FORM
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For
the quarterly period ended
Commission
file number
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) | (I.R.S.
Employer Identification No.) | |
| Address of principal executive offices) | (Zip Code) |
Registrant's
telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit such files YES _X_ NO ___
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See definition of accelerated filer, large accelerated filer, smaller reporting company and emerging growth
company in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer___ Accelerated filer ___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ___
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date.
| Class | Outstanding at May 5, 2023 | ||
| Common Stock, par value $.0001 | |||
| Class B Common Stock, par value $.0001 | |||
| Class C Common Stock, par value $.0001 | |||
| Class A Preferred Stock, par value $.0001 | |||
| Page 1 |
FONAR CORPORATION AND SUBSIDIARIES
INDEX
| Page 2 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
ASSETS
| March
31, 2023 | June
30, 2022 * | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short term investments | ||||||||
| Accounts receivable – net | ||||||||
| Accounts receivable - related party | ||||||||
| Medical receivable – net | ||||||||
| Management and other fees receivable – net | ||||||||
| Management and other fees receivable – related medical practices – net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Accounts receivable – long term | ||||||||
| Deferred income tax asset - net | ||||||||
| Property and equipment – net | ||||||||
| Right-of-use Asset – operating lease | ||||||||
| Right-of-use Asset – financing lease | ||||||||
| Goodwill | ||||||||
| Other intangible assets – net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
*Condensed from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
| Page 3 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
| March
31, 2023 | June
30, 2022 * | |||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Accounts payable | ||||||||
| Other current liabilities | ||||||||
| Unearned revenue on service contracts | ||||||||
| Unearned revenue on service contracts – related party | ||||||||
| Operating lease liability - current portion | ||||||||
| Financing lease liability - current portion | ||||||||
| Customer deposits | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Unearned revenue on service contracts | ||||||||
| Deferred income tax liability | ||||||||
| Due to related medical practices | ||||||||
| Operating lease liability – net of current portion | ||||||||
| Financing lease liability – net of current portion | ||||||||
| Long-term debt less current portion | ||||||||
| Other liabilities | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
*Condensed from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
| Page 4 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS’ EQUITY (Continued)
| STOCKHOLDERS' EQUITY: | March 31, 2023 | June
30, 2022* | ||||||
| Class A non-voting preferred stock $ par value; shares authorized at March 31, 2023 and June 30, 2022, issued and outstanding at March 31, 2023 and June 30, 2022 | $ | $ | ||||||
| Preferred stock $ par value; shares authorized at March 31, 2023 and June 30, 2022, issued and outstanding – | ||||||||
| Common Stock $ par value; shares authorized at March 31, 2023 and June 30, 2022, and issued at March 31, 2023 and June 30, 2022, respectively and outstanding at March 31, 2023 and June 30, 2022 respectively | ||||||||
| Class B Common Stock (10 votes per share) $ par value; shares authorized at March 31, 2023 and June 30, 2022, . issued and outstanding at March 31, 2023 and June 30, 2022 | ||||||||
| Class C Common Stock (25 votes per share) $ par value; shares authorized at March 31, 2023 and June 30, 2022, issued and outstanding at March 31, 2023 and June 30, 2022 | ||||||||
| Paid-in capital in excess of par value | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost - shares of common stock at March 31, 2023 and shares of common stock at June 30, 2022 | ( | ) | ( | ) | ||||
| Total Fonar Corporation’s Stockholders’ Equity | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
*Condensed from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
| Page 5 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, | ||||||||
| REVENUES | 2023 | 2022 | ||||||
| Patient fee revenue – net of contractual allowances and discounts | $ | $ | ||||||
| Product sales – net | ||||||||
| Service and repair fees – net | ||||||||
| Service and repair fees - related parties – net | ||||||||
| Management and other fees – net | ||||||||
| Management and other fees - related medical practices – net | ||||||||
| Total Revenues – Net | ||||||||
| COSTS AND EXPENSES | ||||||||
| Costs related to patient fee revenue | ||||||||
| Costs related to product sales | ||||||||
| Costs related to service and repair fees | ||||||||
| Costs related to service and repair fees - related parties | ||||||||
| Costs related to management and other fees | ||||||||
| Costs related to management and other fees – related medical practices | ||||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Total Costs and Expenses | ||||||||
| Income From Operations | ||||||||
| Other Expense | ( | ) | ||||||
| Interest (Expense) Income | ( | ) | ||||||
| Investment Income | ||||||||
| Income Before Provision for Income Taxes and Noncontrolling Interests | ||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Net Income - Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income – Attributable to FONAR | $ | $ | ||||||
| STATEMENT OF INCOME | ||||||||
| Net Income Available to Common Stockholders | $ | $ | ||||||
| Net Income Available to Class A Non-Voting Preferred Stockholders | $ | $ | ||||||
| Net Income Available to Class C Common Stockholders | $ | $ | ||||||
| Basic Net Income Per Common Share Available to Common Stockholders | $ | $ | ||||||
| Diluted Net Income Per Common Share Available to Common Stockholders | $ | $ | ||||||
| Basic and Diluted Income Per Share – Class C Common | $ | $ | ||||||
| Weighted Average Basic Shares Outstanding – Common Stockholders | ||||||||
| Weighted Average Diluted Shares Outstanding - Common Stockholders | ||||||||
| Weighted Average Basic and Diluted Shares Outstanding – Class C Common | ||||||||
See accompanying notes to condensed consolidated financial statements.
| Page 6 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, | ||||||||
| REVENUES | 2023 | 2022 | ||||||
| Patient fee revenue – net of contractual allowances and discounts | $ | $ | ||||||
| Product sales – net | ||||||||
| Service and repair fees – net | ||||||||
| Service and repair fees - related parties – net | ||||||||
| Management and other fees – net | ||||||||
| Management and other fees - related medical practices – net | ||||||||
| Total Revenues – Net | ||||||||
| COSTS AND EXPENSES | ||||||||
| Costs related to patient fee revenue | ||||||||
| Costs related to product sales | ||||||||
| Costs related to service and repair fees | ||||||||
| Costs related to service and repair fees - related parties | ||||||||
| Costs related to management and other fees | ||||||||
| Costs related to management and other fees – related medical practices | ||||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Total Costs and Expenses | ||||||||
| Income From Operations | ||||||||
| Other (Expense) Income | ( | ) | ||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Investment Income | ||||||||
| Income Before Provision for Income Taxes and Noncontrolling Interests | ||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Net Income - Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income – Attributable to FONAR | $ | $ | ||||||
| STATEMENT OF INCOME | ||||||||
| Net Income Available to Common Stockholders | $ | $ | ||||||
| Net Income Available to Class A Non-Voting Preferred Stockholders | $ | $ | ||||||
| Net Income Available to Class C Common Stockholders | $ | $ | ||||||
| Basic Net Income Per Common Share Available to Common Stockholders | $ | $ | ||||||
| Diluted Net Income Per Common Share Available to Common Stockholders | $ | $ | ||||||
| Basic and Diluted Income Per Share – Class C Common | $ | $ | ||||||
| Weighted Average Basic Shares Outstanding – Common Stockholders | ||||||||
| Weighted Average Diluted Shares Outstanding - Common Stockholders | ||||||||
| Weighted Average Basic and Diluted Shares Outstanding – Class C Common | ||||||||
See accompanying notes to condensed consolidated financial statements.
| Page 7 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
For the Three Months Ending March 31, 2023
| Common Stock | Paid in capital in excess of par value | Accumulated Deficit | Treasury Stock | Non Controlling Interests | Total | |||||||||||||||||||
| Balance – December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||
| Net income | ||||||||||||||||||||||||
| Purchase of Treasury stock | ( |
) | ( |
) | ||||||||||||||||||||
| Distributions - Non controlling | ( |
) | ( |
) | ||||||||||||||||||||
| Income - Non controlling interests | ||||||||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||
For the Three Months Ending March 31, 2022
| Common Stock | Paid in capital in excess of par value | Accumulated Deficit | Treasury Stock | Non Controlling Interests | Total | |||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Net income | ||||||||||||||||||||||||
| Distributions - Non controlling | ( | ) | ( | ) | ||||||||||||||||||||
| Income - Non controlling interests | ||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| Page 8 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
For the Nine Months Ending March 31, 2023
| Common Stock | Paid in capital in excess of par value | Accumulated Deficit | Treasury Stock | Non Controlling Interests | Total | |||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||
| Net income | ||||||||||||||||||||||||
| Purchase of Treasury stock | ( |
) | ( |
) | ||||||||||||||||||||
| Cancellation of shares | ( |
) | ||||||||||||||||||||||
| Distributions - Non controlling | ( |
) | ( |
) | ||||||||||||||||||||
| Income - Non controlling interests | ||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||
For the Nine Months Ending March 31, 2022
| Common Stock | Paid in capital in excess of par value | Accumulated Deficit | Treasury Stock | Non Controlling Interests | Total | |||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Net income | ||||||||||||||||||||||||
| Purchase of Non controlling interests | ( | ) | ( | ) | ||||||||||||||||||||
| Distributions - Non controlling | ( | ) | ( | ) | ||||||||||||||||||||
| Income - Non controlling interests | ||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| Page 9 |
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization on right-of-use assets | ||||||||
| Provision for bad debts | ||||||||
| Deferred income tax – net | ||||||||
| Gain on forgiveness of PPP loan | ( | ) | ||||||
| (Increase) decrease in operating assets, net: | ||||||||
| Accounts, medical and management fee receivable(s) | ( | ) | ( | ) | ||||
| Notes receivable | ||||||||
| Contract assets | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ||||||||
| Increase (decrease) in operating liabilities, net: | ||||||||
| Accounts payable | ( | ) | ||||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Financing lease liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of noncontrolling interests | ( | ) | ||||||
| Cost of patents | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repayment of borrowings and capital lease obligations | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ||||||
| Distributions to noncontrolling interests | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net Increase in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| Page 10 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
FONAR Corporation (the "Company" or "FONAR") is a Delaware corporation, which was incorporated on July 17, 1978. FONAR is engaged in the research, development, production and manufacturing of medical scanning equipment, which uses principles of Magnetic Resonance Imaging ("MRI") for the detection and diagnosis of human diseases. In addition to deriving revenues from the direct sale of MRI equipment, revenue is also generated from our installed-base of customers through service and upgrade programs.
FONAR, through its wholly-owned subsidiary Health Management Corporation of America ("HMCA") provides comprehensive management services to diagnostic imaging facilities. These services provided by the Company include development, administration, leasing of office spaces, facilities and medical equipment, provision of supplies, staffing and supervision of non-medical personnel, legal services, accounting, billing and collections and the development and implementation of practice growth and marketing strategies.
Effective
July 1, 2015, the Company restructured the corporate organization of the management of diagnostic imaging centers segment of our business.
The reorganization was structured to more completely integrate the operations of Health Management Corporation of America and HDM. Imperial
contributed all of its assets (which were utilized in the business of Health Management Corporation of America) to HDM and received a
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed on September 28, 2022 for the fiscal year ended June 30, 2022.
The global pandemic of COVID-19 has caused turbulence and uncertainty in the United States and international markets and economies which has adversely affected our workforce, liquidity, financial conditions, revenues, profitability and business operations. The Company was able to enact certain decisions to allow the Company to sustain operations during the global pandemic and from further losses or additional decreases in scan volume. The Company also received some government stimulus funds from the Paycheck Protection Program (“PPP”) and Medicare advances/stimulus payments. The Company has been able to navigate through these challenges and avoid any significant disruption of the business and the volume has recently risen back to almost pre- COVID-19 levels. Recent legislation was passed to end the national emergency for COVID-19 which the Company believes with positive cash flows, low debt and cash on hand, it will be able to maintain operations to pre COVID-19 levels going forward.
| Page 11 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenues
The revenue recognition standard in ASC 606 outlines a single comprehensive model for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s revenue recognition policies and significant judgements employed in the determination of revenue.
Our revenues generally relate to net patient fees received from various payers and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
| Page 12 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In accordance with ASC Topic 260-10, “Participating Securities and the Two-Class method”, the Company uses the Two-Class method for calculating basic income per share and applied the if converted method in calculating diluted income per share for the three and nine months ended March 31, 2023 and 2022.
Diluted EPS reflects the potential dilution from the exercise or conversion of all dilutive securities into common stock based on the average market price of common shares outstanding during the period. For the three and nine months ended March 31, 2023 and 2022, diluted EPS for common shareholders includes shares upon conversion of Class C Common.
Earnings Per Share
| Three
months ended March 31, 2023 | Three
months ended March 31, 2022 | |||||||||||||||||||||||
| Total | Common Stock | Class
C Common Stock | Total | Common Stock | Class
C Common Stock | |||||||||||||||||||
| Basic | ||||||||||||||||||||||||
| Numerator:
Net income available to common stockholders | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||
| Basic income per common share | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Diluted | ||||||||||||||||||||||||
| Denominator:
Weighted average shares outstanding | ||||||||||||||||||||||||
| Convertible Class C Stock | ||||||||||||||||||||||||
| Total Denominator for diluted earnings per share | ||||||||||||||||||||||||
| Diluted income per common share | $ | $ | $ | $ | ||||||||||||||||||||
| Page 13 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share (Continued)
| Nine
months ended March 31, 2023 | Nine
months ended March 31, 2022 | |||||||||||||||||||||||
| Total | Common Stock | Class
C Common Stock | Total | Common Stock | Class
C Common Stock | |||||||||||||||||||
| Basic | ||||||||||||||||||||||||
| Numerator:
Net income available to common stockholders | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||
| Basic income per common share | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Diluted | ||||||||||||||||||||||||
| Denominator:
Weighted average shares outstanding | ||||||||||||||||||||||||
| Convertible Class C Stock | ||||||||||||||||||||||||
| Total Denominator for diluted earnings per share | ||||||||||||||||||||||||
| Diluted income per common share | $ | $ | $ | $ | ||||||||||||||||||||
Recent Accounting Standards
FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2023 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2023 or 2022, and it does not believe that any of those standards will have a significant impact on our consolidated condensed financial statements at the time they become effective.
| Page 14 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE
Receivables, net is comprised of the following at March 31, 2023, and June 30, 2022:
| March 31, 2023 | ||||||||||||
| Gross Receivable | Allowance for doubtful accounts | Net | ||||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| Accounts receivable - related party | $ | $ | ||||||||||
| Medical receivable | $ | $ | $ | |||||||||
| Management and other fees receivable | $ | $ | $ | |||||||||
| Management and other fees receivable from related medical practices ("PC’s") | $ | $ | $ | |||||||||
| June 30, 2022 | ||||||||||||
| Gross Receivable | Allowance for doubtful accounts | Net | ||||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| Medical receivable | $ | $ | $ | |||||||||
| Management and other fees receivable | $ | $ | $ | |||||||||
| Management and other fees receivable from related medical practices ("PC’s") | $ | $ | $ | |||||||||
The Company's customers are concentrated in the healthcare industry.
Accounts Receivable
Credit risk with respect to the Company’s accounts receivable related to product sales and service and repair fees is limited due to the customer advances received prior to the commencement of work performed and the billing of amounts to customers as sub-assemblies are completed. Service and repair fees are billed on a monthly or quarterly basis and the Company does not continue providing these services if accounts receivable become past due. The Company controls credit risk with respect to accounts receivable from service and repair fees through its credit evaluation process, credit limits, monitoring procedures and reasonably short collection terms. The Company performs ongoing credit authorizations before a product sales contract is entered into or service and repair fees are provided.
| Page 15 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)
Long Term Accounts Receivable
The Company will generate revenue from long-term, non-cancellable contracts to provide service and repair services. Future revenue to be recognized over the following three years as of March 31, 2023 is as follows:
| 2025 | $ | |||||
| 2026 | ||||||
| 2027 | ||||||
| Total | $ |
Medical Receivables
Medical receivables are due under fee-for-service contracts from third party payors, such as hospitals, government sponsored healthcare programs, patient’s legal counsel and directly from patients. Substantially all the revenue relates to patients residing in Florida. The carrying amount of the medical receivable is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. The Company determines allowances for contractual adjustments and uncollectible accounts based on specific agings, specific payor collection issues that have been identified and based on payor classifications and historical experience at each site.
Management and Other Fees Receivable
The Company's receivables from the related and non-related professional corporations (PC's) substantially consist of fees outstanding under management agreements. Payment of the outstanding fees is dependent on collection by the PC's of fees from third party medical reimbursement organizations, principally insurance companies and health management organizations.
Payment
of the management fee receivables from the PC’s may be impaired by the inability of the PC’s to collect in a timely manner
their medical fees from the third party payors, particularly insurance carriers covering automobile no-fault and workers compensation
claims due to longer payment cycles and rigorous informational requirements and certain other disallowed claims. Approximately
| Page 16 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)
Management and Other Fees Receivable (Continued)
Net
revenues from management and other fees charged to the related PCs accounted for approximately
Tallahassee Magnetic Resonance Imaging, PA, Stand Up MRI of Boca Raton, PA and Stand Up MRI & Diagnostic Center, PA (all related medical practices) entered into a guaranty agreement, pursuant to which they cross guaranteed all management fees which are payable to the Company, which have arisen under each individual management agreement. Additional Company managed entities also operate under a guaranty agreement, pursuant to which management fees are payable to the Company.
The Company’s patient fee revenue, net of contractual allowances and discounts for the three and nine months ended March 31, 2023 and 2022 are summarized in the following table.
For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Commercial Insurance/ Managed Care | $ | $ | ||||||
| Medicare/Medicaid | ||||||||
| Workers' Compensation/Personal Injury | ||||||||
| Other | ||||||||
| Patient Fee Revenue, net of contractual allowances and discounts | $ | $ | ||||||
For the Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Commercial Insurance/ Managed Care | $ | $ | ||||||
| Medicare/Medicaid | ||||||||
| Workers' Compensation/Personal Injury | ||||||||
| Other | ||||||||
| Patient Fee Revenue, net of contractual allowances and discounts | $ | $ | ||||||
| Page 17 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 4 – OPERATING & FINANCING LEASES
In July 2019, the Company adopted ASU 2016-02, Leases (Topic 842). This standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in the condensed consolidated financial statements. We have also elected the transition package of the practical expedients permitted within the standard which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and indirect costs.
The Company accounts for its various operating leases in accordance with Accounting Standards Codification (‘ASC’) 842 – Lease, as updated by ASU 2016-02. At the inception of a lease, the Company recognizes right-of-use lease assets and related lease liabilities measured at present value of future lease payments on its balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. Our most common initial term varies in length from 2 to 10 years. Including renewal options negotiated with the landlord, we have a total span of 2 to 16 years at the facilities we lease. The Company reviewed its contracts with vendors and customers, determining that its right-to-use lease assets consisted of only office space operating leases. In determining the right-to-use lease assets and liabilities, the Company did recognize lease extension options which the Company feels would be reasonably exercised. Our incremental borrowing rate (“IBR”) used to discount the stream of operating lease payments is closely related to the interest rates available to the Company.
A reconciliation of operating and financing lease payments undiscounted cash flows to lease liabilities recognized as of March 31, 2023 is as follows:
| Twelve
Months Ending March 31, | Operating
Lease Payments | Financing Lease Payments | ||||||||
| 2024 | $ | $ | ||||||||
| 2025 | ||||||||||
| 2026 | ||||||||||
| 2027 | ||||||||||
| 2028 | ||||||||||
| Thereafter | ||||||||||
| Present value discount | ( | ) | ( | ) | ||||||
| Total lease liability | $ | $ | ||||||||
| Page 18 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 5 - INVENTORIES
Inventories included in the accompanying condensed consolidated balance sheets consist of the following:
| March
31, 2023 | June
30, 2022 | |||||||
| Purchased parts, components and supplies | $ | $ | ||||||
| Work-in-process | ||||||||
| Total Inventories | $ | $ | ||||||
NOTE 6 – OTHER INTANGIBLE ASSETS
Other intangible assets, net of accumulated amortization, in the accompanying condensed consolidated balance sheets consist of the following:
| March
31, 2023 | June
30, 2022 | |||||||
| Capitalized software development costs | $ | $ | ||||||
| Patents and copyrights | ||||||||
| Non-compete | ||||||||
| Customer relationships | ||||||||
| Gross Other intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Other Intangible Assets - net | $ | $ | ||||||
Amortization
of patents and copyrights for the three months ended March 31, 2023 and 2022 amounted to $
Amortization
of non-compete for the three months ended March 31, 2023 and 2022 amounted to $
Amortization
of customer relationships for the three months ended March 31, 2023 and 2022 amounted to $
Amortization
of patents and copyrights for the nine months ended March 31, 2023 and 2022 amounted to $
Amortization
of non-compete for the nine months ended March 31, 2023and 2022 amounted to $
Amortization
of customer relationships for the nine months ended March 31, 2023 and 2022 amounted to $
| Page 19 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 7 – OTHER CURRENT LIABILITIES
Other current liabilities in the accompanying condensed consolidated balance sheets consist of the following:
March 31, 2023 | June 30, 2022 | |||||||
| Accrued salaries, commissions and payroll taxes | $ | $ | ||||||
| Sales tax payable | ||||||||
| State income taxes payable | ||||||||
| Legal and other professional fees | ||||||||
| Accounting fees | ||||||||
| Self-funded health insurance reserve | ||||||||
| Accrued interest and penalty | ||||||||
| Other general and administrative expenses | ||||||||
| Other Current Liabilities | $ | $ | ||||||
NOTE 8 - SEGMENT AND RELATED INFORMATION
The Company operates in two industry segments - manufacturing and the servicing of medical equipment and management of diagnostic imaging centers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies as disclosed in the Company’s 10-K as of June 30, 2022. All inter-segment sales are market-based. The Company evaluates performance based on income or loss from operations.
| Page 20 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 8 - SEGMENT AND RELATED INFORMATION (CONTINUED)
Summarized financial information concerning the Company's reportable segments is shown in the following table:
| For the three months ended March, 31, 2023 | Medical
Equipment | Management
of Diagnostic Imaging Centers | Totals | |||||||||
| Net revenues from external customers | $ | $ | $ | |||||||||
| Inter-segment net revenues | $ | $ | $ | |||||||||
| (Loss) Income from operations | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| For the three months ended March 31, 2022 | ||||||||||||
| Net revenues from external customers | $ | $ | $ | |||||||||
| Inter-segment net revenues | $ | $ | $ | |||||||||
| (Loss) Income from operations | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| For the nine months ended March 31, 2023 | Medical
Equipment | Management
of Diagnostic Imaging Centers | Totals | |||||||||
| Net revenues from external customers | $ | $ | $ | |||||||||
| Inter-segment net revenues | $ | $ | $ | |||||||||
| (Loss) Income from operations | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| For the nine months ended March 31, 2022 | ||||||||||||
| Net revenues from external customers | $ | $ | $ | |||||||||
| Inter-segment net revenues | $ | $ | $ | |||||||||
| (Loss) Income from operations | $ | ( | ) | $ | $ | |||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| Page 21 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 9 – SUPPLEMENTAL CASH FLOW INFORMATION
During
the nine months ended March 31, 2023 and March 31, 2022, the Company paid $
During
the nine months ended March 31, 2023 and March 31, 2022, the Company paid $
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such actions, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
There were no material changes in litigation from that reported in our Form 10-K for the fiscal year ended June 30, 2022.
Other Matters
On
September 13, 2022, the Company adopted a stock repurchase plan. The plan has no expiration date and cannot determine the number of shares
which will be repurchased. On September 26, 2022, the Board of Directors has approved up to $
The
Company maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum
potential liability for individual claims to $
The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsurance and self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known. There were no significant adjustments recorded in the periods covered by this report.
| Page 22 |
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 and 2022
(Amounts and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE 11 - INCOME TAXES
In
accordance with ASC 740-270, “Income Taxes – Interim Reporting”, the Company is required at the end of each interim period to determine
the best estimate of its annual effective tax rate and apply that rate to year-to-date ordinary income or loss. The resulting tax expense
(or benefit) is adjusted for the tax effect of specific events, if any, required to be discretely recognized in the interim period as
they occur. For the nine months ended March 31, 2023 and 2022, the Company recorded income tax expense of $
ASC topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a corporate tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as unrecognized benefits. A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC topic 740. The Company believes there are no uncertain tax positions in prior years tax filings and therefore it has not recorded a liability for unrecognized tax benefits.
In accordance with ASC topic 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net”. Penalties if incurred would be recognized as a component of “Selling, general and administrative” expenses.
The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2019.
The
Company recorded a deferred tax asset of $
Future ownership changes as determined under Section 382 of the Internal Revenue Code could fu