =======          ======= 

</TABLE>

                                      II-3


<PAGE>   11




ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS

                  Except for historical information contained herein, certain
                  matters discussed herein are forward-looking statements made
                  pursuant to the safe harbor provisions of the Private
                  Securities Litigation Reform Act of 1995. Any statements that
                  express, or involve discussions as to, expectations, beliefs,
                  plans, objectives, assumptions or future events or
                  performances (often, but not always, through the use of words
                  or phrases such as will likely result, are expected to, will
                  continue, is anticipated, estimate, projection, outlook) are
                  not statements of historical facts and may be forward-looking.
                  Forward-looking statements involve estimates, assumptions and
                  uncertainties that could cause actual results to differ
                  materially from those expressed in the forward-looking
                  statements. These forward-looking statements are based largely
                  on the Company's expectation and are subject to a number of
                  risks and uncertainties, including but not limited to,
                  economic, competitive, regulatory, growth strategies,
                  available financing and other factors discussed elsewhere in
                  this report and in the documents filed by the Company with the
                  SEC. Many of these factors are beyond the Company's control.
                  Actual results could differ materially from the
                  forward-looking statements made. In light of these risks and
                  uncertainties, there can be no assurance that the results
                  anticipated in the forward-looking information contained in
                  this report will, in fact, occur.

                  Any forward-looking statement speaks only as of the date on
                  which such statement is made, and the Company undertakes no
                  obligation to update any forward-looking statement or
                  statements to reflect events or circumstances after the date
                  on which such statement is made or to reflect the occurrence
                  of unanticipated events, unless necessary to prevent such
                  statements from becoming misleading. New factors emerge from
                  time to time and it is not possible for management to predict
                  all of such factors, nor can it assess the impact of each such
                  factor on the business or the extent to which any factor, or
                  combination of factors, may cause actual results to differ
                  materially from those contained in any forward-looking
                  statements.

                  SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
                  -----------------------------------------
<TABLE>
<CAPTION>

                                                        1998          1997          1996
                                                        ----          ----          ----
                    OPERATIONS                       (In thousands, except per share data)

                 <S>                             <C>           <C>           <C>  
                    Revenues:
                      Net sales                    $     1,092   $      2,435   $    2,816
                      Service income                     6,521         14,695       14,718
                                                   -----------   ------------   ----------
                    Total revenues                 $     7,613   $     17,130   $   17,534
                                                   ===========   ============   ==========

                    Operating income (loss)        $     (444)   $        862   $      138
                    Percent of revenues                  (5.8)            5.0          0.8

                    Net income (loss)              $     (275)   $      1,382   $    (246)
                    Percent of revenues                  (3.6)            8.1        (1.4)
                    Per common share - basic       $     (.04)   $       0.22   $   (0.04)
                    Per common share - diluted     $     (.04)   $       0.21   $   (0.04)
</TABLE>

                    NOTE: Reference should be made to the Notes to Consolidated 
                    Financial Statements herein.


                                      II-4


<PAGE>   12
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS
                  (CONTINUED)

                  FINANCIAL CONDITION
                  -------------------

                  Management has positioned the Company to focus on continuing
                  the aggressive expansion of its Diagnostic and Radiology
                  business, including radiation therapy, nuclear medicine and
                  advanced imaging technology. During 1997 the Company ceased
                  operations of its unprofitable home health care business and
                  sold two of its three retail pharmacies. In the fourth quarter
                  of 1998, the Company sold its remaining pharmacy in order to
                  concentrate on its core business. In addition, on December 31,
                  1997, the Company sold its two Columbus nursing homes and 
                  utilized the cash from the gain on the sale to further expand
                  into the diagnostic and radiology services industry. The sale
                  of these two homes along with the cost savings from the
                  closing of the home health operations further strengthened the
                  liquidity of the Company and will allow management to focus on
                  its diagnostic and radiology centers.

                  The Company continues to expand in radiation therapy,
                  diagnostics imaging and nuclear medicine. Such expansion
                  includes entities that involve other investors. In February
                  1998 the Company opened its third diagnostic center in Central
                  Ohio. This center, located in Granville, Ohio, provides
                  enhanced diagnostic imaging techniques including magnetic
                  resonance imaging (MRI), CT scans, ultrasound, bone
                  densitometry, x-ray and mammography. In October 1998 the
                  Company opened its fourth diagnostic center which is located
                  on Jasonway Avenue in Columbus, Ohio. This 21,000 square foot
                  medical complex includes the Company's second radiation
                  oncology facility as well as an advanced diagnostic center
                  that includes the first Positron Emission Tomography (PET)
                  scanning unit in Central Ohio and a full nuclear medicine
                  department.

                  The Company, through a subsidiary, is scheduled to open during
                  the second quarter of 1999 its Women's Health Center on Kenny
                  Road. This 7,500 square foot center will focus on women's
                  health and imaging services and will include an outpatient
                  surgical suite for breast surgery. Management believes that
                  the new centers added during 1998 will provide increased
                  revenues that will lead to an increase in operating earnings
                  in the second half of 1999.

                  As discussed in Note 8, the Company has approximately
                  $2,780,000 in net operating loss carryovers available for
                  Federal income tax purposes. Such losses expire in years
                  commencing with 2006. Recognition of these carryforwards is
                  included in the net deferred tax liability. Management has
                  considered the need for a valuation allowance (addressing the
                  potential realizability), related to the deferred tax assets,
                  including the aforementioned. Management has further
                  considered the provisions of SFAS No. 109 that allows for
                  utilization of tax planning strategies. These strategies, if
                  necessary, could consider a possible sales and/or
                  sale/leaseback of real estate as well as the possible sale of
                  its remaining nursing home business to preclude the expiration
                  of net operating losses without realization of a tax benefit.
                  Realization of the deferred tax asset, pertaining to net
                  operating losses, is dependent on generating sufficient
                  taxable income including use of management's tax planning
                  strategies prior to the expiration of the loss carryforwards.
                  Although realization is not assured, Management believes it is
                  more likely than not that a significant amount of the deferred
                  tax asset will be realized as a result of its tax planning
                  strategies, if necessary, that would generate estimated tax
                  gains of approximately $2,500,000. The amount of the deferred
                  tax asset considered realizable, however, could be reduced in
                  the near term if either the current estimates of future
                  taxable income are reduced or management would be unable to
                  effect an expected sale and/or sale/leaseback.

                  Working capital decreased approximately $2,050,000 from
                  $2,526,000 at December 31, 1997 to $476,000 at December 31,
                  1998. Current assets decreased approximately $3,733,000 due
                  mostly from decreases in notes receivable ($2,712,000),
                  accounts receivable trade ($890,000), and inventories
                  ($180,000). The decrease in notes and miscellaneous
                  receivables is due mostly to the collection of the notes
                  related to the sale of the two nursing homes. The decrease in
                  accounts receivable is attributable to the collection of
                  year-end receivables from the two sold nursing homes offset by
                  increases in receivables at the diagnostic centers. The
                  decline in inventory is due to the sale of the pharmacy and
                  its related inventory. Current liabilities decreased
                  approximately $1,683,000 due mostly from reductions in
                  accounts payable ($1,021,000), accrued wages ($357,000) and
                  other accrued liabilities ($507,000), all primarily related to
                  the sale of the two nursing homes.

                                      II-5
<PAGE>   13


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS
                  (CONTINUED)

                  LIQUIDITY AND CAPITAL RESOURCES
                  -------------------------------

                  The Company's liquidity position for the year remains adequate
                  with working capital at $476,000 at December 31, 1998. During
                  April 1998 the Company collected the remaining balance of
                  approximately $2.9 million on the notes receivable due from
                  the sale of the two nursing homes. Also in April 1998, the
                  Company secured an equipment lease line of credit for
                  $1,000,000 with a finance company. As of December 31, 1998
                  approximately $924,000 has been drawn against this lease line
                  with the remainder drawn in the first quarter of 1999.

                  The Company and its subsidiaries, limited partnership, and
                  limited liability companies, have committed to certain
                  equipment upgrades or acquisitions that will be financed
                  either through the current equipment financing relationship or
                  through vendor programs. The cost of such equipment currently
                  on order is approximately $950,000.

                  Cash decreased approximately $48,000 during the year ended
                  December 31, 1998. Cash flows from investing activities
                  contributed $938,000, due mostly from the collection of notes
                  receivable relating to the year-end sale of two nursing homes
                  offset by advances to affiliates to assist them in their
                  start-up phase. A large portion of the proceeds from the note
                  was used to pay down current liabilities, resulting in a net
                  use of funds from operating activities of approximately
                  $1,169,000. Net cash provided by financing activities was
                  approximately $185,000 due mostly to net treasury stock
                  purchases of $179,000 and principal repayments of long-term
                  debt of $443,000 offset by long-term borrowings of $806,000.

                  During October 1998, the Company, along with a partner,
                  completed construction of a major 31,000 square feet,
                  two-building center including radiology, nuclear medicine,
                  cytology, radiation therapy, Positron Emission Tomography (the
                  first PET scanner in Central Ohio), and a therapy and rehab
                  center. A subsidiary of the Company has an ownership interest
                  of 22-1/2% and management control and responsibility in the
                  radiation therapy, and 100% ownership in the radiology, PET,
                  and nuclear operations. In addition, the Company, through a
                  subsidiary, is scheduled to open its Women's Health Center in
                  the second quarter of 1999 which will focus on women's health
                  and imaging services and will include an outpatient surgical
                  suite for breast surgery.

                  The Company announced plans to acquire all of the limited
                  partner interests in Wendt-Bristol Diagnostics L.P. and the
                  remaining 15% of the outstanding shares of the limited
                  partnership's sole general partner: Wendt-Bristol Diagnostics
                  Company. The proposed acquisitions, pending completion of
                  effective registration statements and shareholder/partner
                  approval, would be accomplished through an exchange of shares
                  of Series 1 preferred convertible stock, with cumulative
                  dividends at 6% per annum. Upon successful completion of the
                  acquisition, total future annual dividends relating to the
                  preferred shares would amount to approximately $138,000.

                  Management further believes the present resources will meet
                  anticipated requirements for operations of the business. Other
                  than as indicated above, and the purchase of a building as
                  described in Note 11B, there are no further material
                  commitments for capital expenditures.



                                      II-6


<PAGE>   14


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS
                  (CONTINUED)

                  YEAR 2000
                  ---------

                  A potential problem exists for all companies that rely on
                  computers as the year 2000 approaches. The "Year 2000" problem
                  is the result of the past practice in the computer industry of
                  using two digits rather than four to identify the applicable
                  year. This practice could result in incorrect results when the
                  Company's computers or those of the third parties with which
                  it deals perform arithmetic operations, comparisons or data
                  field sorting involving years later than 1999.

                  The Company has conducted a preliminary assessment of its
                  computer systems to identify items that could be impacted by
                  the Year 2000 issue and formulated the following course of
                  action. The Company will begin reviewing its non-information
                  technology systems in mid-1999. Although the Company does not
                  anticipate that non-information technology systems will pose a
                  major problem, as its reliance on such systems is relatively
                  small; non-information technology systems are more difficult
                  to evaluate and repair than information technology systems and
                  may require replacement. The Company has already begun its
                  review of its information technology systems and will make
                  necessary software upgrades in 1999. In addition, the Company
                  has been separately evaluating its accounting software and is
                  currently is the process of implementing a new system with
                  implementation anticipated to be complete during the second
                  quarter of 1999. Total cost of the conversion is expected to
                  be approximately $45,000.

                  The Company has already begun assessing the Year 2000
                  readiness of those third parties that could have a material
                  impact on the Company's operations. The Company began sending
                  Year 2000 questionnaires to these third parties in late 1998
                  with the intent to evaluate the steps these parties have taken
                  to assess and remedy their Year 2000 problems. The Company is
                  in the process of evaluating these questionnaires. The area in
                  which the Company is most dependent on third parties is
                  technical equipment and accounts receivable. Most of the
                  equipment is from major vendors who have already made
                  assurances of Year 2000 compliance. The vast majority of the
                  Company's accounts receivables are paid through both private
                  and public insurance programs. Since these organizations are
                  either governmental in nature or heavily regulated by the
                  government, the Company is confident that they either are or
                  will shortly be Year 2000 compliant. Nonetheless, the Company
                  has begun evaluating the readiness of these organizations as
                  discussed above.

                  The most reasonably likely worst case scenario the Company
                  faces in regards to Year 2000 problems is a lack of compliance
                  on the part of the third parties with which it deals. Though
                  not highly dependent on any particular vendor, the failure on
                  the part of its vendors could result in the Company not being
                  able to get those supplies it needs to administer its
                  business. The Company is prepared to find alternative vendors
                  should this problem result and is considering building up an
                  inventory of any necessary supplies to prevent any shortage if
                  such an eventuality were to occur. The area of noncompliance
                  that would have the greatest negative impact on the Company's
                  business is that of the private and public insurance programs
                  that ultimately pay for the Company's services. A lack of
                  compliance on their part could result in the Company not being
                  promptly or properly paid for the services provided, impacting
                  the Company's cash flow and its ability to meet its
                  operational needs. The Company has yet to formulate a
                  contingency plan in this regard, but is working to develop
                  alternative billing procedures to deal with any lack of
                  readiness on the part of these third parties.

                  The Company will utilize both internal and external resources
                  to reprogram or replace and test all of its software. The
                  Company preliminary estimates that it will cost $5,000 to
                  evaluate, reprogram and replace equipment and software to
                  ensure Year 2000 compliance, of which all $5,000 will likely
                  be spent on outside consultants. In addition, as discussed
                  above, the Company is going to spend $45,000 to replace its
                  existing accounting system. Such costs are being financed
                  through an existing line of credit and will not have a
                  material adverse effect on the Company's financial condition
                  or results of operations.

                                      II-7
<PAGE>   15


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS
                  (CONTINUED)

                  RESULTS OF OPERATIONS 1998-1997
                  -------------------------------

                  1998-1997
                  ---------

                  Consolidated revenues from operations for the year ended
                  December 31, 1998 decreased approximately $9,518,000 or 55.6%
                  from the previous year. Net sales decreased $1,344,000 or
                  55.2% while service revenues declined $8,175,000 or 55.6% from
                  the comparable period in 1997. The decline in net sales is due
                  to the reduction in the number of pharmacies from three in
                  1997 to one in 1998 (sold in December) while the decrease in
                  service revenues is attributable to the sale of two nursing
                  homes at December 31, 1997. Excluding the two sold nursing
                  homes, service revenues for the year ended December 31, 1998
                  are up $1,352,000 or 26.1% over last year. The increase is due
                  mostly to the opening of two new diagnostic centers during the
                  year, one in February and the other in October.

                  Cost of sales decreased approximately $983,000 or 54.0% for
                  the year as compared to 1997. Gross margin for the year ended
                  December 31, 1998 was 23.3% as compared to 25.3% in 1997. The
                  decreases are primarily due to the 1997 sale of two retail
                  pharmacies whose sales are not included in the 1998 results.

                  Selling, general and administrative expenses decreased
                  approximately $7,243,000 or 51.4% for the year ended December
                  31, 1998 from the comparable period in 1997. The decrease is
                  mostly due to the reduction in expenses caused by the sale of
                  the two nursing homes and two pharmacies offset by increases
                  in expenses of the new Granville and Jasonway diagnostic
                  centers and the expansion of mobile mammography. Selling,
                  general and administrative expenses at the new centers
                  contribute heavily to the costs during their initial period of
                  market development. Such costs have had a significant impact
                  to the consolidated results for the year ended December 31,
                  1998. However, management anticipates each of the centers,
                  upon reaching its operating goals, to contribute profits to
                  the Company's results of operations.

                  Interest expense for the year ended December 31, 1998
                  decreased approximately $522,000 or 58.5% as compared to the
                  same period a year ago. The reduction is mostly due to the
                  reduced debt from the mortgages on the two sold nursing homes
                  and the interest income earned on the notes receivable from
                  the sale of the homes offset by interest expense on additional
                  equipment at the new diagnostic centers.




                                      II-8


<PAGE>   16


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS
                  (CONTINUED)

                  RESULTS OF OPERATIONS  1997-1996
                  --------------------------------

                  1997-1996
                  ---------

                  Consolidated revenues from operations for the year ended
                  December 31, 1997 decreased approximately $404,000 or 2.3%
                  from the previous year. Net sales declined $381,000 or 13.5%
                  while service revenues decreased $23,000 or .2% from the
                  comparable period in 1996. The decline in sales was due to the
                  Company selling two of its retail pharmacies during 1997 while
                  the decrease in service revenue was due to the decline in
                  visits in the home health care subsidiary (which ceased
                  operations in April, 1997) offset by increased revenues at the
                  nursing homes.

                  Cost of sales decreased approximately $251,000 or 12.1% for
                  the year as compared to 1996. Gross margin for the year ended
                  December 31, 1997 was 25.3% as compared to 26.4% for the
                  comparable period in 1996. The decline is attributable to
                  pricing pressures in the competitive retail pharmacy markets
                  and price reductions at the locations that closed during the
                  year.

                  Selling, general and administrative expenses decreased
                  approximately $726,000 or 4.9% for the year ended December 31,
                  1997 as compared to 1996. The decrease is mostly due from
                  decreased visits in the home health care agency.

                  Interest expense increased approximately $32,000 or 3.7% for
                  the year ended December 31, 1997 as compared to 1996. In 1996
                  the Company did not have a working capital line of credit in
                  place until late May and therefore, incurred interest expense
                  relating only to equipment and mortgage for the first five
                  months of 1996. The 1997 amount includes the accounts
                  receivable securitization program interest costs through the
                  middle of March and the interest attributable to the
                  convertible subordinated and Series 1 bonds.




                                      II-9


<PAGE>   17


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                  MARKET RISK

                  The Company is exposed to various market risks, including
                  changes in foreign currency exchange rates and interest rates.
                  Market risk is the potential loss arising from adverse changes
                  in market rates and prices, such as foreign currency exchange
                  and interest rates. The Company does not enter into
                  derivatives or other financial instruments for trading or
                  speculative purposes. The Company enters into financial
                  instruments to manage and reduce the impact of changes in
                  foreign currency exchange rates.

                  FOREIGN EXCHANGE RATE RISK

                  The Company enters into forward foreign exchange contracts to
                  hedge the currency fluctuations on the borrowings denominated
                  in Swiss francs, thereby limiting the Company's risk that
                  would otherwise result from changes in exchange rates. As
                  these futures contracts are not for trading or speculative
                  purposes, the gains and losses on forward foreign exchange
                  contracts and the offsetting losses and gains on hedge
                  borrowings have been deferred until 2002, the maturity date of
                  the bonds being hedged. At December 31, 1998, the contract
                  amount of foreign currency forwards was $4,490,000 with an
                  average maturity of 90 days. The deferred loss on such
                  contracts at December 31, 1998 was approximately $41,000. A
                  10% fluctuation in exchange rates for these currencies would
                  change the fair value of the contracts by approximately
                  $450,000. However, since these contracts hedge foreign
                  currency denominated transactions, any change in the fair
                  value of the contracts would be offset by changes in the
                  underlying value of the transactions being hedged.

                  INTEREST RATES

                  The Company does not hedge its risk against interest rate
                  fluctuations. Most of the Company's borrowings have interest
                  rates that are locked in for the duration of the loan. The
                  Company has one mortgage that is linked to the prime rate. A
                  1% increase from the prevailing prime rate at December 31,
                  1998 would have an annual effect on interest expense to the
                  Company of approximately $14,000.

                  See Note 15 for information on the fair value of financial
                  instruments.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  See the list of financial statement schedules included in Part
                  IV, Item 14 of this Form 10-K.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING 
                  AND FINANCIAL DISCLOSURE

                  None.



                                      II-10


<PAGE>   18



                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------


To the Board of Directors
The Wendt-Bristol Health Services Corporation
Columbus, Ohio

         We have audited the accompanying consolidated balance sheets of The
Wendt-Bristol Health Services Corporation and Subsidiaries for the years ended
December 31, 1998 and 1997 and the related consolidated statements of income,
comprehensive income, cash flows and changes in stockholders' equity for each of
the three years in the period ended December 31, 1998. These financial
statements and schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Wendt-Bristol Health Services Corporation and Subsidiaries at December 31, 1998
and 1997 and the consolidated results of their operations, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
index to Item 14 relating to The Wendt-Bristol Health Services Corporation and
Subsidiaries are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
The supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements of The Wendt-Bristol
Health Services Corporation and Subsidiaries taken as a whole.

                                                        /s/ HAUSSER & TAYLOR LLP

Columbus, Ohio
April 12, 1999


                                      II-11


<PAGE>   19


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997
                           --------------------------

<TABLE>
<CAPTION>




          ASSETS                                                                     1998                    1997
          ------                                                                     ----                    ----

<S>                                                                         <C>                    <C> 
 CURRENT ASSETS
   Cash                                                                        $    577,317            $    625,109
   Restricted cash (Note 2)                                                         230,347                 221,120
   Receivables (Note 3):
    Trade, net of allowance for doubtful accounts of
    $227,000 in 1998 and $101,000 in 1997                                         1,009,486               1,899,967
    Notes receivable - current                                                      236,353               2,948,463
    Miscellaneous                                                                 1,196,056               1,184,921
                                                                             --------------             -----------
                                                                                  2,441,895               6,033,351


   Inventories                                                                       22,816                 202,951
   Prepaid expenses and other current assets                                        143,516                  66,655
                                                                             --------------             -----------
         Total current assets                                                     3,415,891               7,149,186
                                                                             --------------             -----------




 PROPERTY, PLANT AND EQUIPMENT (NOTES 4 AND 6)                                   10,680,870               5,768,148
   Less accumulated depreciation and amortization                                (1,864,752)             (1,656,764)
                                                                             --------------             -----------
                                                                                  8,816,118               4,111,384
                                                                             --------------             -----------

 INVESTMENTS AND OTHER ASSETS
   Securities available for sale, at market                                          52,500                  -
   Notes and other receivables, net of current portion                              149,201                 257,949
   Notes receivable from officers and related parties (Notes 10B and 10C)         1,013,658                 990,462
   Life insurance premiums receivable (Note 10D)                                  1,095,135                 972,451
   Investments and related advances, net (Note 5)                                 4,663,780               3,036,998
   Excess of cost over assets of businesses and subsidiaries
    acquired, less accumulated amortization                                         340,895                 355,439
   Deferred charges                                                                 599,249                 535,138
   Other assets                                                                      71,807                  98,454
                                                                             --------------             -----------
                                                                                  7,986,225               6,246,891
                                                                             --------------             -----------

         Total assets                                                       $    20,218,234            $ 17,507,461
                                                                             ==============             ===========

</TABLE>




    The accompanying notes are an integral part of the financial statements.

                                      II-12


<PAGE>   20


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997
                           --------------------------



<TABLE>
<CAPTION>


         LIABILITIES AND STOCKHOLDERS' EQUITY                          1998              1997
         ------------------------------------                          ----              ----

<S>                                                            <C>              <C>
 CURRENT LIABILITIES
   Accounts payable                                               $  1,768,848     $  2,789,660
   Accrued expenses and other liabilities:
      Salaries and wages                                               142,862          499,571
      Taxes, other than federal income taxes                           248,041          192,974
      Interest                                                         120,921           77,565
      Other                                                            171,937          678,517
   Long-term obligations classified as current (Note 6)                487,535          344,807
   Federal income taxes payable (Note 8)                                -                40,000
                                                                   -----------      -----------
      Total current liabilities                                      2,940,144        4,623,094
                                                                   -----------      -----------

 LONG-TERM OBLIGATIONS LESS AMOUNTS
  CLASSIFIED AS CURRENT (NOTE 6)                                    11,014,477        6,034,023
                                                                   -----------      -----------

 DEFERRED INCOME TAXES (NOTE 8)                                        132,300          262,600
                                                                   -----------      -----------

      Total liabilities                                             14,086,921       10,919,717
                                                                   -----------      -----------

 MINORITY INTERESTS                                                    611,390          542,618
                                                                   -----------      -----------

 CONTINGENCIES AND COMMITMENTS (NOTES 5, 6, 7 AND 11)

 STOCKHOLDERS' EQUITY (NOTES 2 AND 9)
   Preferred stock, $10 stated value, authorized 500,000
    shares, issued, none                                                 -                -
   Common stock, $.01 par, authorized 12,000,000 shares;
    issued 8,248,480 shares in 1998 and 1997                            82,485           82,485
   Capital in excess of par                                         10,260,927       10,244,805
   Unrealized losses on securities available for sale,
    net of tax                                                         (83,709)           -
   Retained earnings (deficit)                                      (2,012,237)      (1,737,483)
                                                                   -----------      -----------
                                                                     8,247,466        8,589,807

   Treasury stock, at cost, 2,179,301 shares in 1998 and
    2,067,254 shares in 1997                                        (2,727,543)      (2,544,681)
                                                                   -----------      -----------
                                                                     5,519,923        6,045,126
                                                                   -----------      -----------

      Total liabilities and stockholders' equity                  $ 20,218,234     $ 17,507,461
                                                                   ===========      ===========

</TABLE>




    The accompanying notes are an integral part of the financial statements.

                                      II-13


<PAGE>   21


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  --------------------------------------------


<TABLE>
<CAPTION>


                                                              1998            1997            1996
                                                              ----            ----            ----
<S>                                                  <C>             <C>             <C> 
 REVENUES
   Net sales                                           $    1,091,351   $   2,435,334   $   2,816,386
   Service income                                           6,521,288      14,694,917      14,717,744
                                                        -------------    ------------    ------------
                                                            7,612,639      17,130,251      17,534,130
                                                        -------------    ------------    ------------
 COSTS AND EXPENSES
   Cost of sales                                              836,899       1,820,352       2,071,596
   Selling, general and administrative expenses             6,845,208      14,088,614      14,814,307
   Depreciation                                               375,031         359,636         509,996
                                                        -------------    ------------    ------------
                                                            8,057,138      16,268,602      17,395,899
                                                        -------------    ------------    ------------
 
 OPERATING INCOME (LOSS)                                     (444,499)        861,649         138,231
                                                        -------------    ------------    ------------

 OTHER INCOME (EXPENSE)
   Minority interests in affiliates, net of tax               (68,772)       (128,038)        (97,308)
   Equity in earnings (losses) of affiliates (Note 5)         (20,100)        348,206         425,176
   Interest expense, net (Notes 3 and 6)                     (370,634)       (893,101)       (861,211)
   Gain on sale of assets (Note 1B)                           421,807       1,778,007          -
   Other, net                                                 103,464          12,190         102,425
                                                        -------------    ------------    ------------
                                                               65,765       1,117,264        (430,918)
                                                        -------------    ------------    ------------
 
 INCOME (LOSS) BEFORE INCOME TAXES                           (378,734)      1,978,913        (292,687)

 INCOME TAX BENEFIT (EXPENSE) (NOTE 8)                        103,980        (597,300)         46,409
                                                        -------------    ------------    ------------

 NET INCOME (LOSS)                                     $     (274,754)  $   1,381,613   $    (246,278)
                                                        =============    ============    ============


 INCOME (LOSS) PER COMMON SHARE  (NOTE 1)
   Basic                                               $         (.04)  $        0.22   $       (0.04)
                                                        =============    ============    ============
   Diluted                                             $         (.04)  $        0.21   $       (0.04)
                                                        =============    ============    ============


 WEIGHTED AVERAGE SHARES
 OUTSTANDING
   Basic                                                    6,113,646       6,224,241       5,825,686
                                                        =============    ============    ============
   Diluted                                                  6,113,646       6,916,241       5,825,686
                                                        =============    ============    ============

</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      II-14


<PAGE>   22


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  --------------------------------------------

<TABLE>
<CAPTION>

                                                1998             1997          1996
                                                ----             ----          ----

<S>                                      <C>            <C>             <C>         
 NET INCOME (LOSS)                          $   (274,754)  $   1,381,613   $  (246,278)


 UNREALIZED LOSS ON SECURITIES
   AVAILABLE FOR SALE, NET OF TAX
   OF $43,100                                    (83,709)          -             -
                                             -----------     ------------    ----------


 COMPREHENSIVE INCOME (LOSS)                $   (358,463)   $   1,381,613   $  (246,278)
                                             ===========     ============    ========== 

</TABLE>





    The accompanying notes are an integral part of the financial statements.

                                      II-15
<PAGE>   23


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  --------------------------------------------

<TABLE>
<CAPTION>


                                                                  CAPITAL   UNREALIZED      RETAINED
                                                      COMMON     IN EXCESS    LOSS ON       EARNINGS        TREASURY
                                                       STOCK       OF PAR   SECURITIES      (DEFICIT)        STOCK         TOTAL
                                                       -----       ------   ----------      ---------        -----         -----

<S>                                               <C>       <C>           <C>         <C>            <C>            <C>        
BALANCE AT DECEMBER 31, 1995                         $ 82,435  $ 10,274,974  $   -       $ (2,872,818)  $ (2,942,016)  $ 4,542,575


  Shares contributed to Retirement Plan
    (16,262 shares)                                                 (10,224)                                  18,957         8,733

  Sale of treasury shares (500,000 shares) (Note 9)                 (26,000)                                 463,000       437,000

  Net loss                                                                                   (246,278)                    (246,278)
                                                      -------   -----------   ---------   ------------   ------------   ----------
BALANCE AT DECEMBER 31, 1996                           82,435    10,238,750      -         (3,119,096)    (2,460,059)    4,742,030

  Shares contributed to Retirement Plan
    (6,306 shares)                                                    1,730                                    7,728         9,458

  Treasury stock acquired (66,100 shares)                                                                    (92,350)      (92,350)

  Stock options exercised (5,000 shares)                   50         4,325                                                  4,375

  Net income                                                                                1,781,613                    1,781,613
                                                      -------   -----------   ---------   ------------   ------------   ----------
BALANCE AT DECEMBER 31, 1997                           82,485    10,244,805      -         (1,337,483)    (2,544,681)    6,445,126

  Prior period adjustment (Note 17)                                                          (400,000)                    (400,000)

  Shares contributed to Retirement Plan                                 180                                   11,636        11,816
  (9,453 shares)

  Treasury stock acquired (321,500 shares)                                                                  (443,547)     (443,547)

  Sale of treasury shares (200,000 shares)                           15,942                                  249,049       264,991
  (Note 9)

  Unrealized loss on investments available
  for sale of $126,809, net of tax of $43,100                                  (83,709)                                    (83,709)

  Net loss                                                                                   (274,754)                    (274,754)
                                                      -------   -----------   ---------   ------------   ------------   ----------

BALANCE AT DECEMBER 31, 1998                         $ 82,485  $ 10,260,927  $ (83,709)  $ (2,012,237)  $ (2,727,543)  $ 5,519,923
                                                      =======   ===========   =========   ============   ============   ==========


</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                     II-16

<PAGE>   24


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  --------------------------------------------

<TABLE>
<CAPTION>


                                                               1998              1997            1996
                                                               ----              ----            ----
<S>                                                  <C>              <C>               <C> 
 CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                   $    (274,754)   $     1,381,613   $    (246,278)
                                                        ------------     --------------    ------------
   Adjustments required to reconcile net income
    (loss) to net cash provided by operating
     activities:
      Amortization, depreciation and other, net              412,070            350,093         530,481
      Provision for losses on notes and accounts
       receivable                                            208,237             59,958          65,480
      Provision for deferred income taxes                    (87,200)           516,300         (84,300)
      Gain on sale of significant assets                    (421,807)        (1,778,007)          -
      (Gain) loss on sale of other assets                      6,749            (98,548)          -
      Minority interest in earnings of  affiliates            68,772            128,038          97,308
      Equity in (earnings) losses of affiliates               20,100           (348,206)       (425,176)
      Changes in assets and liabilities:
       Receivables:
        Sale (purchase) of receivables                        -                (269,176)        494,188
        Other changes                                        671,109            (68,328)        (69,178)
       Inventories                                           180,135            279,979           6,112
       Prepaid expenses and other current assets             (65,045)           103,672         324,052
       Accounts payable                                   (1,020,812)           491,994         282,693
       Accrued expenses and other liabilities               (764,866)        (1,550,552)     (1,520,547)
       Federal income taxes payable                          (40,000)            40,000        (100,000)
       Deferred charges and other                            (62,153)          (153,732)        (95,783)
                                                        ------------     --------------    ------------
        Total adjustments                                   (894,711)        (2,296,515)       (494,670)
                                                        ------------     --------------    ------------
         Net cash used in operations                      (1,169,465)          (914,902)       (740,948)
                                                        ------------     --------------    ------------

 CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of marketable securities                        (179,309)           -                 -
   Investment and advances to affiliates, net             (1,661,349)        (1,892,782)        311,802
   Collection on sale of nursing homes assets              2,923,794            750,000           -
   Proceeds from sale of other property, plant and
    equipment and investments                                425,000            115,500           -
   Decrease (increase) in notes receivable                  (102,936)          (170,911)        (57,701)
   Disbursements to related parties and
    former affiliates, net                                  (145,880)           (62,669)       (236,575)
   Deposit to restricted cash                                 (9,227)          (104,882)       (217,063)
   Capital expenditures                                     (312,460)          (446,027)       (219,040)
                                                        ------------     --------------    ------------
    Net cash provided by (used) in investing activities      937,633         (1,811,771)       (418,577)
                                                        ------------     --------------    ------------
                                                           

</TABLE>






    The accompanying notes are an integral part of the financial statements.

                                      II-17


<PAGE>   25


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  --------------------------------------------

<TABLE>
<CAPTION>


                                                                    1998            1997          1996
                                                                    ----            ----          ----
<S>                                                             <C>             <C>          <C>
 CASH FLOWS FROM FINANCING
  ACTIVITIES
  Distributions to limited partners, net                             -             143,842       -
  Purchase of common stock of subsidiary                             -             (85,730)      (8,000)
  Proceeds from sale of treasury stock                              264,991         -           500,000
  Treasury stock purchased                                         (443,547)       (92,350)      -
  Proceeds from officer obligation                                   50,000         90,000     (305,000)
  Principal payments of officer obligation                          (50,000)      (145,000)     360,000
  Proceeds from warrants and options exercised                       -               4,375       -
  Principal payments on long-term obligations                      (442,706)      (666,130)    (508,349)
  Proceeds from borrowing on long-term obligations                  806,302      3,604,934    1,583,390
  Net advances from (payments to)
   securitization program                                           -             (392,287)     392,287
                                                                 ----------      ---------    ---------
    Net cash provided by financing activities                       185,040      2,461,654    2,014,328
                                                                 ----------      ---------    ---------

 NET INCREASE (DECREASE) IN CASH                                    (47,792)      (265,019)     854,803

 CASH - BEGINNING OF PERIOD                                         625,109        890,128       35,325
                                                                 ----------      ---------    ---------

 CASH - END OF PERIOD                                           $   577,317     $  625,109   $  890,128
                                                                 ==========      =========    =========

 SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION
  Cash paid during the years for:
   Interest, net of interest income                              $  336,297     $  917,105   $  819,177
   Income taxes                                                  $   95,037     $   43,816   $  129,038

 Supplemental Disclosures of Noncash
 Investing and Financing Activity (Note 14)

</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      II-18


<PAGE>   26


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL

     A.           PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
                  -----------------------------------------------------------

                  The accompanying consolidated financial statements include the
                  accounts of The Wendt-Bristol Health Services Corporations,
                  its wholly-owned subsidiaries and the majority-owned and
                  controlled subsidiary, Wendt-Bristol Diagnostics Company
                  (WBDC), herein referred to as the "Company". The Company
                  through a wholly-owned subsidiary owns approximately 86%, 86%
                  and 83% of WBDC at December 31, 1998, 1997 and 1996,
                  respectively. All material intercompany accounts and
                  transactions have been eliminated in consolidation.

                  Investments in 22 1/2 to 50 percent owned affiliates
                  significantly influenced by management are accounted for by
                  the equity method of accounting, whereby the investment is
                  carried at cost of acquisition plus the Company's equity in
                  undistributed earnings or losses since acquisition. Reserves
                  are provided where management determines the investment,
                  advances or equity in earnings is not realizable. Investments
                  accounted for under the equity method include limited
                  liability companies, a limited partnership in which a
                  subsidiary is general partner and a C corporation (see Note
                  5).

     B.           ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, SIGNIFICANT 
                  ---------------------------------------------------------- 
                  ASSETS, PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS
                  ----------------------------------------------------

                  Effective at the close of business on December 31, 1997, the
                  Company sold all of the operating assets of two of its three
                  nursing homes for a total purchase price of approximately $9.9
                  million. This was financed with cash of $750,000; assumption
                  of mortgage debt of approximately $6.2 million and a note
                  receivable of approximately $2.9 million which was collected
                  in April 1998. The gain on sale of approximately $1,778,000 is
                  included in the 1997 "Consolidated Statement of Operations".
                  The following summarizes the operations of the two nursing
                  homes for the years ended December 31, 1997 and 1996:

                                                    (IN 000'S)
                                              1997 (A)     1996
                                             --------      ----

                      Revenues              $   9,123   $   9,254
                      Operating income          1,091       1,049
                      Net income                  495         110

                  (A) Excludes gain on sale of nursing home assets.

                  During December 1996, WBDC formed Wendt-Bristol Crosswoods,
                  Ltd. a limited liability company ("LLC") in which the Company
                  has a 50% interest. Operations of this new diagnostics center
                  began in January 1997 and has expanded to include helical CT
                  and additional modalities during 1997 and 1998.

                  During 1997, WBDC acquired a 22.5% interest in Wendt-Bristol
                  at Park Oncology Center, Ltd. (a LLC), a venture that was
                  formed to own and operate a radiation therapy center.
                  Operations began during the fourth quarter 1997. Effective
                  April 1, 1998, the Company exchanged its interest in this LLC
                  for the same ownership interest in a C corporation,
                  Wendt-Bristol Oncology Centers, Inc. which now owns 100% of
                  the LLC.




                                      II-19


<PAGE>   27


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL 
                  (CONTINUED)

     B.           ACQUISITIONS AND DISPOSITIONS OF SUBSIDIARIES, SIGNIFICANT 
                  ---------------------------------------------------------- 
                  ASSETS, PARTNERSHIP INTERESTS OR OWNERSHIP INTERESTS 
                  ---------------------------------------------------- 
                  (CONTINUED)
                  -----------

                  During 1997, WBDC acquired a 50% interest in Jasonway, Ltd. (a
                  LLC), a venture that was formed to construct and rent a
                  medical and office complex. Construction was completed in the
                  third quarter 1998. During the fourth quarter 1998,
                  Diagnostics sold its 50% interest resulting in a gain of
                  approximately $422,000 which is included in the 1998
                  "Consolidated Statement of Operations".

                  During 1997, the Company ceased to operate its home health
                  care delivery services. Loss from operations approximated
                  $91,000 and $124,000 for the years ended December 31, 1997 and
                  1996, respectively, which is included in the "Consolidated
                  Statements of Operations".

                  During the fourth quarter 1998, the Company sold its remaining
                  pharmacy to a competitor for $30,000 plus the cost of the
                  inventory.

     C.           STATEMENT OF CASH FLOWS
                  -----------------------

                  For purposes of the statement of cash flows, the Company
                  considers all highly liquid debt investments purchased with a
                  maturity of three months or less to be cash. No such
                  investments were purchased during 1998, 1997 or 1996.

     D.           CONCENTRATIONS OF CREDIT RISK
                  -----------------------------

                  Credit risk associated with cash balances in excess of
                  federally-insured amounts is minimized by using several
                  accounts at major financial institutions.

     E.           ACCOUNTS RECEIVABLE
                  -------------------

                  In May, 1996 the Company and certain of its subsidiaries
                  entered into a financing arrangement involving the sale of
                  their trade accounts receivable. This financing arrangement
                  terminated through payment in March, 1997. The agreement
                  provided for the Company's sale of its health care trade
                  accounts receivable, subject to various terms and conditions,
                  with limited recourse, with the Company continuing to service
                  the accounts. A sale was recorded when the health care
                  accounts receivable were transferred to the purchaser, net of
                  contractual allowances. Such sales are not included in the
                  Consolidated Statement of Operations and no gain or loss
                  arises in the transaction.

                  Certain receivables from the Company's medical services
                  segment which include diagnostic and oncology centers are due
                  from third party payors, including Medicare, Medicaid and
                  commercial insurance carriers, under contractual arrangements
                  by which payment may be at a discount from billed charges, as
                  is customary within the health care industry. The Company
                  estimates and records allowances for such discounts to
                  recognize revenues net of the contractual allowance when the
                  service income is earned based on amounts expected to be
                  recovered.


                                      II-20


<PAGE>   28


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL 
                  (CONTINUED)

     E.           ACCOUNTS RECEIVABLE (CONTINUED)
                  -------------------------------

                  A significant portion of the income earned by the nursing home
                  is related to services provided to Medicaid patients. The
                  income reported for the nursing homes is based on cost reports
                  filed with the State of Ohio and such reports are subject to
                  audit and adjustment by Medicaid auditors. Management
                  estimates and records adjustments to recognize service income
                  based on amounts expected to be recovered when the service
                  income is earned.

     F.           INVENTORIES
                  -----------

                  Inventories are stated at the lower of cost or market,
                  determined on the first-in, first-out basis. Inventories at
                  December 31, 1998 and 1997 were $22,816 and $202,951,
                  respectively. These inventories consist of retail
                  pharmaceuticals, durable medical equipment and supplies in
                  1997 and durable medical equipment in 1998.

     G.           PROPERTY, PLANT AND EQUIPMENT
                  -----------------------------

                  Property, plant and equipment are stated at cost. Depreciation
                  for financial reporting purposes is computed using principally
                  the straight-line method over the estimated useful lives of
                  the related assets. Leasehold improvements are amortized over
                  the primary lease term or the life of the related improvement,
                  whichever period is shorter. Expenditures for major renewals
                  and betterments that extend the useful lives of property,
                  plant and equipment are capitalized. Expenditures for
                  maintenance and repairs are charged to operations as incurred.

                  Long-lived assets held and used by the Company are reviewed
                  for impairment whenever events or changes in circumstances
                  indicate that the carrying amount of an assets may not be
                  recoverable. For purposes of evaluating the recoverability of
                  long-lived assets, the recoverability test is performed using
                  undiscounted net cash flows. There were no such impairment
                  adjustments at December 31, 1998, 1997 or 1996 (see Note 4).

     H.           EXCESS OF COST OVER ASSETS OF BUSINESSES AND SUBSIDIARIES 
                  --------------------------------------------------------- 
                  ACQUIRED
                  --------

                  Costs of acquired businesses in excess of the value of net
                  assets (i.e., goodwill) are amortized over periods ranging
                  from 20 to 40 years, except for goodwill associated with the
                  manufacturing real estate, which is being amortized over the
                  estimated remaining life of the building. During the fourth
                  quarter of 1997, the Company deducted the remaining goodwill
                  of approximately $189,000 associated to its interest in Health
                  America against the gain on the sale of the nursing homes.
                  Amortization expense excluding this one-time adjustment for
                  the years ended December 31, 1998, 1997, and 1996,
                  approximated $14,500, $28,400 and $20,500, respectively.
                  Accumulated amortization at December 31, 1998, 1997 and 1996,
                  was $166,200, $151,700, and $123,000, respectively. Goodwill
                  consists of an amount applicable to the manufacturing real
                  estate and the purchase of common shares of Diagnostics
                  Company.

                  The Company periodically evaluates the recoverability of
                  intangibles resulting from business acquisitions and measures
                  the amount of impairment, if any, by assessing current and
                  future levels of income and cash flows as well as other
                  factors, such as business trends and prospects and market and
                  economic conditions. There were no such impairment adjustments
                  at December 31, 1998, 1997 and 1996.



                                      II-21


<PAGE>   29


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL 
                  (CONTINUED)

     I.           DEFERRED CHARGES
                  ----------------

                  The Company has included in deferred charges costs that are
                  being amortized over future periods ranging from 5 to 11
                  years. Deferred charges are predominantly costs associated
                  with financing, costs incurred for staff training, opening new
                  facilities and a rent adjustment to properly recognize rental
                  income on the leased manufacturing facility (see Note 1O).

     J.           ESTIMATES
                  ---------

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported amounts of revenues and expenses during the
                  reporting period. Actual results could differ from these
                  estimates.

     K.           INCOME (LOSS) PER SHARE
                  -----------------------

                  Per share amounts were computed using the weighted average
                  number of shares outstanding during each period for basic
                  which was adjusted for the effect of dilutive potential common
                  shares in the computation of diluted EPS. (See Note 9)

     L.           INCOME TAXES
                  ------------

                  The Company utilizes the liability method of accounting for
                  income taxes. Deferred income taxes reflect the net tax
                  effects of temporary differences between the carrying amounts
                  of assets and liabilities for financial reporting purposes and
                  the amounts used for income taxes, and are measured using the
                  enacted tax rates and laws that will be in effect or expected
                  to continue in effect when the differences are expected to
                  reverse. (See Note 8)

     M.           FINANCIAL INSTRUMENTS AND FAIR VALUE
                  ------------------------------------

                  The estimated fair value of amounts reported in the financial
                  statements have been determined using available market
                  information and valuation methodologies, as applicable (see
                  Note 15).

                  The Company enters into foreign currency contracts in order to
                  reduce the impact of certain foreign currency fluctuations.
                  The Company does not enter into financial instruments for
                  trading or speculative purposes. Gains and losses related to
                  qualifying hedges, measured by quoted market prices,
                  termination values or other methods of firm commitments are
                  deferred and are recognized as income or as adjustments of
                  carrying amounts when the hedged transaction occurs, except
                  that losses not expected to be recovered upon the completion
                  of the hedged transactions are expensed. On the balance sheet,
                  deferred gains and losses are included in long-term assets and
                  liabilities (see Note 15).


                                      II-22

<PAGE>   30


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL 
                  (CONTINUED)

     N.           STOCK BASED COMPENSATION
                  ------------------------

                  The Company utilizes the provisions of Accounting Principles
                  Board ("APB") No. 25, "Accounting for Stock Issued to
                  Employees" which utilizes the intrinsic value based method.
                  The Financial Accounting Standards Board ("FASB") Statement
                  No. 123, "Accounting for Stock-Based Compensation", which
                  utilizes a fair value based method is effective for the
                  Company's year beginning January 1, 1996. The FASB requires
                  disclosure for new employee stock options of the impact to the
                  financial statements of utilizing the intrinsic value versus
                  the fair value based method (see Note 9).

     O.           ACCOUNTING PRONOUNCEMENTS FOR 1999 AND LATER
                  --------------------------------------------

                  Effective for fiscal years beginning after June 15, 1999, FASB
                  Statement No. 133 "Accounting for Derivative Instruments and
                  Hedging Activities" requires the recording of deferred gains
                  or losses on foreign currency hedge transactions for the
                  effective portion of the cash flow hedge as a component of
                  comprehensive income and reclassifies into earnings in the
                  same period as the hedged forecasted transaction affects
                  earnings. At December 31, 1998, the Company has deferred
                  approximately $40,500 of losses on the foreign currency hedges
                  ($27,000 net of tax).

                  On April 3, 1998 the Accounting Standards Executive Committee
                  issued Statement of Position (SOP) 98-5 "Reporting on the
                  Costs and Start-up Activities" which states that the costs of
                  start-up activities, including organization costs, should be
                  expensed as incurred. Implementation of SOP 98-5 is required
                  for financial statements issued for fiscal years beginning
                  after December 15, 1998 with the initial application of this
                  SOP being reported as cumulative effect of a change in
                  accounting principle. Currently, the Company has an asset of
                  approximately $240,000 included in the caption "Deferred
                  charges" on the balance sheet at December 31, 1998. If the SOP
                  was adopted early, there would be a cumulative charge to
                  earnings at this time of approximately $206,000 for the
                  consolidated entities, net of minority interest.

                  In addition, entities accounted for by the equity method have
                  deferred start-up charges on their balance sheets totaling
                  $428,000 at December 31, 1998. If SOP 98-5 was adopted early,
                  there would be a cumulative charge to earnings of the Company
                  relating to these affiliates at this time of approximately
                  $117,000, net of minority interest.

                  The Company will implement this effective January 1, 1999 with
                  a cumulative change in accounting principle approximating
                  $249,000 (net of tax of $128,000) and an increase of $37,000
                  in "minority interest in affiliates", net of tax for a total
                  impact to the financial statements of decreasing net income by
                  approximately $212,000.

     P.           FINANCIAL STATEMENT RESTATEMENT AND RECLASSIFICATIONS
                  -----------------------------------------------------

                  The financial statements for the years ended December 31, 1997
                  and 1996 have been restated (see Note 17). Additionally, other
                  reclassifications have been made to the 1997 and 1996
                  financial statements to conform with the presentation for the
                  year ended December 31, 1998.



                                      II-23

<PAGE>   31


           WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 2.           RESTRICTED CASH

                  The Company has restricted cash of $230,347 and $221,120 at
                  December 31, 1998 and 1997, respectively. The amounts in a
                  bank trust account were $129,044 and $179,934 at December 31,
                  1998 and 1997, respectively. These restricted assets were set
                  aside to satisfy the New Jersey Department of Environmental
                  Protection and Energy in connection with the reimbursement of
                  clean-up expenses at the leased manufacturing facility located
                  in Passaic, New Jersey. (See Item 1. Business and Note 11A.)
                  The remainder of the restricted cash represents amounts in a
                  brokerage margin account that is maintained in conjunction
                  with foreign exchange futures contracts.

NOTE 3.           RECEIVABLES

                  The following schedule states current receivables by specific
                  groups as indicated at December 31:
<TABLE>
<CAPTION>

                                                                      1998            1997
                                                                      ----            ----
                   <S>                                        <C>              <C> 
                      Receivables:
                       Trade (net of allowance for doubtful
                       accounts)                                 $  1,009,486     $  1,899,967
                                                                  -----------      -----------
                      Notes receivable - current:
                       Nursing homes sales (a)                          -            2,923,794
                       Sale of LLC ownership interest (b)             225,000            -
                       Others                                          11,353           24,669
                                                                  -----------      -----------
                      Total                                           236,353        2,948,463
                                                                  -----------      -----------

                      Miscellaneous receivables:
                       Nursing homes sale (a)                           -              326,990
                       Medicare settlements                           151,838          259,202
                       Pharmacy sale (c)                              111,814           -
                       Consulting agreement (d)                       251,250           -
                       Others - (e)                                   681,154          598,729
                                                                  -----------      -----------
                      Total                                         1,196,056        1,184,921
                                                                  -----------      -----------

                      Total current receivables                  $  2,441,895     $  6,033,351
                                                                  ===========      ===========


</TABLE>


                                      II-24


<PAGE>   32


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 3.           RECEIVABLES (CONTINUED)

                  (a)      At December 31, 1997, the Company sold two of its
                           nursing homes assets. The current note receivable was
                           collected in full in April 1998. (See Note 1B) The
                           miscellaneous receivables represent escrow balances
                           related to HUD financing which also was collected in
                           April 1998.

                  (b)      The balance consists of a note receivable from the
                           sale of a subsidiary's interest in an LLC (see Note
                           1B) due in June 1999.

                  (c)      The balance consists of the amount due from a third
                           party pertaining to the pharmacy sold in December
                           1998 (see Note 1B). The amount was collected in full
                           in January 1999.

                  (d)      Amount relates to a consulting agreement which is
                           expected to be collected in the second quarter of
                           1999.

                  (e)      The balance consists mostly (approximately $431,000
                           and $400,000 in 1998 and 1997, respectively) of a
                           receivable due from the former owner of two of the
                           nursing homes regarding final collection of the
                           purchase price of the transaction. 

                  Total interest income for the years ended December 31, 1998,
                  1997 and 1996, amounted to approximately $240,000, $175,000,
                  and $104,000, respectively, and is netted against interest
                  expense in the accompanying Consolidated Statements of
                  Operations. See Note 10C for related party interest income.

NOTE 4.           PROPERTY, PLANT AND EQUIPMENT

                  Property, plant and equipment at December 31, 1998 and 1997
                  and the estimated useful lives used in computing depreciation
                  are as follows:
<TABLE>
<CAPTION>
                                                                                          
                                                              DECEMBER 31,                ESTIMATED
                                                              ------------               USEFUL LIVES
                                                         1998              1997           (IN YEARS)
                                                         ----              ----           ----------
                 <S>                            <C>               <C>                    <C>
                    Land and improvements          $   1,209,773     $   1,209,773            30
                    Buildings and improvements         3,825,650         3,748,139          3-40
                    Machinery and equipment            5,645,447           810,236          3-14
                                                    ------------      ------------
                                                      10,680,870         5,768,148
                    Accumulated depreciation
                     and amortization                 (1,864,752)       (1,656,764)
                                                    ------------      ------------
                                                   $   8,816,118     $   4,111,384
                                                    ============      ============
</TABLE>

                  Included in property, plant and equipment at December 31, 1998
                  and 1997 are land, buildings and improvements of $4,540,556
                  and $4,517,834 with accumulated depreciation and amortization
                  of $1,285,373 and $1,176,265, respectively, leased to the
                  purchaser of its former manufacturing division (see Note 11A).

                                      II-25


<PAGE>   33


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 4.           PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

                  Subsequent to year-end, the Company learned that the tenant
                  vacated the premises. Management has reviewed the property,
                  plant, equipment and related intangible assets including
                  goodwill in accordance with its policy on evaluating
                  long-lived assets and intangibles for recoverability.
                  Management believes that an impairment adjustment at December
                  31, 1998 is not deemed necessary due to the tenant's continued
                  recognition of its obligations under the lease, including the
                  maintenance of the property along with continued insurance
                  coverage and the payment of rent when due. Further, management
                  believes that the property will have a carrying value
                  equivalent to the estimated market value at the end of the
                  lease. Should the tenant desire an earlier termination of the
                  lease, the Company would expect the tenant to provide an
                  acceptable sub-tenant or buyer consistent with the value of
                  the assets.

                  Depreciation expense for the years ended December 31, 1998,
                  1997 and 1996 was $375,031, $359,636, and $509,996,
                  respectively.

NOTE 5.           EQUITY IN AFFILIATES

                  WBDC is accounting for the following entities under the equity
                  method of accounting: Wendt-Bristol Diagnostics LP, a limited
                  partnership of which WBDC is the general partner ("Diagnostics
                  LP"); Wendt-Bristol Crosswoods, Ltd., a limited liability
                  company of which WBDC owns 50% ("Crosswoods"), Wendt-Bristol
                  Oncology Centers, Inc., a C corporation of which WBDC owns
                  22.5% ("Oncology"), and Jasonway Partners, Ltd., a limited
                  liability company of which WBDC owned 50% through December 31,
                  1998 when the investment was sold.

                  Diagnostics LP operates a diagnostic center featuring magnetic
                  imaging resonance device ("MRI"), CT Scan, Sonography and
                  other modalities. Crosswoods is a diagnostic center acquired
                  in January 1997 with an MRI and has expanded in 1997 and 1998
                  with additional modalities. Oncology operates radiation
                  therapy practices which began operations in one location in
                  fourth quarter 1997 and in a second location in fourth quarter
                  1998. Jasonway Partners, Ltd. constructed a medical complex
                  which was completed in the fourth quarter 1998 and Oncology
                  operates its second facility from a significant portion of
                  this medical complex. WBDC sold its interest in Jasonway
                  Partners, Ltd. on December 31, 1998 (see Note 1B).



                                      11-26


<PAGE>   34


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 5.           EQUITY IN AFFILIATES (CONTINUED)

                  Audited financial information of the affiliates which are
                  accounted for by the equity method (See Note 1A) is summarized
                  below:

<TABLE>
<CAPTION>

                                                                                        (IN 000'S)
                                                                          ---------------------------------------
                                                                               1998          1997          1996
                                                                               ----          ----          ----
                            COMBINED BALANCE SHEETS
                  <S>                                                    <C>           <C>            <C>     
                    Current assets                                          $  2,299      $   2,153      $    643
                    Property, plant and equipment, net of accumulated
                     depreciation                                             10,483          9,568         3,793
                    Other non-current assets                                     705            722         1,268
                                                                            --------      ---------      --------
                      Total assets                                          $ 13,487      $  12,443      $  5,704
                                                                            ========      =========      ========
                    Liabilities                                             $ 12,416      $  10,213         4,214
                    Equity                                                     1,071          2,230         1,490
                                                                            --------      ---------      --------
                      Total liabilities and equity                          $  3,487      $  12,443      $  5,704
                                                                            ========      =========      ========
                     COMBINED STATEMENTS OF OPERATIONS
                    Service revenues                                        $  7,204       $  5,667      $  4,218
                    Operating income (loss)                                     (649)           580           648
                    Net income (loss)                                         (1,150)           208           405
</TABLE>


                  A limited liability company in which the Company had a 50%
                  interest with assets of $875,000, liabilities of $840,000 and
                  equity of $35,000 is unaudited as of December 31, 1997. The
                  limited liability company had acquired land for which a
                  medical facility was under construction at December 31, 1998;
                  therefore, it had no operations. The Company sold its interest
                  in this LLC on December 31, 1998 (see Note 1B).

                  As a result of the limited liability companies and limited
                  partnership being taxed as partnerships for Federal income tax
                  purposes, there is no tax provided for earnings.

                  Consolidated retained earnings of the Company represented by
                  undistributed earnings of these equity affiliates total
                  $1,896,000 and $1,901,000 at December 31, 1998 and 1997,
                  respectively.




                                      II-27


<PAGE>   35


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5.           EQUITY IN AFFILIATES (CONTINUED)

                  The Company has investments and related advances, net at
                  December 31, 1998 and 1997 of these equity method affiliates
                  of approximately $4,664,000 and $3,037,000, respectively.
                  During 1998 and 1997, the Company has made investments and
                  advances, net totaling approximately $1,661,000 and
                  $1,893,000, respectively. Advances have been made in excess of
                  amounts required by the partnership and other agreements.
                  Total equity in these affiliates at December 31, 1998 and 1997
                  approximated $1,071,000 and $2,230,000, respectively.
                  Management has determined that the growth and focus of the
                  Company should be in diagnostic imaging, radiation therapy and
                  nuclear medicine. In this regard, the Company's expansion has
                  included entities that involve other investors; however, the
                  Company has retained operational control of the businesses.
                  During 1998, the Company, through these entities, has
                  aggressively added new locations, an addition to an existing
                  facility and the addition of new technology. The most
                  prominent addition is a new facility that opened in November
                  1998 containing radiation therapy, nuclear medicine and
                  diagnostic imaging, including the first and only P.E.T.
                  scanning device (for oncology and cardiac applications) in
                  Central Ohio.

                  Although the Company had significant advances to these
                  entities during their development and/or expansion, Management
                  believes that projected operating results as well as the
                  estimated value of the businesses will ensure the
                  collectibility of the advances and retain or increase the
                  value of the investments.

                  See Note 10E for management fee income received from these
                  affiliates.

                  See Note 11B for related debt guarantees.





                                      II-28


<PAGE>   36


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




NOTE 6.           LONG-TERM OBLIGATIONS

                  At December 31, 1998 and 1997, long-term obligations are as
                  follows:

<TABLE>
<CAPTION>
                                                                       1998              1997
                                                                       ----              ----
               <S>                                             <C>                <C> 
                  5.5% subordinated convertible bond,
                  interest only payable in quarterly
                  installments, principal due December, 2001      $  1,000,000       $ 1,000,000

                  5.0% bonds, denominated in Swiss francs, 
                  interest only payable in quarterly 
                  installments, principal due February, 2002, 
                  collateralized by right to obtain lien on
                  accounts receivable and inventory                  3,416,934         3,416,934

                  7.0% bonds, denominated in Swiss francs, 
                  interest only payable in quarterly 
                  installments, principal due December 2003, 
                  collateralized by right to obtain lien on
                  mortgaged land and real estate                       806,300            -

                  Variable rate mortgage - interest at 10.75% 
                  and 11.50% at December 31, 1998 and 1997, 
                  respectively, payable in monthly installments 
                  including interest through April, 2001, with
                  any remaining balance due May 1, 2001              1,433,516         1,546,509

                  9% to 13% notes payable in monthly
                  installments including interest, through
                  October 2005, collateralized by equipment          4,845,262           415,387
                                                                   -----------        ----------
                                                                    11,502,012         6,378,830
                  Less: current installments                           487,535           344,807
                                                                   -----------        ----------
                  Long-term portion                               $ 11,014,477       $ 6,034,023
                                                                   ===========        ==========

</TABLE>


                  Subsequent to year-end, a 7% bond, denominated in Swiss
                  francs, for $269,000 (400,000 Swiss Francs) was issued with
                  interest only payable in quarterly installments with principal
                  due December 2003. The bond is collateralized by the
                  bondholder's right to obtain a lien on mortgaged land and real
                  estate.

                  SUBORDINATED CONVERTIBLE BOND
                  -----------------------------

                  Beginning February 2, 1997 through December 30, 2001, the
                  subordinated convertible bond may be converted in units of not
                  less than $100,000 into fully paid shares of the Company's
                  common stock at a conversion ratio of $2.00 of principle for
                  one share of common stock for the beneficial ownership of a
                  non United States person, pursuant to Regulation S of the
                  Securities Act of 1933.





                                      II-29


<PAGE>   37


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 6.           LONG-TERM OBLIGATIONS (CONTINUED)

                  OTHER
                  -----

                  Aggregate future principal maturities of long-term debt and
                  capital lease obligations are as follows: 1999 - $487,535,
                  2000 - $791,626, 2001 - $2,949,755, 2002 - $4,211,438, and
                  thereafter - $3,061,658.

                  All land and real estate is collateralized by the mortgages
                  payable.

                  The Company incurred interest expense in the amount of
                  $609,945, $1,063,017, and $965,525 in 1998, 1997 and 1996,
                  respectively.

                  COMMITMENTS
                  -----------

                  The Company and its subsidiaries have committed to certain
                  equipment acquisitions that will be financed through a
                  combination of current equipment financing relationships,
                  vendor programs or newly available resources. The cost of such
                  equipment currently on order is approximately $950,000.

                  In April 1998, the Company secured an equipment lease line of
                  credit for $1,000,000 with a finance company. As of December
                  31, 1998, approximately $924,000 has been drawn against this
                  lease line with the remainder drawn in first quarter 1999.

                  See Commitments and Contingencies Note 11B for debt guarantees
                  made by the Company for entities which the Company has equity
                  ownership interests.

NOTE 7.           LEASE COMMITMENTS

                  The Company leases all of the locations used in its businesses
                  under leases expiring on dates ranging through July 2015.

                  As of December 31, 1998, minimum annual rental commitments
                  under noncancelable leases amount to:


                                                  OPERATING
                                                    LEASES
                                                    ------

                               1999            $    803,810
                               2000                 795,425
                               2001                 786,183
                               2002                 774,952
                               2003                 705,318
                            Thereafter            5,944,605
                                                -----------
                                               $  9,810,293
                                                ===========

                  In addition, the Company remains contingently liable for
                  certain leases on locations that have been sold. These
                  contingent leases include payments aggregating $51,000 over
                  the next two years.

                  Rental expense included in the Consolidated Statements of
                  Operations for the years ended December 31, 1998, 1997 and
                  1996, was approximately $620,000, $543,000, and $541,000.

                                      II-30


<PAGE>   38


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 8.           INCOME TAXES

                  The Company has recognized a deferred tax liability, a
                  deferred tax asset and a valuation allowance against the
                  deferred tax assets. The components of these consolidated
                  deferred tax items at December 31, 1998 and 1997 are as
                  follows:
<TABLE>
<CAPTION>

                                                                      1998                1997
                                                                      ----                ----
                  <S>                                         <C>                <C>
                    Assets:
                      Net operating loss carryforwards           $    944,900       $    576,500
                      Investment tax credit carryforwards              15,600             20,700
                      Alternative minimum tax credits                  64,600             64,600
                      Bad debt allowance                               98,100             71,400
                      Other                                            46,400              6,300
                                                                  -----------        -----------
                                                                    1,169,600            739,500
                      Less:  valuation allowance                        -                  -
                                                                  -----------        -----------
                                                                    1,169,600            739,500
                                                                  -----------        -----------
                    Liabilities:
                      Depreciation and amortization                   251,200            120,600
                      Costs capitalized in connection
                      with acquisitions                               591,200            605,000
                      Income and expense recognition                  455,000            253,000
                      Other                                             4,500             23,500
                                                                  -----------        -----------
                                                                    1,301,900          1,002,100
                                                                  -----------        -----------

                    Net deferred tax liability                   $    132,300       $    262,600
                                                                  ===========        ===========
</TABLE>
                  
                  These deferred tax assets and liabilities have been offset for
                  balance sheet presentation except for the "net deferred tax
                  liability". Management has recognized a deferred tax benefit
                  of $87,200 which results from an increase in deferred tax
                  assets of $430,000 ($368,000 increase in net operating loss
                  carryforwards) and an offsetting increase of $300,000
                  ($130,000 increase in excess tax depreciation and $200,000
                  increase in income and expense recognition). Management has
                  utilized approximately $2.3 million of net operating loss
                  carryforwards through the sale of two nursing home assets in
                  1997. Additionally, the valuation allowance was reduced by
                  $200,000 in 1997. These two factors combined to result in a
                  deferred tax expense of $516,300 in 1997. Management has
                  recognized a deferred tax benefit of $84,300 in 1996 by a
                  reduction in the valuation allowance for the expected
                  utilization of net operating losses during the carryforward
                  period. Management has considered the provisions of SFAS No.
                  109 that allows for utilization of tax planning strategies
                  associated with real estate. These strategies, if necessary,
                  could consider a possible sale and/or sale/leaseback of such
                  real estate to preclude the expiration of net operating losses
                  without realization of a tax benefit. Realization of the
                  deferred tax asset is dependent on generating sufficient
                  taxable income including use of management's tax planning
                  strategies prior to the expiration of the loss carryforwards.
                  Although realization is not assured, management believes it is
                  more likely than not that a significant amount of the deferred
                  tax asset will be realized. The amount of the deferred tax
                  asset considered realizable, however, could be reduced in the
                  near term if either the current estimates of future taxable
                  income are reduced or management would be unable to effect an
                  expected sale and/or sale/leaseback of real estate. Both of
                  these conditions are currently necessary for consideration in
                  the evaluation of the realizability of the deferred tax assets
                  and estimated valuation allowance.
                  



                                      II-31


<PAGE>   39


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 8.           INCOME TAXES (CONTINUED)

                  Consolidated net operating losses available for tax purposes
                  at December 31, 1998 are approximately $2,780,000, expiring
                  $967,000 in 2006, $335,000 in 2008 and $383,000 in 2009 and
                  $1,083,000 in 2013. Investment tax credits available for tax
                  purposes at December 31, 1998 are approximately $20,700
                  expiring at various dates from 1999 to 2000. In 1997 and 1996
                  as a result of consolidated taxable income the Company was
                  able to utilize net operating losses of $4,077,000 and
                  $27,000, respectively, of which $730,000 and $27,000,
                  respectively, was pre-operating losses of an acquired
                  subsidiary which was only to be used to offset taxable income
                  by that subsidiary.

                  For the years ended December 31, 1998, 1997 and 1996 a
                  reconciliation of the statutory rate and effective rate for
                  the provision for income taxes consists of the following based
                  on amounts that do not include minority interests:

<TABLE>
<CAPTION>

                                                                                    PERCENTAGE
                                                                          ----------------------------
                                                                           1998        1997      1996
                                                                           ----        ----      ----

                 <S>                                                   <C>          <C>      <C>   
                    Federal statutory rate                                (34.0)       34.0     (34.0)
                    Minority interests                                      8.1         2.5      13.6
                    Equity in unconsolidated affiliates                     2.4         6.7      -
                    State and local income taxes, net of federal
                     tax benefit                                           (7.5)        1.6       6.3
                    Alternative minimum tax                                -            2.3      -
                    Tax effect of permanent differences                    (1.8)       (4.2)     44.0
                    Valuation allowance                                    -           (9.1)    (49.1)
                    Other                                                  (3.1)       33.8      -
                                                                         ------       -----    ------

                    Effective rate                                        (35.9)       33.9     (19.2)
                                                                         ======       =====    ======
</TABLE>

                    The expense (benefit) for income taxes consists of the
                    following:

<TABLE>

                                                           1998         1997         1996
                                                          ----          ----         ----
                 <S>                               <C>            <C>          <C>
                    Federal:
                     Current expense                 $     -         $  40,000    $    -
                     Deferred expense (benefit )         (87,200)      516,300       (84,300)

                    State and local:
                     Current expense (benefit)           (16,780)       41,000        37,891
                                                      ----------      --------     ---------

                    Total tax expense (benefit)      $  (103,980)    $ 597,300    $  (46,409)
                                                      ==========      ========     =========

</TABLE>


                                      II-32


<PAGE>   40


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 8.           INCOME TAXES (CONTINUED)

                  The principal differences between the income or loss reported
                  for financial reporting purposes and the income or loss
                  reported for federal income tax purposes results from (i)
                  accelerated depreciation methods being utilized for tax
                  purposes, (ii) inventory capitalization methods required for
                  tax purposes, (iii) reserving for doubtful accounts receivable
                  and certain other reserves, (iv) costs capitalized in
                  connection with certain acquisitions for financial reporting
                  purposes and not for tax purposes, and (v) income and expense
                  recognition difference between financial reporting and tax for
                  equity affiliates and start-up costs.

NOTE 9.           STOCKHOLDERS' EQUITY

                  COMMON STOCK
                  ------------

                  In July 1998, the Company sold at $1.32 per share 200,000
                  shares of common stock held in treasury, pursuant to
                  Regulation S of the Securities Act of 1933. The cost of such
                  shares sold totaled $265,000.

                  In October 1996, the Company sold at $1.00 per share 500,000
                  shares of common stock held in treasury, pursuant to
                  Regulation S of the Securities Act of 1933. The total cost of
                  such shares sold totaled $463,000.

                  WARRANTS
                  --------

                  A.       At December 31, 1998, there were 414,538 warrants
                           outstanding. Each warrant, as a result of a November
                           1990 amendment, is exercisable for two and three
                           quarters (2-3/4) shares of The Wendt-Bristol Health
                           Services Corporation common stock. The Company has
                           reserved 1,139,980 shares for such issue. The
                           exercise price of $3.75 per warrant is the equivalent
                           of $1.36 per share. Other terms of the warrants
                           remain the same as when originally issued in 1986,
                           including the anti-dilution provisions, except that
                           the expiration date has been extended to May 1, 1999,
                           and the redemption feature has been removed. The
                           Board of Directors has voted not to further extend
                           the expiration date.

                           Also, as a result of the November 1990 amendment,
                           upon exercise of existing warrants, in addition to
                           the common shares to be received upon such exercise,
                           each warrant holder will receive, upon registration
                           under the Securities Act of 1933, a newly-created
                           Series II warrant which has been extended to May
                           2000, which enables the warrant holder upon exercise
                           of the Series II warrant to purchase 2 shares of
                           common stock at $3.00 per share.

                           The Board of Directors has elected to allow the
                           warrants to expire on May 1, 1999 and the Series II
                           warrants to expire on May 1, 2000.


                                      II-33


<PAGE>   41


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 9.           STOCKHOLDERS' EQUITY (CONTINUED)

                  B.       In conjunction with the issuance, pursuant to
                           Regulation S of the Securities Act of 1933, of Series
                           No. 1 bonds issued on February 14, 1997, the Company
                           issued thirty-three (33) Series No. 1 warrants
                           exercisable into a total of 300,000 shares of the
                           common stock of the Company for $2.00 per share for
                           the beneficial ownership of non U.S. persons.

                  STOCK OPTIONS
                  -------------

                  The Company has previously adopted a qualified employee
                  incentive stock option plan (the "Plan"). The Plan provides
                  for 500,000 common shares to be made available for options
                  granted to eligible officers, directors and employees. The
                  options may be granted for a term not to exceed ten years
                  (five years with respect to a 10% shareholder) and are not
                  transferable or assignable. The exercise price of all options
                  must be at least equal to the fair market value of the common
                  stock at the date of grant, or 110% of such fair market value
                  with respect to any optionee who is a 10% shareholder of the
                  Company.

                  The Non-Employee Directors were granted options for 10,000
                  shares upon the first anniversary of their election. All such
                  options have expired except for one block of options to
                  purchase 10,000 shares at a price of $.375 with an expiration
                  date of February 1, 2000. Beginning in 1992, 1,000 options
                  were granted annually to each Non-Employee Director upon his
                  anniversary month as a Non-Employee Director. As of December
                  31, 1998, 37,000 options were issued to Non-Employee
                  directors. The annual expense for these Non-Employee directors
                  using the fair value based method (SFAS No. 123) approximated
                  $600.

                  In June, 1993 the Board of Directors granted 80,000 options to
                  purchase shares at a price of $1.25 to certain officers and
                  key employees. These options expired on June 3, 1998 and none
                  were exercised.

                  In May, 1996 the Board granted options totaling 130,000 shares
                  to certain officers and key employees of which 110,000 are
                  outstanding at December 31, 1998. Such options are exercisable
                  at a price of $.875 per share and expire on May 23, 2001.

                  In October 1998, the Board granted options totaling 305,000 to
                  certain officers and key employees of which all are
                  outstanding at December 31, 1998. Such options are exercisable
                  at a price of $1.3125 per share and expire on October 16,
                  2003.

                  In 1997, 5,000 options were exercised at $.875 per share for
                  total proceeds of $4,375. Additionally, 30,000 options with
                  exercise prices of $.875 to $1.25 were terminated as the
                  employees are no longer employed by the Company.

                  No options were exercised in 1998. There were 452,000 stock
                  options outstanding at December 31, 1998 at prices ranging
                  from $.375 to $1.4375 per share. At December 31, 1998 and
                  1997, options available for grant were 43,000 and 53,000,
                  respectively.

                                      II-34


<PAGE>   42


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 9.           STOCKHOLDERS' EQUITY (CONTINUED)

                  The Company utilizes the intrinsic value method under APB No.
                  25 to account for employee stock options. The Company has
                  utilized the Black Scholes option pricing model for proforma
                  footnote purposes with the following assumptions used for
                  grants in all years. Dividend yield of 0%, risk-free interest
                  rate of 6%, and expected option life of 5 years. Expected
                  volatility was 62.9%. If the Company had utilized the fair
                  value based method under FASB No. 123, the impact would not be
                  significant to the financial statements.

                  EARNINGS PER SHARE
                  ------------------

                  The following is a reconciliation of the basic and diluted EPS
                  for December 31, 1997, as restated (Note 17). As noted below,
                  basic and diluted EPS are the same for the years ended
                  December 31, 1998 and 1996:

<TABLE>
<CAPTION>
                                                            INCOME           SHARES         PER SHARE
                                                         (NUMERATOR)     (DENOMINATOR)        AMOUNT
                                                         -----------     -------------        ------
                  <S>                                <C>                <C>             <C> 
                    BASIC EPS
                    ---------
                      Income available to
                       common stockholders             $   1,381,613       6,224,241        $     .22
                                                                                             ========

                      Effect of dilutive
                       securities (net of tax)
                        5.5% convertible bond                 35,200         500,000
                        Options                               15,017         192,000
                                                        ------------     -----------

                    DILUTED EPS
                    -----------
                      Income available to
                       common stockholders and
                       assumed conversions             $   1,431,830       6,916,241        $     .21
                                                        ============     ===========         ========
</TABLE>

                  At December 31, 1997, 1,440,980 stock options and warrants not
                  associated with convertible debt were excluded from the
                  computation of diluted EPS because the exercise price was
                  greater than the average market price of the common shares. At
                  December 31, 1998 and 1996, all potential common stock would
                  be anti-dilutive due to the net loss.

NOTE 10.          RELATED PARTY TRANSACTIONS

     A.           PARTNERSHIP OWNERSHIP
                  ---------------------

                  Certain officers and directors own, in the aggregate, less
                  than 6% of the outstanding limited partnership interests of a
                  limited partnership of which a subsidiary of the Company is
                  the managing general partner.


                                      II-35


<PAGE>   43


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 10.          RELATED PARTY TRANSACTIONS (CONTINUED)

     B.           SALE OF ASSETS TO A RELATED PARTY
                  ---------------------------------

                  Effective January 1, 1995, the Company sold the operating
                  assets of a subsidiary's retail liquor store and two lounges
                  in Florida to MHK Corp., a company owned by certain of the
                  Company's officers and directors. The purchase price was
                  equivalent to the net book value of the net assets, with no
                  gain or loss recognized, totaling $574,949, as adjusted for
                  certain 1995 transactions.

                  The purchase price is evidenced by a promissory note bearing
                  interest at 9%. The note accrued interest from the effective
                  date of the sale through June 30, 1996 at which time the total
                  accrued interest of $77,618 was added to the original sale
                  price for a total amended principal sum of $652,567. The note
                  is payable in monthly installments of $8,266 including
                  interest, from July 1, 1996 through June 1, 2006 with the
                  balance fully amortized.

                  At April 15, 1996, the Company combined all advances to MHK
                  Corp. into a promissory note totaling $156,868 earning
                  interest of 9% which accrues from July 1, 1996 until paid. The
                  note will be payable in monthly installments, including
                  interest, of $1,987 from July 1, 1996 through June 1, 2006
                  with the balance fully amortized.

                  During 1998, MHK paid $20,000 of the total interest due on the
                  notes. As a result, the Company has not recorded income
                  attributable to the balance of 1998 interest ($43,200).

                  The Company has revised all obligations due from MHK into a
                  single promissory note ($790,600 at December 31, 1998)
                  providing for monthly payments commencing in 1999 of $9,180,
                  including interest at 7% per annum. As a result of this
                  modification, the Company has received additional collateral
                  and a commitment from one of the principals, a Company officer
                  and director, to provide personal payments of $3,000 per month
                  toward the MHK obligation.

                  The note receivable due from MHK Corp. is collateralized by
                  the assets of a lounge and a retail liquor store, including a
                  potential gain on the sale/leaseback of the associated real
                  estate. The Company has received additional collateral in the
                  form of a security interest on real estate in Ohio, leases and
                  rents associated to a tenant of that property as well as the
                  leasehold interest in a Florida property leased by MHK Corp.
                  and subleased to a third party, and a pledge of the common
                  stock of MHK Corp.

                  Management's current estimate of the business activities of
                  these Florida operations combined with the rental operations
                  and potential sale/leaseback is that they will earn sufficient
                  cash flow to amortize the notes. No further advances or
                  support is expected by the Company. If the notes are not being
                  amortized, based on the amortization schedule at the end of
                  1999, collection of one or both of the above-indicated rents
                  due from unrelated third parties will be assigned to the
                  Company commencing in the year 2000 and an allowance for
                  non-collectibility will be considered absent other remedies
                  not considered at this time.



                                      II-36


<PAGE>   44


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 10.          RELATED PARTY TRANSACTIONS (CONTINUED)

     C.           NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES
                  --------------------------------------------------

                  Interest income totaling $20,000, $68,328 and $76,668 for the
                  year ended December 31, 1998, 1997 and 1996, respectively, is
                  included in "interest expense, net". Interest income
                  receivable totaled $1,056 and $616 at December 31, 1998 and
                  1997, respectively, and is included in "miscellaneous
                  receivables".

                  At December 31, 1998 and 1997, the President and CEO of the
                  Company had outstanding advances totaling approximately
                  $198,000 and $213,000, respectively. The President/CEO has
                  granted a security interest in certain collateral to enhance
                  the realization of the indebtedness, which is evidenced by a
                  non-interest bearing promissory note, which provides for
                  annual payments of $15,000 in 1998 and subsequent years.

                  In addition, pursuant to a ten year lease entered into in
                  1985, the Company leased a warehouse facility from two of the
                  officers and directors of MHK Corp. Effective May 1, 1992, a
                  renewal option was exercised on the lease, extending its term
                  to 2005. In January 1996, the officers sold a portion of the
                  property and terminated the lease with the Company. The
                  remaining parcel is pledged as additional collateral toward a
                  note due the Company from the sale of the liquor operations
                  (see Note 10B).

     D.           LIFE INSURANCE PREMIUMS RECEIVABLE
                  ----------------------------------

                  The balance sheet includes $1,095,135 and $972,451 at December
                  31, 1998 and 1997 respectively, for policies with death
                  benefits totaling $2,750,000 under the caption "Life insurance
                  premiums receivable". The Company, pursuant to agreements, has
                  purchased life insurance on the lives of certain officers and
                  key employees on a "split-dollar" basis. The program is
                  designed so that payments the Company makes on behalf of each
                  officer are collateralized by assignments of the related life
                  insurance policies (i.e., the accumulated policy cash value,
                  the policy death benefit, or a combination thereof). The life
                  insurance premiums receivables are noninterest-bearing. The
                  insured parties own the policies and, with the consent of the
                  Company, are permitted to borrow from the cash surrender
                  values of the policies. Under the "split-dollar" agreements,
                  the Company advances the premium payments and upon the death
                  of the insured would receive the return of such advances from
                  the death benefits or from cash value (without termination of
                  the policy) at such other times (i.e. termination of
                  employment) prior to the death of the insured.


                                      II-37


<PAGE>   45


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10.          RELATED PARTY TRANSACTIONS (CONTINUED)

     D.           LIFE INSURANCE PREMIUMS RECEIVABLE (CONTINUED)
                  ----------------------------------------------

                  Annual premiums for these policies total $138,000, $107,000
                  and $107,000 for the years ended December 31, 1998, 1997 and
                  1996, respectively. Net cash surrender value on these policies
                  approximated $500,000 and $375,000 at December 31, 1997 and
                  1996, respectively.

                  By Amendment No. 1 to the "split-dollar" agreement, the
                  applicable officers of the Company recognize the premiums
                  receivable not collateralized by the policy cash surrender
                  values of $595,000 at December 31, 1998, are their personal
                  responsibility if not collected through the respective
                  policies as long as the Company continues to maintain the
                  policies. The Company has represented its intention and
                  obligation to maintain the policies. The individuals have
                  agreed to provide additional collateral to the Company, by
                  pledging common shares they own in the Company to enhance the
                  realization of these receivables.
                                                                        
                  Subsequent to year-end, loans against these policies totaling
                  $440,000 were remitted to the Company by certain officers as a
                  reduction of the life insurance premiums receivable. These
                  funds were used for working capital.

     E.           MANAGEMENT FEES FROM AFFILIATES
                  -------------------------------

                  A subsidiary of the Company, WBDC, which owns equity interests
                  in a limited partnership, limited liability companies and a
                  corporation (See Note 1B), is the management agent for three
                  of the companies. Management fees totaling $697,000, $491,000
                  and $360,000 were included in the Consolidated Statements of
                  Operations for the year ended December 31, 1998, 1997 and
                  1996, respectively.

NOTE 11.          COMMITMENTS AND CONTINGENCIES

     A.           REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION
                  -----------------------------------------------

                  In October 1991, the Company sold substantially all of the
                  assets (other than real estate) of its manufacturing division
                  located in New Jersey.

                  As part of that transaction, the buyer entered into a lease on
                  the physical facilities. The buyer is responsible for taxes,
                  maintenance, and insurance costs. Rental income has been
                  recorded on a straight-line basis over the term of the lease.

                  During the first quarter of 1999, the Company learned that the
                  buyer/tenant had vacated the premises. The buyer/tenant
                  continues to maintain its responsibilities under the lease
                  including the payment of rent, maintenance of the property and
                  insurance coverage. Management believes that the buyer/tenant
                  will continue to recognize its obligations under the lease
                  while attempting to consolidate its operations subsequent to
                  several significant acquisitions. Its options include the
                  possibility of securing an acceptable sub-tenant or providing
                  a buyer with an offer acceptable to the Company.


                                      II-38

<PAGE>   46


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 11.          COMMITMENTS AND CONTINGENCIES (CONTINUED)

     A.           REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION (CONTINUED)
                  -----------------------------------------------------------

                  As a result of compliance with the State of New Jersey
                  environmental laws and in connection with the sale of the
                  division, the Company is in the process of a clean-up of
                  contamination caused by prior ownership whereby the property
                  had been contaminated by leaking underground storage tanks and
                  the discharge of certain industrial fluids into the sewage
                  system. The Company spent approximately $18,000, $56,000, and
                  $50,000 related to the clean-up during the years ended
                  December 31, 1998, 1997 and 1996, respectively. Costs
                  attributable to the project, incurred or accrued, have been
                  capitalized. The Company's consulting engineers have completed
                  a study of the contamination and have submitted a clean-up
                  plan to the appropriate State of New Jersey department. The
                  remaining estimated costs to complete the plan are
                  approximately $40,000. Refer to Note 2 regarding restricted
                  cash set aside to satisfy the New Jersey Department of
                  Environmental Protection and Energy. The Company has been
                  advised that completion is expected during the second quarter
                  of 1999.

     B.           DEBT GUARANTEES
                  ---------------

                  The Company or its subsidiaries is contingently liable as a
                  guarantor of long-term debt and capital lease obligations
                  totaling $4,315,000 for medical equipment that is currently in
                  or will be placed in service by entities that WBDC has
                  ownership interests varying from 22.5% to 50%.

                  The Company and WBDC are contingently liable for mortgages of
                  $1,107,000 of the Diagnostic Center and Women's Center under
                  construction on Kenny Road. WBDC is the general partner and
                  has a 50% interest in the limited partnership that operates
                  these facilities.

                  Additionally, the Company and WBDC are contingently liable for
                  a two year lease agreement and the purchase price ($1,400,000)
                  of a building used by an entity in which Diagnostics has a
                  22.5% ownership interest. Subsequent to year-end, the Company
                  has funded a non-refundable down payment of $200,000 of the
                  total purchase price of $1,400,000. Modified terms of the
                  purchase agreement require a $350,000 payment on April 15,
                  1999 with interest at 12%, the remaining payments totaling
                  $1,200,000 are due through and on June 15, 1999. Management
                  has arranged for the April 15, 1999 funding, in part through
                  the issuance of an additional Series 2 bond in the amount of
                  400,000 Swiss francs ($269,000). Management further believes
                  it will be successful in securing a mortgage on the property
                  on or before June 15, 1999.

NOTE 12.          INDUSTRY SEGMENT DATA

                  Industry segment data for years ended December 31, 1998, 1997
                  and 1996 included in Item 1 ("Industry Segments") of this
                  report is an integral part of these financial statements.

NOTE 13.          RETIREMENT PLAN

                  The Company adopted, effective July 1, 1989, a retirement
                  plan, under Section 401(k) of the Internal Revenue Code,
                  covering substantially all employees with more than one year
                  of service. The plan provides for the Company and its
                  affiliates accounted for on the equity method to contribute,
                  on an annual basis, 10% of the employees' eligible deferred
                  compensation; such employer contribution is in the form of
                  Company common stock. The Company values the actual shares
                  transferred to the Plan from the treasury at the respective
                  December 31 market value. During 1998, 1997 and 1996, the
                  Company contributed 9,453, 6,306, and 16,262 shares, and
                  recorded an expense of $11,816, $9,458, and $8,733,
                  respectively.

                                      II-39


<PAGE>   47


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 14.          SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING 
                  ACTIVITY
<TABLE>
<CAPTION>

                                                                            1998             1997             1996
                                                                            ----             ----             ----
                  <S>                                              <C>                <C>                <C>    
                    SUPPLEMENTAL DISCLOSURES OF
                     NONCASH INVESTING AND
                      FINANCING ACTIVITY

                      A subsidiary purchased equipment 
                      which was financed by entering into an 
                      installment finance agreement.
                       Increase in equipment cost, net               $   4,471,090       $   147,921
                       Increase in long-term obligations                (4,471,090)         (147,921)

                      Equipment and related debt was 
                      transferred from a partnership, of which 
                      the Company is managing general partner.
                       Increase in equipment, net                    $     302,963
                       Increase in debt                                   (288,496)
                       Decrease in investments and related
                        advances, net                                      (14,467)

                      Two subsidiaries of the Company sold 
                      nursing home assets. Additionally, 
                      HUD replacement reserves are to be 
                      returned as part of the sale.
                       Increase in notes receivable, current                             $ 2,923,794
                       Increase in miscellaneous receivables                                 261,327
                       Decrease in restricted cash                                          (264,287)
                       Decrease in prepaid expenses                                          (11,535)
                       Decrease in property, plant and
                        equipment, net                                                    (7,064,636)
                       Decrease in excess of cost over assets
                        of businesses and subsidiaries acquired                             (189,096)
                       Decrease in deferred charges and other
                        assets                                                              (317,120)
                       Increase in accrued expenses                                         (394,367)
                       Decrease in debt                                                    6,083,927
                       Gain on sale of nursing home assets,
                        net of cash proceeds ($750,000)                                   (1,028,007)

</TABLE>



                                      II-40


<PAGE>   48


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 14.          SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING 
                  ACTIVITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                        1998            1997            1996
                                                                        ----            ----            ----

                  <S>                                            <C>             <C>            <C>
                      Note receivable from officers and 
                      related parties was reduced by assigning 
                      a non-related party note receivable
                        Increase in notes receivable                                $  105,000      
                        Decrease in notes receivable from
                         officers and related parties                                  (46,826)
                        Decrease in accrued interest payable                           (58,174)

                      Subsidiaries of the Company sold trade 
                      accounts receivable, a portion of which 
                      was used for certain related fees
                       Increase in deferred costs                                                  $   27,500
                       Increase in miscellaneous accounts
                        receivable reserves                                                           185,507
                       Decrease in notes payable                                                       53,155
                       Decrease in accounts receivable - sold                                        (266,162)
</TABLE>


NOTE 15.          FAIR VALUE OF FINANCIAL INSTRUMENTS

                  Financial Accounting Standards Board ("FASB") Statement No.
                  107, "Disclosure about Fair Value of Financial Instruments",
                  requires disclosure of fair value information about financial
                  instruments. For certain of the Company's financial
                  instruments including cash, receivables, accounts and notes
                  payable, and other accrued liabilities the carrying amounts
                  approximate fair value due to their short maturities. For
                  long-term notes receivable and notes payable, the Company
                  believes the carrying value will approximate their fair value
                  as the interest rates are comparable to prime. For the
                  subordinated note, the Company believes the carrying amount
                  approximates fair value with the conversion feature to the
                  Company's common stock available.

                  At December 31, 1998 and 1997, management believes the
                  carrying amount of long-term receivables are not impaired and
                  will be realized in the normal course of business in
                  accordance with their contract terms. The fair value of debt
                  is believed to be approximately equal to their current
                  carrying value based on current market prices.

                  At December 31, 1998, the Company had outstanding multiples of
                  three month foreign exchange futures contracts that were to
                  expire March 1999. Management's intent is to continue to
                  repurchase these contracts (currently holding June 1999
                  expirations) as a hedge against the Swiss Franc on 5,000,000
                  Swiss Franc 5% bonds payable in February, 2002 and 1,100,000
                  Swiss Franc 7% bond payable in December 2003. The contract
                  amount of foreign currency forwards at December 31, 1998 is
                  $4,490,000. As these futures contracts are not for trading or
                  speculative purposes, the Company has deferred the current
                  loss of approximately $41,000 at December 31, 1998 until 2002
                  when the bond becomes due and a determination of the
                  cumulative gain or loss is known. The net cash outlay at
                  December 31, 1998 totaled $153,000. Future cash requirements
                  will be determined by future foreign currency exchange rates.
                  The potential loss for purchased foreign exchange option
                  contracts is limited to the premium paid.




                                      II-41


<PAGE>   49


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 16.          PROPOSED PURCHASE OF MINORITY INTEREST STOCKHOLDER'S COMMON 
                  STOCK AND LIMITED PARTNERSHIP INTEREST

                  The Wendt-Bristol Health Services Corporation ("WBHSC")
                  announced on June 23, 1998 that it is proceeding with plans to
                  acquire the approximate 15% of the outstanding shares of
                  Wendt-Bristol Diagnostics Company that it does not already own
                  through a subsidiary (Wendt-Bristol Company).

                  Additionally, the Company announced plans to acquire all of
                  the limited partnership interests in Wendt-Bristol Diagnostics
                  Company L.P. Wendt-Bristol Diagnostics Company, a subsidiary
                  of the Company, is the general partner.

                  Reference is hereby made to the respective preliminary Forms
                  S-4, filed with the Securities and Exchange Commission
                  concerning the issuance of preferred stock in exchange for the
                  above interests. Amended Forms S-4 will be filed containing
                  the updated information in this Form 10-K.

NOTE 17.          FINANCIAL STATEMENTS RESTATEMENT

                  The Company has changed its use of the "Consolidation Method"
                  of accounting related to its interest as sole General Partner
                  of Wendt-Bristol Diagnostics Co. L.P. and records the
                  investment utilizing the "equity method" of accounting.
                  Management reviewed its accounting policy for consolidation of
                  the limited partnership and determined that while management
                  significantly influences the partnership, it does not meet the
                  criteria for consolidation. Prior year financial statements
                  have been restated to reflect this determination. There is no
                  effect on the net consolidated results of operations due to
                  this determination. Such method does not effect the Company's
                  previously determined net earnings or stockholders' equity.
                  The "equity method", however, does change the individual
                  components of the Consolidated Balance Sheets, Statements of
                  Operations, Statements of Cash Flows and related financial
                  information. All financial statements included herein have
                  been restated to conform to this change.




                                      II-42


<PAGE>   50


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 17.          FINANCIAL STATEMENTS RESTATEMENT (CONTINUED)

                  The audited financial information of Wendt-Bristol Diagnostics
                  Co. L.P. that is subject to this restatement is as follows at
                  December 31:

<TABLE>
<CAPTION>
                                                                     1997          1996
                                                                     ----          ----

                 <S>                                         <C>           <C>         
                    Current assets                              $  1,107,418 $    643,009
                    Property, plant and equipment, net of
                     accumulated depreciation                      4,227,612    3,792,908
                    Other non-current assets                         341,536    1,268,503
                                                                 -----------  -----------
                                                                $  5,676,566 $  5,704,420
                                                                 ===========  ===========

                    Liabilities                                 $  4,629,552 $  4,214,322
                    Equity                                         1,047,014    1,490,098
                                                                 -----------  -----------
                                                                $  5,676,566 $  5,704,420
                                                                 ===========  ===========

                    Service revenues                            $  4,142,908 $  4,217,924
                    Operating income                            $    198,674 $    648,266
                    Net income (loss)                           $  (155,400) $    404,728
</TABLE>


                  The company's financial statements for the year ended December
                  31, 1997 have additionally been restated for temporary
                  differences between financial statement and tax income in
                  accordance with the liability method of reporting income
                  taxes.

                  The effect of the restatement for the year ended December 31,
                  1997 is as follows:

<TABLE>
<CAPTION>

                                                                AS PREVIOUSLY
                                                                   REPORTED     AS RESTATED
                                                                   --------     -----------
                  <S>                                       <C>            <C> 
                    Consolidated Balance Sheet:
                     Deferred tax asset (liability)            $     137,400  $   (262,600)
                     Retained earnings (deficit)                  (1,337,483)   (1,737,483)

                    Consolidated Statement of Operations:
                     Income tax benefit (expense)                   (197,300)     (597,300)
                     Net income                                    1,781,613     1,381,613

                    Income per Common Share:
                     Basic                                     $        0.29  $       0.22
                     Diluted                                            0.26          0.21

</TABLE>


                                      II-43

<PAGE>   51
                                       III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                  The following table and the text following the table set forth
                  certain information with respect to the Directors and
                  Executive Officers (being all of the Directors of the Company,
                  except for Dr. Penn, Mr. Del Ponte and Mr. Levine) of the
                  Company. Each Director serves until the next Annual Meeting of
                  Stockholders of the Company and until his successor is elected
                  and qualified, unless such Director resigns or dies prior
                  thereto. Each Executive Officer serves at the pleasure of the
                  Board.

<TABLE>
<CAPTION>

                                NAME             AGE                CURRENT POSITIONS WITH COMPANY
                                ----             ---                ------------------------------
<S>                                           <C>         <C>
                    Marvin D. Kantor                70     Chairman of the Board, Director

                    Sheldon A. Gold                 56     President, Treasurer, Chief Executive Officer,
                                                           Director, member of Audit Committee

                    Reed A. Martin                  45     Executive Vice President, Chief Operating
                                                            Officer and Director

                    Harold T. Kantor                65     Vice Chairman of the Board, Director

                    Paul H. Levine                  58     Director, member of Audit Committee

                    Gerald M. Penn                  61     Director, Vice President of Medical Affairs
                                                            (1998)

                    Clemente Del Ponte              47     Director

                    Charles R. Cicerchi             39     Vice President of Finance, Principal Financial
                                                            and Accounting Officer

                    David E. Fernie                 51     Director, member of Audit Committee
</TABLE>

                  Marvin D. Kantor has been Chairman of the Board since May
                  1988; prior to June 1993 he had also been President and Chief
                  Executive Officer of the Company and W-B since May 1988. In
                  addition, he is a Director of all of the Company's
                  subsidiaries. He is a brother of Harold T.
                  Kantor.

                  Sheldon A. Gold is a certified public accountant and has been
                  President and Chief Executive Officer of the Company since
                  June 1993. Prior thereto and since March 1992 he had been Vice
                  Chairman of the Board and since May 1988 he had been Executive
                  Vice President, Treasurer, and Chief Financial and Accounting
                  Officer of the Company. He again became Treasurer and Chief
                  Financial and Accounting Officer of the Company in July 1992,
                  until May, 1996. In addition, he has been a Director of the
                  Company since May 1988. He has also been the President of W-B
                  since June 1993, Executive Vice President between 1979 and
                  June 1993, and Chief Financial and Accounting Officer of W-B
                  since 1979 through May 1996.

                  Reed A. Martin, elected as a Director in May 1992, has since
                  June 1993 been Executive Vice President and Chief Operating
                  Officer, since May 1991 he had been a Senior Vice President of
                  the Company supervising operations. Mr. Martin is a son-in-law
                  of Marvin D. Kantor.

                  Harold T. Kantor has been Vice-Chairman since June 1993 and a
                  Director of the Company since May 1988. In addition, he has
                  been Vice President of W-B since October 1985. He is a brother
                  of Marvin D. Kantor.

                                      III-1


<PAGE>   52



ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (CONTINUED)

                  Paul H. Levine has been a Director since January, 1990 and
                  serves on the audit and stock option committee. He is
                  President of Nichols and Levine Asset Management, Inc., a
                  registered investment advisor. Mr. Levine is an attorney and a
                  certified public accountant and has been active in venture
                  capital, investment banking and financial consulting since
                  1972. He is also a Director of Learning Technologies, Inc.,
                  and Bio-Catalytic Enterprises, Inc.

                  Dr. Gerald M. Penn, M.D., Ph.D., was elected as a director on
                  February 8, 1995 and became the Vice President of Medical
                  Affairs of the Company on January 1, 1998. He serves on the
                  stock option committee and also served on the audit committee
                  through December 31, 1997. Dr. Penn was previously Chairman
                  and Medical Director of the Department of Pathology at Grant
                  Medical Center 1981-1996. Educated at The Ohio State
                  University, Doctor Penn received his medical degree from the
                  College of Medicine and a doctoral degree in biochemistry. He
                  completed a pathology residency at University Hospital and
                  postgraduate training at The Rockefeller University, New York,
                  NY. He is board certified in clinical and anatomical
                  pathology, immunopathology and hematopathology. He serves on
                  the Board of Trustees of the Columbus Medical Association
                  Foundation and is Secretary/Treasurer of that organization.

                  Clemente Del Ponte was elected as a director of the Company on
                  June 18, 1997. For the past five years he has been the
                  managing director of McBridge Advisory, Ltd., an import/export
                  consulting agency. Prior thereto, he was an independent
                  consulting agent. Mr. Del Ponte resides in Lugano,
                  Switzerland.

                  Charles R. Cicerchi is a certified public accountant and has
                  been Vice President of Finance since joining the Company in
                  September, 1994. Prior thereto, he was Controller of Speer
                  Industries, a mechanical contractor, where he was responsible
                  for all accounting and treasury functions from the period 1990
                  to 1994. Since May, 1996 he has been the Principal Financial
                  and Accounting Officer of the Company.

                  David E. Fernie was elected as a director of the Company on
                  July 30, 1998 and is a member of the Audit Committee. He has
                  been Professor of Education at Ohio State University since
                  1984. Prior to that, he was an Assistant Professor at the
                  University of Houston. He received his Ed. D. from University
                  of Massachusetts at Amherst and his Bachelors degree in
                  political theory from Harvard College.

ITEM 11.        EXECUTIVE COMPENSATION

                  GENERAL. The following table sets forth the total annual
                  compensation paid or accrued by the Company and its
                  subsidiaries to or for the account of (i) the President (the
                  chief executive officer) of the Company and (ii) for the
                  Company's most highly compensated executive officers other
                  than the chief executive officer who were serving as executive
                  officers at December 31, 1998 and with respect to each of whom
                  such compensation exceeded $100,000. The Chairman of the
                  Board, Marvin D. Kantor, determines executive officer
                  compensation including his own.


                                      III-2


<PAGE>   53



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)


<TABLE>
<CAPTION>

                                            SUMMARY COMPENSATION TABLE
                                            --------------------------
                                                                               LONG-TERM
                                                                             COMPENSATION
                                                                             ---------------
                                                   ANNUAL COMPENSATION       AWARDS
                                                   -------------------       ------

                                                                              SECURITIES
                                                                             UNDERLYING
                            NAME AND                                         OPTIONS/         ALL OTHER
                       PRINCIPAL POSITION       YEAR          SALARY ($)     SARS (#)        COMP. ($)**
                       ------------------       ----          ----------     --------        -----------
<S>                                             <C>     <C>                   <C>          <C>         
                    Sheldon A. Gold             1998    $    175,384          25,000/0     $     60,176
                    President and Chief         1997         160,000              *              15,532
                    Executive Officer           1996         150,000          50,000/0              -

                    Marvin D. Kantor            1998         152,885              *              65,028
                    Chairman of the             1997         140,000              *              65,028
                    Board                       1996         130,000              *              75,866

                    Reed A. Martin              1998         104,519          25,000/0            4,644
                    Executive Vice
                    President and Chief
                    Operating Officer
</TABLE>

                  --------------
                  *   Not applicable

                  ** Includes life insurance premiums paid by the Company for
                  each of named persons (see Note 10 of the Notes to the
                  Consolidated Financial Statements herein). For the fiscal year
                  ended December 31, 1998, the amounts paid by the Company for
                  the benefit of each of the named persons is:


<TABLE>
<CAPTION>
                                            LIFE           MEDICAL
                    NAME                 INSURANCE       REIMBURSEMENT (A)       TOTAL
                    ----                 ---------       -----------------       -----
<S>                                     <C>                 <C>               <C>       
                    Sheldon A. Gold     $  31,064           $   29,112        $   60,176
                    Marvin D. Kantor       65,028                -                65,028
                    Reed A. Martin          4,644                -                 4,644
</TABLE>

                    (A) Payments made by the Company that, other than for
                    delinquency, would have been paid by the Company's medical
                    plans.

                                      III-3


<PAGE>   54



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  OPTIONS. The following table sets forth information respecting
                  the grant by the Company of options to purchase shares of its
                  Common Stock and other information related to options granted
                  by the Company:

                                       OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                             INDIVIDUAL GRANTS


<TABLE>
<CAPTION>
                                        NUMBER OF        % OF TOTAL
                                        SECURITIES      OPTIONS/SARS     EXERCISE
                                        UNDERLYING       GRANTED TO       OR BASE                  GRANT DATE
                                       OPTIONS/SARS     EMPLOYEES IN       PRICE     EXPIRATION     PRESENT
                          NAME         GRANTED (#)       FISCAL YEAR      ($/SH)       DATE        VALUE ($)
                          ----         -----------       -----------      ------       ----        ---------
<S>                                      <C>               <C>           <C>        <C>        <C>             
                    Sheldon A. Gold      25,000/0          8.2%/0        1.3125     10/15/03   $         32,813
                    Reed A. Martin       25,000/0          8.2%/0        1.3125     10/15/03             32,813
</TABLE>

<TABLE>
<CAPTION>
                  AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
                  --------------------------------------------------------------------------------

                                                                                                    VALUE OF
                                                                                 NUMBER OF         UNEXERCISED
                                                                                UNEXERCISED       IN-THE-MONEY
                                                                              OPTIONS/SARS AT     OPTIONS/SARS
                                                                               FY-END-# SHRS       AT FY END-$
                                               SHARES                         ---------------     -------------
                                              ACQUIRED          VALUE          EXERCISABLE/       EXERCISABLE/
                                            ON EXERCISE        REALIZED        UNEXERCISABLE      UNEXERCISABLE
                                            -----------        --------        -------------      -------------
<S>                                              <C>              <C>            <C>              <C>    
                    Sheldon A. Gold              0                0              75,000/0            $65,625
                    Reed A. Martin               0                0              35,000/0             13,125
</TABLE>


                  All options held by Mr. Gold and Mr. Martin were exercisable
                  at December 31, 1998. 50,000 options held by Mr. Gold and
                  10,000 options held by Mr. Martin were "in-the-money".
                  American Stock Exchange reported quotations for the Common
                  Stock of the Company on December 31, 1998, are: high, $1.3125;
                  low $1.125; and close, $1.3125; such prices on March 1, 1999
                  are: high, $1.00; low, $.9375; and close, $1.00. The exercise
                  price of the "in-the-money" options of Mr. Gold and Mr. Martin
                  is $.875 and the options expire on May 23, 2001.



                                      III-4


<PAGE>   55



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  STOCK OPTION PLAN. In 1983, the Company adopted an Incentive
                  Stock Option Plan which was amended in 1989 and 1998 (as
                  amended, the "Plan"). Pursuant to the Plan, the Company is
                  authorized to grant stock options to purchase up to 500,000
                  shares of Common Stock of the Company, subject to
                  anti-dilution provisions, to key personnel, including eligible
                  directors, officers and employees of the Company. In the event
                  that any option granted under the Plan shall terminate prior
                  to its exercise in full for any reason, then the shares
                  subject to the option not acquired by exercise of the option
                  shall be added to the shares otherwise available for the grant
                  of options under the Plan. Options granted under the Plan may
                  be those intended to qualify as "incentive stock options", as
                  defined in Section 422 of the Internal Revenue Code of 1986,
                  as amended (the "Code"), or those not intended so to qualify.
                  At February 28, 1999, options to purchase an aggregate of
                  43,000 shares of Common Stock of the Company, subject to
                  anti-dilution provisions, could still be granted under the
                  Plan.

                  The Plan is currently administered by a Committee of the Board
                  of Directors of the Company consisting of Messrs. Levine and
                  Penn, which have the authority (except with respect to stock
                  options to Non-Employee Directors which are mandated by the
                  Plan) to determine the grantees of the options, whether
                  options granted are to be "incentive stock options" or
                  non-incentive stock options except that Non-Employee Directors
                  must receive non-incentive stock options, the number of shares
                  to be covered by each option, the time at which each option is
                  exercisable, the method of payment, and certain other
                  provisions of the option. Options may be granted for a term
                  not to exceed 10 years (five years with respect to a 10%
                  stockholder) and are not transferable or assignable other than
                  by will or the laws of descent and distribution.

                  An option may be exercised within twelve months after the
                  death or disability of the optionee, to the extent the option
                  was exercisable at the time of death or disability. The
                  exercise price of all options (other than non-incentive stock
                  options granted to persons other than Non-Employee Directors)
                  must be at least equal to the fair market value of shares of
                  Common Stock of the Company on the date of grant, or 110% of
                  such fair market value with respect to any optionee who is a
                  10% stockholder of the Company.

                  The Plan will terminate on April 25, 2001. The Board of
                  Directors of the Company may, however, terminate the Plan at
                  any time prior to such date. Termination of the Plan will not
                  alter or impair, without the consent of the optionee, any of
                  the rights or obligations under any option theretofore granted
                  under the Plan.

                  The Plan provides that no option granted thereunder shall be
                  exercisable if the Company shall, at any time and in its sole
                  discretion, determine that (i) the listing upon any securities
                  exchange, registration or qualification under any state or
                  federal law of any shares otherwise deliverable upon such
                  exercise, or (ii) the consent or approval of any regulatory
                  body of the satisfaction of withholding tax or other
                  withholding liabilities, is necessary or appropriate in
                  connection with such exercise. In any of such events, the
                  exercisability of the option is suspended and is not effective
                  unless and until such withholding, listing, registration,
                  qualification or approval shall have been effected or obtained
                  free of any conditions not acceptable to the Company in its
                  sole discretion, notwithstanding any termination of any option
                  or any portion of any option during the period when
                  exercisability has been suspended.





                                      III-5


<PAGE>   56



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  The Plan also provides that the Board or, if so designated,
                  the Committee (of directors of the Company appointed to
                  administer the Plan) may require, as a condition to the right
                  to exercise an option, that the Company receive from the
                  option holder, at the time of any such exercise, the
                  representation, warranties and agreements to the effect that
                  the shares acquired upon exercise of such options are being
                  purchased by the option holder only for investment and without
                  any present intention to sell or otherwise distribute such
                  shares and that the option holder will not dispose of such
                  shares in transactions which, in the opinion of counsel to the
                  Company, would violate the registration provisions of the
                  Securities Act of 1933 and the rules and regulations
                  thereunder. The certificates issued to evidence such shares
                  will bear appropriate legends summarizing such restriction on
                  the disposition thereof.

                  SPLIT-DOLLAR INSURANCE POLICIES. The following table sets
                  forth information as of December 31, 1998, concerning
                  split-dollar insurance policies on the lives of the named
                  persons in the Summary Compensation Table (1):
<TABLE>
<CAPTION>
                                                  INITIAL FACE                          INSURANCE PREMIUMS
                                                   AMOUNT OF                           ADVANCED IN EXCESS OF
                    NAME OF INSURED (2)              POLICY              ISSUED           CASH VALUE (5)
                    -------------------              ------              ------           --------------
<S>                                              <C>                    <C>                <C>      
                    Marvin D. Kantor               $  1,500,000 (3)     06/08/92           $ 411,000
                    Sheldon A. Gold                     375,000 (4)     09/11/86              73,000
                    Reed A. Martin                      375,000 (3)     06/08/92              16,000
</TABLE>

                  The Company, pursuant to split-dollar agreements, has
                  purchased life insurance on the lives of certain officers
                  (including named persons in the Summary Compensation Table)
                  and key employees on a "split-dollar" basis. The program is
                  designed so that advances of premium payments (the "advances")
                  the Company makes on behalf of each insured are collateralized
                  by assignment of the related life insurance policy (i.e., the
                  accumulated policy cash value and the policy death benefit).

                  The insured person owns the policy and, with the consent of
                  the Company, is permitted to borrow from the cash surrender
                  value of the policy.

                  Under the "split-dollar" agreements, the Company upon death or
                  other separation from service of the insured receives the
                  return of the advances from the death benefits or cash
                  surrender value, if any, of the policy, as the case may be.

                  -------------------------

                  (1)      See footnote to the Summary Compensation Table for
                           information respecting Company premium payments for
                           the fiscal year ended December 31, 1998.

                  (2)      The beneficiaries of the policies are the spouses of
                           the insured.

                  (3)      The policy is an increasing death benefit policy
                           (through use of dividends) and has replaced a
                           previous universal life policy.

                  (4)      The policy is of the universal life nature, whereby
                           the cash value is added to the face value at all
                           times, including death.

                  (5)      Represents monies advanced by the Company in excess
                           of cash value available in the policies.






                                      III-6


<PAGE>   57



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  The Company has represented its intention and obligation to
                  maintain the policies. The individuals have enhanced the
                  realization of these receivables by pledging a portion of
                  their common stock ownership in the Company.

                  SECTION 401(k) PLAN. Effective July 1, 1989, the Company
                  established a Plan and Trust (the "Plan") intended to comply
                  with the provisions of Section 401(k) of the Internal Revenue
                  Code.

                  All full-time (as defined) employees of the Company and of its
                  subsidiaries (collectively referred to under this sub-caption
                  as the "Company") who were employees on July 1, 1989, and
                  persons who became employees thereafter and are continuously
                  employed for one year are eligible to participate in the Plan.
                  Under the Plan, an eligible employee who elects to participate
                  defers a portion (the "Portion") of his compensation, as
                  defined, the Portion being up to the maximum which will not
                  cause the Plan to favor Highly-Compensated Employees, as
                  defined, or cause the Plan to exceed the maximum amount
                  allowable as a deduction to the Company under Section 404 of
                  the Code. The Company contributes under the Plan, for the
                  account of such eligible employee, an amount equal to the
                  Portion; in substance the contribution is being made by the
                  eligible employee.

                  The Plan provides that the Company shall make a contribution
                  (which is in addition to the contribution referred to in the
                  preceding sentence and shall be in shares of Common Stock of
                  the Company) equal to 10% of the aggregate amount of all
                  contributions made by participants, except that for this
                  purpose a maximum of 10% of the compensation of each
                  participant is taken into account. The Plan also provides that
                  the Company may contribute a discretionary amount to all
                  participants out of its current or accumulated Net Profit, as
                  defined, for the applicable Fiscal Year, as defined.

                  All contributions of the participant vest immediately.
                  Contributions of the Company vest in accordance with the
                  number of Years of Service, as defined, of the participant
                  with vesting of 20% after one year of Service and thereafter
                  increasing by 20% increments for each Year so that after five
                  years or more of Service, the Company's contributions become
                  fully vested. Notwithstanding the foregoing, the Company's
                  contributions fully vest upon the retirement, death,
                  disability of a participant (all as defined in the 401(k)
                  Plan); or in the event that the 401(k) Plan is terminated in
                  whole, or to the extent particular participants are affected
                  thereby, in part.

                  The Trustee under the Plan, Merrill Lynch Trust Company,
                  invests cash contributed or otherwise held under the Plan as
                  it is instructed by the employee participants, who have the
                  discretion of fund selection.

                  Distributions from the Plan are made available on a
                  participant's retirement, death, disability, or the
                  termination of employment for any reason other than the
                  foregoing. Advance distributions on account of hardship may be
                  made in limited circumstances as provided in the 401(k) Plan.

                  Payment of vested amounts are made in accordance with
                  directions of the Committee, appointed by the Company to act
                  under the 401(k) Plan, either in one lump sum payment or in
                  annual cash installments over a period not to exceed 10 years.





                                      III-7


<PAGE>   58



ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  COMPENSATION OF DIRECTORS. Non-employee Directors of the
                  Company receive $650 for each meeting of the Board of
                  Directors of the Company which they attend and such Directors
                  are also reimbursed for any expenses incurred. In addition,
                  beginning January 1, 1995 all Non-Employee Directors are
                  compensated $500 per month for serving as director of the
                  Company. No additional amounts are paid for committee
                  participation.

                  In addition, Non-Employee Directors have been granted stock
                  options under the Plan to purchase shares of Common Stock of
                  the Company. "Non-Employee Directors" are defined in the Plan
                  as Directors of the Company who are not also employees of the
                  Company, who have served as Directors for twelve consecutive
                  full months, and who at the end of such period are continuing
                  to serve as Directors. The Plan also provides for a grant of
                  additional stock options to each Director who received an
                  option for 10,000 shares of Common Stock ("the Initial
                  Option"), each of such additional options to provide for the
                  purchase of an aggregate maximum of 1,000 shares of Common
                  Stock of the Company at a price per share equal to the fair
                  market value of the Common Stock of the Company on the date of
                  grant, subject to anti-dilution provisions, one of such
                  additional options to be granted on each successive
                  anniversary of the date of grant of the Initial Option,
                  provided that such Director continues on such anniversary to
                  be a Non-Employee Director. Pursuant to the Second Amendment
                  of the Stock Option Plan, on each fifth anniversary of
                  receiving the initial 10,000 stock option, such Non-Employee
                  director will receive an option for 10,000 shares instead of
                  1,000 shares. Each of the stock options set forth in the chart
                  below are exercisable commencing on the date of grant and
                  ending on the fifth anniversary of such date. None of the
                  options set forth in the chart below have been exercised. All
                  of the options are subject to anti-dilution provisions. The
                  following table illustrates the options issued as discussed
                  above.

<TABLE>
<CAPTION>
                                               DATE OF      SHARES SUBJECT         OPTION
                    NON-EMPLOYEE DIRECTOR       GRANT         TO OPTION            PRICE
                    ---------------------       -----         ---------            -----
<S>                                            <C>            <C>             <C>                      
                    Paul H. Levine             07/11/94            1,000         $  0.6875
                    Paul H. Levine             07/11/95            1,000            0.4375
                    Paul H. Levine             07/11/96            1,000             0.875
                    Paul H. Levine             07/11/97            1,000            1.1875
                    Paul H. Levine             07/30/98           10,000             1.375
                    Gerald M. Penn             02/01/95           10,000             0.375
                    Gerald M. Penn             02/01/96            1,000             0.375
                    Gerald M. Penn             02/01/97            1,000             1.435
                    Gerald M. Penn             02/01/98            1,000              1.25
                    Clemente Del Ponte         10/16/98           10,000            1.3125
</TABLE>







                                      III-8


<PAGE>   59



ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The table below presents as of February 28, 1999, certain
                  information (1) with respect to any person (including any
                  "group" as that term is used in Section 13(d)(3) of the
                  Securities Exchange Act of 1934, as amended ) who is known to
                  the Company to be the beneficial owner of more than five
                  percent of any class of the Company's voting securities and
                  (2) as to each class of equity securities of the Company or
                  any of its parents or subsidiaries, other than directors'
                  qualifying shares, beneficially owned by each director and
                  executive officer of the Company and by all directors and
                  executive officers of the Company as a group.
<TABLE>
<CAPTION>
                                                             AMOUNT AND NATURE AND          PERCENT
       TITLE OF CLASS                 NAME                 BENEFICIAL OWNERSHIP (1)       OF CLASS (2)
       --------------                 ----                 ------------------------       ------------
<S>                         <C>                            <C>                        <C>   
        Common Stock         Marvin D. Kantor                     888,120                    14.02%
                             Two Nationwide Plaza
                             Suite 760
                             Columbus, Ohio 43215

        Common Stock         Harold T. Kantor                     297,475 (3)                 4.69%

        Common Stock         Sheldon A. Gold                      131,375 (4)                 2.07%

        Common Stock         Reed A. Martin                        40,726 (5)                     -

        Common Stock         Charles R. Cicerchi                   30,416 (6)                     -

        Common Stock         Paul H. Levine                        14,500 (7)                     -

        Common Stock         Dr. Gerald M. Penn                    21,000 (8)                     -

        Common Stock         Clemente Del Ponte                   668,200 (9)                10.55%
                             Dollard House
                             Wellington Quay
                             Dublin 2 Ireland

        Common Stock         David E. Fernie                          200                         -

        Common Stock         All Directors and                  2,061,596 (10)               32.53%
                             Executive Officers
                             As a Group (7 persons)

        Common Stock         Gerald F. Schroer                    413,800 (11)                6.53%
                             25109 Detroit Road
                             Westlake, Ohio 44145
</TABLE>

                  -------------------

                  (1)      The individuals named have direct ownership and sole
                           voting and investment power, except as otherwise
                           indicated.

                  (2)      Percent of class shown net of treasury shares (see
                           (9) below). Except as otherwise indicated, shares
                           owned by the individuals named represent less than 1%
                           of the outstanding shares of Common Stock of the
                           Company.

                  -------------------
                  (Footnotes continued on following page)

                                      III-9


<PAGE>   60



ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  MHK Corp., of which Marvin D. Kantor and Harold T. Kantor are
                  the sole shareholders, has incurred indebtedness to the
                  Company. The largest amount of such indebtedness outstanding
                  in 1998 was $796,561; 1997 was $799,718; and 1996 was
                  $809,435. During April 1999, the Company revised, effective
                  January 1, 1999, all obligations due from MHK into a single
                  promissory note ($790,600 at December 31, 1998) providing for
                  monthly payments effective of $9,180, including interest at 7%
                  per annum. Through February 28, 1999, interest of $7,000 had
                  been received, leaving a principal balance of $790,600 and
                  accrued interest of $2,200. The April 1999 revision of the
                  obligations includes a commitment to achieve a current status
                  by the end of 1999. Also, the Company has received additional
                  collateral and a commitment from one of the principals, a
                  Company officer and director, to provide personal payments of
                  $3,000 per month toward the MHK obligation. Interest at 9%
                  totaling $20,000, $68,328 and $61,823 has been charged,
                  through December 31, 1998, 1997 and 1996, respectively.

                  A significant portion of this indebtedness arose, effective
                  January 1, 1995 when the Company sold the operating assets of
                  a subsidiary's retail liquor store and two lounges in Florida
                  to MHK Corp. The purchase price was equivalent to the net book
                  value of the net assets which totaled $574,949 as adjusted for
                  certain 1995 transactions. The remainder of the debt is
                  attributable to loans made to MHK Corp. for accrued interest
                  and working capital in 1995 and 1996. Collateral for this
                  indebtedness includes the operating assets of MHK Corp. and
                  additional commercial real estate property owned by the
                  Kantors in Dayton, Ohio (see Note 10C).

                  The President and CEO of the Company, Mr. Sheldon Gold, has
                  incurred borrowings from the Company. The largest amount of
                  such indebtedness outstanding in 1998 was $213,000; 1997 was
                  $243,412; and 1996 was $243,412. On February 28, 1999, the
                  amount of such indebtedness was $196,600. No interest is paid
                  or charged on such indebtedness. The President/CEO has granted
                  collateral to the Company to enhance the realization of the
                  indebtedness, in the form of stock in the Company and a
                  residential mortgage. The loan is evidenced by a promissory
                  note providing for minimum annual payments of $15,000, as
                  amended (see Note 10C).

                  Certain executive officers and directors of the Company are
                  limited partners owning less than an aggregate 10% interest in
                  Wendt-Bristol Diagnostics Company L.P. A subsidiary of W-B is
                  the general partner of Wendt-Bristol Diagnostics Company L.P.
                  -------------------
                  (Footnotes continued from previous Page)

                  (3)      Includes 75,000 shares which Mr. Kantor may acquire
                           by exercising options granted to him under the
                           Company's Stock Option Plan.

                  (4)      Includes 13,750 shares of Common Stock which Mr. Gold
                           may acquire by exercising Warrants and 75,000 shares
                           of common stock which Mr. Gold may acquire by
                           exercising options granted to him under the Company's
                           Stock Option Plan.

                  (5)      Includes 1,100 shares of Common Stock which Mr.
                           Martin may acquire by exercising Warrants and 35,000
                           shares of Common Stock which he may acquire by
                           exercising options granted to him under the Company's
                           Stock Option Plan.

                  (6)      Includes 30,000 shares of Common Stock which Mr.
                           Cicerchi may acquire by exercising options granted
                           under the Company's Stock Option Plan.

                  (7)      Includes 14,000 shares of Common Stock which Mr.
                           Levine may acquire by exercising options granted
                           under the Company's Stock Option Plan.

                  -------------------
                  (Footnotes continued on following page)




                                     III-10


<PAGE>   61



ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)

                  (Footnotes continued from previous page)

                  (8)      Includes 13,000 shares of Common Stock which Dr. Penn
                           may acquire by exercising options granted under the
                           Company's Stock Option Plan.

                  (9)      Includes 10,000 shares of Common Shares which Mr. Del
                           Ponte may acquire by exercising options granted to
                           him under the Company's Stock Option Plan. The
                           remainder of the shares are in the record name of
                           McBridge Advisory, Ltd. of which Mr. Del Ponte is the
                           managing director of said company.

                  (10)     Includes 14,850 shares of Common Stock which may be
                           acquired by exercise of Warrants and 222,000 shares
                           which may be acquired by exercise of options granted
                           under the Company's Stock Option Plan.

                  (11)     Pursuant to a July 6, 1998 letter received from Mr. 
                           Schroer.

                  -------------------------






                                     III-11


<PAGE>   62



                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

       (a)      Documents filed as part of this Form 10-K:

                  1.       Financial Statements. The following financial
                           statements are included in Part II, Item 8:

<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                           ----
<S>                                                                             <C>
                          Report of Independent Auditors                                  II-11

                          Consolidated Balance Sheets as of December                 II-12 and II-13
                           31, 1998 and 1997

                          Consolidated Statements of Operations for                       II-14
                           the years ended December 31, 1998, 1997
                           and 1996

                          Consolidated Statements of Comprehensive                        II-15
                           Income for the years ended December 31,
                           1998, 1997 and 1996.

                          Consolidated Statements of Stockholders'                        II-16
                           Equity for the years ended December 31,
                           1998, 1997 and 1996

                          Consolidated Statements of Cash Flow for                   II-17 and II-18
                           the years ended December 31, 1998, 1997
                           and 1996

                          Notes to Consolidated Financial Statements               II-19 through II-43
</TABLE>

                  2.     Financial Statement Schedules. The following financial
                         statement schedules for the years ended December 31,
                         1998, 1997 and 1996 are included in Part IV:

<TABLE>
<CAPTION>
                      SCHEDULE                                                             PAGE
                      --------                                                             ----
<S>                             <C>                                                       <C>
                         II.      Valuation and Qualifying Accounts and
                                   Reserves                                                IV-6
</TABLE>

         All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the Financial Statements
or Notes thereto.

         3. Exhibits Filed Under Item 601 of Regulation S-K. (Numbers assigned
to the following correlate to those used in such Item 601).

            EXHIBIT
            NUMBER                                    DESCRIPTION
            ------                                    -----------

              2.1       Merger Agreement among the Wendt-Bristol Health Services
                        Corporation, Wendt-Bristol Acquisition, Inc. and
                        Wendt-Bristol Diagnostics Company dated September 25,
                        1998 filed as Exhibit 2.1 to Form S-4 filed February 5,
                        1999 and incorporated herein by reference pursuant to
                        Rule 411(c).


                                      IV-1


<PAGE>   63



ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 
                FORM 8-K (CONTINUED)

       (a)      Documents filed as part of this Form 10-K: (Continued)

                  3.       Exhibits Filed Under Item 601 of Regulation S-K.
                           (Numbers assigned to the following correlate to those
                           used in such Item 601). (Continued)
<TABLE>
<CAPTION>
                              EXHIBIT
                              NUMBER                     DESCRIPTION
                              ------                     -----------
<S>                                       <C>
                                2.2       Merger Agreement among the
                                          Wendt-Bristol Health Services
                                          Corporation, Wendt-Bristol Acquisition
                                          LLC and Wendt-Bristol Diagnostics
                                          Company L.P. dated September 25, 1998
                                          filed as Exhibit 2.2 to Form S-4 filed
                                          February 5, 1999 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                                3.1       Certificate of Incorporation of
                                          registrant. Filed as Exhibit B to the
                                          Company's Proxy Statement (June 27,
                                          1988) and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                3.2       By-Laws of the Company. Filed as
                                          Exhibit C to the Company's Proxy
                                          Statement (June 27, 1988) and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                                4.1       See Exhibits numbered Exhibit 3.1 and 3.2

                                4.2       Warrant Agreement, dated April 29,
                                          1988, between The Wendt-Bristol
                                          Company, Corna & Co., Inc. and
                                          Mellon Securities Trust Company, as
                                          Warrant Agent. Filed as Exhibit 4.2
                                          to Registration Statement on Form
                                          S-1 of The Wendt-Bristol Company
                                          (Reg. No. 33-8399, filed October 15,
                                          1986) and incorporated herein by
                                          reference to Rule 411(c).

                                4.3       Warrant Agreement, dated April 29,
                                          1988, between The Wendt-Bristol
                                          Company, Pittsburgh National Bank,
                                          N.A., and The Fifth Third Bank, as
                                          Warrant Agent. Filed as Exhibit 4.3 to
                                          the Company's Annual Report on Form
                                          10-K for the year ended December 31,
                                          1992 and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                4.4       The Wendt-Bristol Health Services
                                          Corporation Terms of Series 1
                                          Cumulative Dividend Convertible
                                          Preferred Stock. Files as Exhibit 4 to
                                          Company registration statement on Form
                                          S-4 (Reg. No. 333-64423, filed
                                          February 5, 1999) and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                                 9        Voting Trust Agreement, dated December
                                          4, 1992, between The Wendt-Bristol
                                          Health Services Corporation, Corporate
                                          Life Insurance Company and Marvin D.
                                          Kantor, as Voting Trustee. Filed as
                                          Exhibit 9 to the Company's Annual
                                          Report on Form 10-K for the year ended
                                          December 31, 1993 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                               10.1       Employee Stock Option Plan, as
                                          amended. Filed as Exhibit 28.1 to the
                                          Company's Annual Report on Form 10-K
                                          for the year ended December 31, 1991,
                                          and incorporated herein by reference
                                          pursuant to Rule 411(c).
</TABLE>


                                      IV-2


<PAGE>   64



ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (
             CONTINUED)

           (a)        Documents filed as part of this Form 10-K: (Continued)

                      3.         Exhibits Filed Under Item 601 of Regulation
                                 S-K. (Numbers assigned to the following
                                 correlate to those used in such Item 601)
                                 (Continued)


<TABLE>
<CAPTION>
                              EXHIBIT
                               NUMBER                   DESCRIPTION
                               ------                   -----------
<S>                                       <C>
                                10.2      Temco National Corporation 401(k)
                                          Profit Sharing Plan. Filed as Exhibit
                                          28.2 to the Company's Annual Report on
                                          Form 10-K for the Year Ended December
                                          31, 1991, and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                10.3      Sale and Subservicing Agreement, dated
                                          as of February 5, 1993, among The
                                          Wendt-Bristol Company, et al, NPF IV,
                                          Inc. and National Premier Financial
                                          Services, Inc., relating to the health
                                          care receivables securitization
                                          program. Filed as Exhibit 28.6 to the
                                          Company's Annual Report on Form 10-K
                                          for the year ended December 31, 1992,
                                          and incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.4      Stock Purchase Agreement, dated June
                                          4, 1993, between The Wendt-Bristol
                                          Health Services Corporation and
                                          Corporate Life Insurance Company.
                                          Filed as Exhibit 10.4 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1993 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.5      Installment Business Loan Note, dated
                                          January 30, 1996, between The
                                          Wendt-Bristol Company and Marvin D.
                                          Kantor related to working capital
                                          loan. Filed as Exhibit 10.5 to the
                                          Company's Annual Report on Form 10-K
                                          for the year ended December 31, 1995
                                          and incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.6      Stock Pledge Agreement dated January
                                          30, 1996, between The Wendt-Bristol
                                          Company and Marvin D. Kantor related
                                          to working capital loan. Filed as
                                          Exhibit 10.6 to the Company's Annual
                                          Report on Form 10-K for the year ended
                                          December 31, 1995 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                                10.7      Loan and Security Agreement, dated
                                          March 27, 1996, between Wendt-Bristol
                                          Diagnostics Company, L.P. and DVI
                                          Capital Company relating to equipment
                                          financing. Filed as Exhibit 10.7 to
                                          the Company's Annual Report on Form
                                          10-K for the year ended December 31,
                                          1995 and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                10.8      Loan and Security Agreement, dated
                                          March 27, 1996, between Health
                                          America, Inc. dba Wendt-Bristol Center
                                          and DVI Capital Company relating to
                                          equipment financing. Filed as Exhibit
                                          10.8 to the Company's Annual Report on
                                          Form 10-K for the year ended December
                                          31, 1995 and incorporated herein by
                                          reference pursuant to Rule 411(c).
</TABLE>



                                      IV-3


<PAGE>   65
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
           (CONTINUED)

           (a)        Documents filed as part of this Form 10-K: (Continued)

                      3.         Exhibits Filed Under Item 601 of Regulation
                                 S-K. (Numbers assigned to the following
                                 correlate to those used in such Item 601)
                                 (Continued)
<TABLE>
<CAPTION>
                              EXHIBIT
                               NUMBER                    DESCRIPTION
                               ------                    -----------

<S>                                       <C>
                                10.9      Loan and Security Agreement, dated
                                          March 27, 1996, between American Care
                                          Center, Inc. dba Bristol House of
                                          Columbus and DVI Capital Company
                                          relating to equipment financing. Filed
                                          as Exhibit 10.9 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1995 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.10      Loan and Security Agreement, dated
                                          March 27, 1996, between Ethan Allen
                                          Care Center, Inc. dba Bristol House of
                                          Springfield and DVI Capital Company
                                          relating to equipment financing. Filed
                                          as Exhibit 10.10 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1995 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.11      Asset Purchase Agreement, dated April
                                          15, 1996, between Congress Liquors,
                                          Inc. and MHK Corp. Filed as Exhibit
                                          10.11 to the Company's Annual Report
                                          on Form 10-K for the year ended
                                          December 31, 1995 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                               10.11      Mortgage and security agreement dated
                                          April 1, 1996, between Wendt-Bristol
                                          Diagnostics Co. L.P. and National City
                                          Bank. Filed as Exhibit 10.11 to the
                                          Company's Form 10-Q for the quarter
                                          ended June 30, 1996 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                               10.12      Mortgage and security agreement dated
                                          April 19, 1996 between The
                                          Wendt-Bristol Health Services
                                          Corporation and Grand Pacific Finance
                                          Corp. Filed as Exhibit 10.12 to the
                                          Company's Form 10-Q for the quarter
                                          ended June 30, 1996 and incorporated
                                          herein by reference
                                          pursuant to Rule 411(c).

                               10.13      Receivables purchase and sale
                                          agreement dated May 30, 1996 between
                                          The Wendt-Bristol Company, et al, and
                                          HealthPartners Funding L.P., relating
                                          to the health care receivables
                                          securitization program. Filed as
                                          Exhibit 10.13 to the Company's Form
                                          10-Q for the quarter ended June 30,
                                          1996 and incorporated herein by
                                          reference pursuant to Rule 411(c).

                               10.14      Amendment to Receivables Purchase and
                                          Sale Agreement dated August 29, 1996
                                          between The Wendt-Bristol Company, et
                                          al, and HealthPartners Funding L.P.,
                                          relating to the health care
                                          receivables financing program. Filed
                                          as Exhibit 10.14 to the Company's Form
                                          10-Q for the quarter ended September
                                          30, 1996 and incorporated herein by
                                          reference pursuant to Rule 411(c).
</TABLE>

                                      IV-4

<PAGE>   66



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 
          (CONTINUED)

          (a)      Documents filed as part of this Form 10-K: (Continued)

                   3.       Exhibits Filed Under Item 601 of Regulation S-K. 
                            (Numbers assigned to the following correlate to 
                            those used in such Item 601) (Continued)
<TABLE>
<CAPTION>
                              EXHIBIT
                               NUMBER                    DESCRIPTION
                               ------                    -----------
<S>                                      <C>
                               10.15      Convertible subordinated bond, dated
                                          December 23, 1996, by and between The
                                          Wendt-Bristol Health Services
                                          Corporation and Societe Generale Bank
                                          & Trust, or registered assigns. Filed
                                          as Exhibit 1 to the Company's Form 8-K
                                          dated December 23, 1996 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.16      Series 1 Bond dated February 14, 1997,
                                          by and between The Wendt-Bristol
                                          Health Services Corporation and
                                          Societe Generale Bank & Trust, or
                                          registered assigns, with Schedule 1.
                                          Filed as Exhibit 1 to the Company's
                                          Form 8-K dated February 14, 1997 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.17      Series 1 Warrant dated February 14,
                                          1997, by and between The Wendt-Bristol
                                          Health Services Corporation and
                                          Societe Generale Bank & Trust, or
                                          registered assigns, with Schedule 1.
                                          Filed as Exhibit 2 to the Company's
                                          Form 8-K dated February 14, 1997 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                                 21       List of Subsidiaries

                                 27       EDGAR Financial Data Schedule
</TABLE>

          (b)      Reports on Form 8-K filed during last fiscal (calendar)
                   quarter of 1998:

                   (1)      Report dated December 7, 1998 related to the sale
                            of Series 2 Bonds pursuant to Regulation S.





                                      IV-5

<PAGE>   67



                                                                     SCHEDULE II

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996




<TABLE>
<CAPTION>
           COLUMN A                             COLUMN B        COLUMN C            COLUMN D       COLUMN E
----------------------------------           -------------    -------------       ------------    ----------
                                                               ADDITIONS
                                                               ---------
                                               BALANCE AT      CHARGED TO                           BALANCE
                                                BEGINNING       COSTS AND                            AT END
                                                OF PERIOD       EXPENSES           DEDUCTIONS       OF PERIOD
                                                ---------       --------           ----------       ---------
<S>                                      <C>               <C>                 <C>                     <C>            
 December 31, 1998
   Reserve deducted from asset to
    which it applies:
     Allowance for doubtful trade
      accounts                                $   101,000    $   208,238       $  (a)  82,237     $  227,000
   Valuation allowance for deferred                                                              
    tax assets                                $     -        $     -           $        -         $     -
 December 31, 1997                                                                               
   Reserve deducted from asset to                                                                
    which it applies:                                                                            
     Allowance for doubtful trade                                                                
      accounts                                $    90,000    $    58,000       $  (a)  47,000     $  101,000
   Valuation allowance for deferred                                                              
    tax assets                                $   200,000    $     -           $      200,000     $     -
                                                                                                 
 December 31, 1996                                                                               
   Reserve deducted from asset to                                                                
    which it applies:                                                                            
     Allowance for doubtful trade                                                                
      accounts                                $   264,700    $    65,480       $   (a)240,180     $   90,000
   Valuation allowance for deferred                                                              
    tax assets                                $   400,000    $     -           $      100,000     $  300,000
                                                                                                
=====================================================================================================================
</TABLE>

Notes:   (a)  Write-off of uncollectible amounts



                                      IV-6


<PAGE>   68



                                   SIGNATURES



         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                               THE WENDT-BRISTOL HEALTH SERVICES CORPORATION
                               (Registrant)

April 15, 1999                By: /s/ Sheldon A. Gold
--------                          -------------------------------
                                  Shelton A. Gold
                                  President


                               By: /s/ Charles R. Cicerchi
April 15, 1999                    -------------------------------
--------                          Charles R. Cicerchi
                                  Vice-President, Finance and Principal
                                  Financial and Accounting Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
            SIGNATURE                            TITLE                     DATE
            ---------                            -----                     ----
<S>                                     <C>                               <C>
 /s/   Marvin D. Kantor                  Chairman of the Board and
    -------------------------------      Director                           April 15, 1999
 Marvin D. Kantor                        


 /s/   Harold T.  Kantor                 Vice Chairman of the Board         April 15, 1999
   --------------------------------      and Director
  Harold T. Kantor                        


 /s/   Sheldon A. Gold                   President (Principal Executive     April 15, 1999
 ----------------------------------      Officer) and Director
 Sheldon A. Gold                         


 /s/   Reed A. Martin                    Executive Vice President, Chief    April 15, 1999
 ----------------------------------      Operating Officer and Director
 Reed A. Martin                          

 /s/   Paul H. Levine                     Director                          April 15, 1999
 ---------------------------------
 Paul H. Levine

 /s/   Gerald M. Penn                    Director                           April 15, 1999
 ---------------------------------
 Gerald M. Penn


                                         Director                           ________, 1999
----------------------------------
 Clemente Del Ponte

 /s/ David E. Fernie                     Director                           April 15, 1999
 ---------------------------------
 David E. Fernie
</TABLE>

                                      IV-7