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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2022

Commission file number 0-10248

 

FONAR CORPORATION

(Exact name of registrant as specified in its charter)

delaware  11-2464137
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
    
110 Marcus Drive  Melville, New York  11747
Address of principal executive offices)  (Zip Code)

Registrant's telephone number, including area code: (631) 694-2929

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 ___ Non-accelerated filer _X_ Smaller reporting company _X_ Emerging growth company ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO _X_

Securities registered pursuant to Section 12(b) of the Act: 

Title of each class  Trading symbol  Name of each exchange on which registered
Common Stock  FONR  NASDAQ Capital Market

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 6, 2022
Common Stock, par value $.0001  6,554,210
Class B Common Stock, par value $.0001  146
Class C Common Stock, par value $.0001  382,513
Class A Preferred Stock, par value $.0001  313,438
 Page 1 

 

FONAR CORPORATION AND SUBSIDIARIES

 

INDEX

 

PART I - FINANCIAL INFORMATION  PAGE
Item 1. Financial Statements   
Condensed Consolidated Balance Sheets - March 31, 2022 (Unaudited) and June 30, 2021  3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)  6
Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited)  7
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)  8
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited)  9
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited)  10
Notes to Condensed Consolidated Financial Statements (Unaudited)  11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  26
Item 3. Quantitative and Qualitative Disclosures About Market Risk  36
Item 4. Controls and Procedures  36
PART II - OTHER INFORMATION  36
Item 1. Legal Proceedings  36
Item 1A. Risk Factors  37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  39
Item 3. Defaults Upon Senior Securities  39
Item 4. Mine Safety Disclosures  39
Item 5. Other Information  39
Item 6. Exhibits  39
Signatures  40
 Page 2 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

ASSETS

 

       
   March 31,
2022
  June 30,
2021 *
Current Assets:          
 Cash and cash equivalents  $46,010   $44,460 
 Short term investments   32    32 
 Accounts receivable – net   3,943    4,526 
 Accounts receivable - related party   30    12 
 Medical receivable – net   19,548    17,901 
 Management and other fees receivable – net   32,804    30,948 
Management and other fees receivable – related medical practices – net   8,489    7,814 
 Contract assets   15       
 Inventories   2,368    1,663 
 Prepaid expenses and other current assets   1,095    1,227 
  Total Current Assets   114,334    108,583 
           
Accounts receivable – long term   2,066    2,880 
 Deferred income tax asset   12,475    15,959 
 Property and equipment – net   22,441    21,850 
 Right-of-use Asset – operating lease   34,792    30,133 
 Right-of-use Asset – financing lease   978    1,127 
 Goodwill   4,269    4,269 
 Other intangible assets – net   3,770    4,038 
 Other assets   524    667 
  Total Assets  $195,649   $189,506 

 

*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,
2022
  June 30,
2021 *
Current Liabilities:          
Current portion of long-term debt and capital leases  $40   $173 
Accounts payable   1,011    1,866 
Other current liabilities   4,916    9,162 
 Unearned revenue on service contracts   3,869    4,366 
 Unearned revenue on service contracts – related party   28       
 Contract liabilities         15 
 Operating lease liability - current portion   3,733    3,533 
 Financing lease liability - current portion   208    203 
Customer deposits   361    731 
           
Total Current Liabilities   14,166    20,049 
           
Long-Term Liabilities:          
 Unearned revenue on service contracts   2,035    2,801 
 Deferred income tax liability   238    238 
 Due to related medical practices   93    93 
 Operating lease liability – net of current portion   33,659    28,975 
 Financing lease liability – net of current portion   892    1,049 
 Long-term debt and capital leases, less current portion   169    760 
 Other liabilities   123    171 
           
Total Long-Term Liabilities   37,209    34,087 
 Total Liabilities   51,375    54,136 

 

*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, 2022  June 30,
2021 *
Class A non-voting preferred stock $.0001 par value; 453 shares authorized at March 31, 2022 and June 30, 2021, 313 issued and outstanding at March 31, 2022 and June 30, 2021  $     $   
Preferred stock $.001 par value; 567 shares authorized at March 31, 2022 and June 30, 2021, issued and outstanding – none            
Common Stock $.0001 par value; 8,500 shares authorized at March 31, 2022 and June 30, 2021, 6,566 issued at March 31, 2022 and June 30, 2021, 6,554 outstanding at March 31, 2022 and June 30, 2021   1    1 
Class B Common Stock (10 votes per share) $.0001 par value; 227 shares authorized at March 31, 2022 and June 30, 2021; .146 issued and outstanding at March 31, 2022 and June 30, 2021            
 Class C Common Stock (25 votes per share) $.0001 par value; 567 shares authorized at March 31, 2022 and June 30, 2021, 383 issued and outstanding at March 31, 2022 and June 30, 2021            
 Paid-in capital in excess of par value   184,531    185,101 
 Accumulated deficit   (35,810)   (46,008)
Treasury stock, at cost - 12 shares of common stock at March 31, 2022 and June 30, 2021   (675)   (675)
 Total Fonar Corporation’s Stockholders’ Equity   148,047    138,419 
 Noncontrolling interests   (3,773)   (3,049)
 Total Stockholders' Equity   144,274    135,370 
 Total Liabilities and Stockholders' Equity  $195,649   $189,506 
           

 

*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  2022  2021
Patient fee revenue – net of contractual allowances and discounts  $7,641   $6,043 
Product sales – net   135    503 
Service and repair fees – net   1,876    1,914 
Service and repair fees - related parties – net   28    28 
Management and other fees – net   11,904    11,808 
Management and other fees - related medical practices – net   2,987    2,794 
Total Revenues – Net   24,571    23,090 
COSTS AND EXPENSES          
Costs related to patient fee revenue   3,306    2,828 
Costs related to product sales   53    152 
Costs related to service and repair fees   747    627 
Costs related to service and repair fees - related parties   11    9 
Costs related to management and other fees   6,696    7,073 
Costs related to management and other fees – related medical practices   1,698    1,746 
Research and development   354    419 
Selling, general and administrative   6,068    6,114 
Total Costs and Expenses   18,933    18,968 
Income From Operations   5,638    4,122 
Other Income         144 
Interest Expense   31    (19)
Investment Income   58    64 
Income Before Provision for Income Taxes and Noncontrolling Interests   5,727    4,311 
Provision for Income Taxes   (2,465)   (12)
Net Income   3,262    4,299 
Net Income - Noncontrolling Interests   (971)   (431)
Net Income – Attributable to FONAR  $2,291   $3,868 
Net Income Available to Common Stockholders  $2,153   $3,634 
Net Income Available to Class A Non-Voting Preferred Stockholders  $103   $174 
Net Income Available to Class C Common Stockholders  $35   $60 
Basic Net Income Per Common Share Available to Common Stockholders  $0.33   $0.55 
Diluted Net Income Per Common Share Available to Common Stockholders  $0.32   $0.54 
Basic and Diluted Income Per Share – Class C Common  $0.09   $0.16 
Weighted Average Basic Shares Outstanding – Common Stockholders   6,554    6,554 
Weighted Average Diluted Shares Outstanding - Common Stockholders   6,682    6,682 
Weighted Average Basic and Diluted Shares Outstanding – Class C Common   383    383 

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  2022  2021
Patient fee revenue – net of contractual allowances and discounts  $21,935   $16,372 
Product sales – net   481    534 
Service and repair fees – net   5,720    5,702 
Service and repair fees - related parties – net   83    83 
Management and other fees – net   35,985    34,362 
Management and other fees - related medical practices – net   8,576    8,181 
Total Revenues – Net   72,780    65,234 
COSTS AND EXPENSES          
Costs related to patient fee revenue   9,785    7,997 
Costs related to product sales   352    477 
Costs related to service and repair fees   2,190    1,861 
Costs related to service and repair fees - related parties   32    27 
Costs related to management and other fees   20,497    18,861 
Costs related to management and other fees – related medical practices   5,024    4,696 
Research and development   1,109    1,243 
Selling, general and administrative   15,928    16,818 
Total Costs and Expenses   54,917    51,980 
Income From Operations   17,863    13,254 
Other Income/(Expense)   858    4 
Interest Expense   (9)   (57)
Investment Income   180    251 
Income Before Provision for Income Taxes and Noncontrolling Interests   18,892    13,452 
Provision for Income Taxes   (5,311)   (1,974)
Net Income   13,581    11,478 
Net Income - Noncontrolling Interests   (3,383)   (1,991)
Net Income – Attributable to FONAR  $10,198   $9,487 
Net Income Available to Common Stockholders  $9,583   $8,915 
Net Income Available to Class A Non-Voting Preferred Stockholders  $458   $426 
Net Income Available to Class C Common Stockholders  $157   $146 
Basic Net Income Per Common Share Available to Common Stockholders  $1.46   $1.37 
Diluted Net Income Per Common Share Available to Common Stockholders  $1.43   $1.35 
Basic and Diluted Income Per Share – Class C Common  $0.41   $0.38 
Weighted Average Basic Shares Outstanding – Common Stockholders   6,554    6,489 
Weighted Average Diluted Shares Outstanding - Common Stockholders   6,682    6,617 
Weighted Average Basic and Diluted  Shares Outstanding – Class C Common   383    383 

 See accompanying notes to condensed consolidated financial statements. 

 

 Page 7 

 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

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  $1   $184,531   ($38,101)  ($675)  ($3,314)  $142,442 
Net income               2,291                2,291 
Purchase of Non controlling interest                                    
Distributions - Non controlling                           (1,430)   (1,430)
Income - Non controlling interests                           971    971 
Balance – March 31, 2022  $1   $184,531   ($35,810)  ($675)  ($3,773)  $144,274 

 

 

For the Three Months Ending March 31, 2021

 

   Common Stock  Paid in capital in excess of par value  Accumulated Deficit  Treasury Stock  Non Controlling Interests  Total
Balance - December 30, 2021  $1   $185,101   ($50,596)  ($675)  ($1,955)  $131,876 
Net income               3,868                3,868 
Distributions - Non controlling                           (1,380)   (1,380)
Income - Non controlling interests                           431    431 
Balance - March 31, 2021  $1   $185,101   ($46,728)  ($675)  ($2,904)  $134,795 

 

  

 Page 8 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

 

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  $1   $185,101   ($46,008)  ($675)  ($3,049)  $135,370 
Net income               10,198                10,198 
Purchase of Non controlling interest         (570)               24    (546)
Distributions - Non controlling                           (4,131)   (4,131)
Income - Non controlling interests                           3,383    3,383 
Balance - March 31, 2022  $1   $184,531   ($35,810)  ($675)  ($3,773)  $144,274 
                               

 

 

For the Nine Months Ending March 31, 2021

 

   Common Stock  Paid in capital in excess of par value  Accumulated Deficit  Treasury Stock  Non Controlling Interests  Total
Balance - June 30, 2020  $1   $183,076   ($56,215)  ($675)  $55   $126,242 
Issuance of Common Stock         2,025                     2,025 
Net income               9,487                9,487 
Distributions - Non controlling                           (4,950)   (4,950)
Income - Non controlling interests                           1,991    1,991 
Balance - March 31, 2021  $1   $185,101   ($46,728)  ($675)  ($2,904)  $134,795 

 

 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,
   2022  2021
Cash Flows from Operating Activities:          
 Net income  $13,581   $11,478 
 Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   3,543    3,100 
Amortization on right-of-use assets   2,953    1,543 
Provision for bad debts   2,150    5,103 
Deferred income tax – net   3,484    1,712 
Compensatory element of stock issuances         83 
Stock issued for costs and expenses         1,941 
Abandoned patents         1 
Gain on forgiveness of PPP loan   (701)      
(Increase) decrease in operating assets, net:          
Accounts, medical and management fee receivable(s)   (4,950)   (9,551)
Notes receivable   32    36 
Contract assets   (15)   (65)
Inventories   (705)   (323)
Income tax receivable         671 
Prepaid expenses and other current assets   112    424 
Other assets   132    (1)
Increase (decrease) in operating liabilities, net:          
Accounts payable   (855)   (189)
Other current liabilities   (5,480)   (1,827)
Operating lease liabilities   (2,579)   (1,168)
Financing lease liabilities   (151)   (25)
Customer deposits   (370)   183 
Contract liabilities   (15)      
Other liabilities   (49)   14 
Net cash provided by operating activities   10,117    13,140 
 Cash Flows from Investing Activities:          
Purchases of property and equipment   (3,807)   (2,942)
           
Purchase of noncontrolling interests   (546)      
Purchases of imaging facility         (1,123)
Cost of patents   (60)   (108)
Net cash used in investing activities   (4,413)   (4,173)
 Cash Flows from Financing Activities:          
 Repayment of borrowings and capital lease obligations   (23)   (73)
 Proceeds from debt         63 
 Distributions to noncontrolling interests   (4,131)   (4,950)
Net cash used in financing activities   (4,154)   (4,960)
 Net Increase in Cash and Cash Equivalents   1,550    4,007 
Cash and Cash Equivalents - Beginning of Period   44,460    36,802 
Cash and Cash Equivalents - End of Period  $46,010   $40,809 

 

See accompanying notes to condensed consolidated financial statements.  

 Page 10 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

 

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 24.2% interest in HDM. Health Management Corporation of America retained a direct ownership interest of 45.8% in HDM, and the original investors in HDM retained a 30.0% ownership interest in the newly expanded HDM. During the nine months ended March 31, 2022, the Company purchased non controlling interests from the minority shareholders for $546. Currently the Company has a direct ownership interest of 70.8% and the investors’ have a 29.2% ownership interest. The entire management of diagnostic imaging centers business segment is now being conducted by HDM, operating under the name “Health Management Company of America”.

 

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, 2022, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. 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 October 13, 2021 for the fiscal year ended June 30, 2021.

 

During March 2020, the global pandemic of COVID-19 has caused turbulence and uncertainty in the United States and international markets and economies which has adversely effected our workforce, liquidity, financial conditions, revenues, profitability and business operations. Generally COVID-19 had caused us to require that much of our workforce work from home and has restricted the ability of our personnel to travel for marketing purposes or to service our customers. At the end of fiscal year ending June 30, 2020, the Company was able to enact certain decisions to allow the Company to survive 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. During the nine months ended March 31, 2022 the PPP loan was forgiven in its entirety. During fiscal 2022, the Company had to deal with the increased strictness in the enforcement of COVID-19 mandates, such as the requirement that employees in healthcare facilities be vaccinated, along with the newer variants that are more transmissible. As a result, the Company experienced absences due to illness and the loss of unvaccinated employees whose duties required them to be in contact with patients. Due to these conditions, the Company was sometimes unable to keep scanning facilities open for all shifts and as a result there was a slight decrease in scans during the second quarter of fiscal 2022. 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 almost to pre- COVID-19 levels. Although we are unable to predict if there will be additional consequences on our operations from the continuing global pandemic of COVID-19, the Company believes with positive cash flows, low debt and cash on hand, it will be able to continue operations going forward.

 Page 11 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(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.

 

BUSINESS COMBINATION

 

When the qualifications for business combination accounting treatment are met, it requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period of final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

 Page 12 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Earnings Per Share

 

Basic earnings per share (“EPS”) is computed based upon the weighted average number of shares of common stock and stock equivalents outstanding, net of common stock. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used 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, 2022 and 2021.

 

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, 2022 and 2021, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.

 

Earnings Per Share

 

                  
   Three months ended
March 31, 2022
  Three months ended
March 31, 2021
   Total  Common Stock  Class C Common
Stock
  Total  Common Stock  Class C Common
Stock
Basic                  
Numerator: 
Net income available to common stockholders
  $2,291   $2,153   $35   $3,868   $3,634   $60 
Denominator:                              
Weighted average shares outstanding   6,554    6,554    383    6,554    6,554    383 
Basic income per common share  $0.35   $0.33   $0.09   $0.59   $0.55   $0.16 
Diluted                              
Denominator:
Weighted average shares outstanding
        6,554    383         6,554    383 
Convertible Class C Stock        128               128       
Total Denominator for diluted earnings per share        6,682    383         6,682    383 
Diluted income per common share       $0.32   $0.09        $0.54   $0.16 

 

 Page 13 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(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, 2022
  Nine months ended
March 31, 2021
   Total  Common Stock  Class C Common
Stock
  Total  Common Stock  Class C Common
Stock
Basic                  
Numerator: 
Net income available to common stockholders
  $10,198   $9,583   $157   $9,487   $8,915   $146 
Denominator:                              
Weighted average shares outstanding   6,554    6,554    383    6,489    6,489    383 
Basic income per common share  $1.56   $1.46   $0.41   $1.46   $1.37   $0.38 
Diluted                              
Denominator:
Weighted average shares outstanding
        6,554    383         6,489    383 
Convertible Class C Stock        128               128       
Total Denominator for diluted earnings per share        6,682    383         6,617    383 
Diluted income per common share       $1.43   $0.41        $1.35   $0.38 

 

Recent Accounting Pronouncements

 

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2022 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2021 or 2020, and it does not believe that any of those pronouncements 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, 2022 and 2021

(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, 2022, and June 30, 2021:

 

               
   March 31, 2022
   Gross Receivable  Allowance for doubtful accounts  Net
Accounts receivable  $4,290   $347   $3,943 
Accounts receivable - related party  $30         $30 
Medical receivable  $19,548   $     $19,548 
Management and other fees receivable  $50,302   $17,498   $32,804 
Management and other fees receivable from related medical practices ("PC’s")  $13,112   $4,623   $8,489 

 

   June 30, 2021
   Gross Receivable  Allowance for doubtful accounts  Net
Accounts receivable  $4,968   $442   $4,526 
Accounts receivable - related party  $12         $12 
Medical receivable  $17,901   $     $17,901 
Management and other fees receivable  $46,735   $15,787   $30,948 
Management and other fees receivable from related medical practices ("PC’s")  $11,998   $4,184   $7,814 

 

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, 2022 and 2021

(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 and Unearned Revenue

 

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 four years as of March 31, 2022 is as follows:

       
 2024   $1,020 
 2025    793 
 2026    216 
 2027    6 
 Total   $2,035 

 

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 66.6% and 64.5% of the PCs’ net revenues for the three months ended March 31, 2022 and 2021, respectively, were derived from no-fault and personal injury protection claims. Approximately 66.6% and 65.4% of the PCs’ net revenue for the nine months ended March 31, 2022 and 2021, respectively, were derived from no-fault and personal injury protection claims. The Company considers the aging of its accounts receivable in determining the amount of allowance for doubtful accounts. The Company generally takes all legally available steps to collect its receivables. Credit losses associated with the receivables are provided for in the condensed consolidated financial statements and have historically been within management's expectations.

 Page 16 

 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(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 12.2% and 12.1% of the consolidated net revenues for the three months ended March 31, 2022 and 2021, respectively. Net revenues from management and other fees charged to the related PCs accounted for approximately 11.8% and 12.5% of the consolidated net revenues for the nine months ended March 31, 2022 and 2021, respectively.

 

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, 2022 and 2021 are summarized in the following table.

 

          
   For the Three Months Ended
March 31,
   2022  2021
Commercial Insurance/ Managed Care  $1,095   $1,083 
Medicare/Medicaid   287    268 
Workers' Compensation/Personal Injury   4,624    4,048 
Other   1,635    644 
Patient Fee Revenue, net of contractual allowances and discounts  $7,641   $6,043 

 

 

   For the Nine Months Ended
March 31,
   2022  2021
Commercial Insurance/ Managed Care  $3,249   $2,995 
Medicare/Medicaid   809    672 
Workers' Compensation/Personal Injury   13,092    10,977 
Other   4,785    1,728 
Patient Fee Revenue, net of contractual allowances and discounts  $21,935   $16,372 

 

 Page 17 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 4 – OPERATING & FINANCING LEASES

During February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The new 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. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The standard was effective for us beginning July 1, 2019. 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 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 adoption of this guidance had a material impact on the Company’s balance sheet by virtue of including the present value of its future operating lease payments as a liability of $33.3 million and related right-to-use lease assets as of July 1, 2019. At the time of adoption of this guidance we had no significant financing leases.

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, 2022 is as follows:

      
Twelve Months Ending
March 31,
  Operating Lease
Payments
  Financing Lease Payments
 2023   $5,397   $244 
 2024    5,352    244 
 2025    5,212    244 
 2026    4,850    244 
 2027    4,013    225 
 Thereafter    23,223       
 Present value discount    (10,655)   (101)
 Total lease liability   $37,392   $1,100 

 

 Page 18 

 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(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,
2022
  June 30,
2021
Purchased parts, components and supplies  $2,259   $1,393 
Work-in-process   109    270 
Total Inventories  $2,368   $1,663 

 

NOTE 6 – CONTRACT ASSETS AND LIABILITIES

 

Information relating to uncompleted contracts about contract assets and (liabilities) is as follows:

 

`          
   March 31,
2022
  June 30,
 2021
Costs incurred on uncompleted contracts  $397   $295 
Estimated earnings   496    568 
Costs and estimated earnings on uncompleted contracts   893    863 
Less: Billings to date   878    878 
Total Contract Assets (Liabilities)  $15   $(15)

 

NOTE 7 – OTHER INTANGIBLE ASSETS

 

Other intangible assets, net of accumulated amortization, in the accompanying condensed consolidated balance sheets consist of the following:

 

          
   March 31,
2022
  June 30,
2021
Capitalized software development costs  $7,005   $7,005 
Patents and copyrights   5,305    5,245 
Non-compete   4,150    4,150 
Customer relationships   3,900    3,900 
Gross Other intangible assets   20,360    20,300 
Less: Accumulated amortization   16,590    16,262 
Other Intangible Assets  $3,770   $4,038 

 

 Page 19 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

 

NOTE 7 – OTHER INTANGIBLE ASSETS (CONTINUED)

 

Amortization of patents and copyrights for the three months ended March 31, 2022 and 2021 amounted to $44 and $45, respectively.

 

Amortization of non-compete for the three months ended March 31, 2022 and 2021 amounted to $13 and $0, respectively.

 

Amortization of customer relationships for the three months ended March 31, 2022 and 2021 amounted to $50 and $48, respectively.

 

Amortization of patents and copyrights for the nine months ended March 31, 2022 and 2021 amounted to $140 and $134, respectively.

 

Amortization of non-compete for the nine months ended March 31, 2022 and 2021 amounted to $38 and $0, respectively.

 

Amortization of customer relationships for the nine months ended March 31, 2022 and 2021 amounted to $150 and $143, respectively.

 

 

NOTE 8 – OTHER CURRENT LIABILITIES

 

Other current liabilities in the accompanying condensed consolidated balance sheets consist of the following:

 

          
   March 31,
2022
  June 30,
2021
Accrued salaries, commissions and payroll taxes  $2,256   $5,407 
Litigation accruals         900 
Sales tax payable   275    645 
State income taxes payable   1,074    774 
Legal and other professional fees   15    38 
Accounting fees   146    127 
Self-funded health insurance reserve   32    62 
Accrued interest and penalty   59    493 
Other general & administrative expenses   1,059    716 
Other Current Liabilities  $4,916   $9,162 

  

 Page 20 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

NOTE 9 - 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, 2021. All inter-segment sales are market-based. The Company evaluates performance based on income or loss from operations.

 

Summarized financial information concerning the Company's reportable segments is shown in the following table:

 

               
   Medical
Equipment
  Management
of Diagnostic
Imaging
Centers
  Totals
For the three months ended March 31, 2022         
Net revenues from external customers  $2,039   $22,532   $24,571 
Inter-segment net revenues  $245   $     $245 
(Loss) Income from operations  $(537)  $6,175   $5,638 
Depreciation and amortization  $64   $1,121   $1,185 
Capital expenditures  $43   $1,620   $1,663 
                
For the three months ended March 31, 2021               
Net revenues from external customers  $2,445   $20,645   $23,090 
Inter-segment net revenues  $227   $     $227 
Income from operations  $327   $3,795   $4,122 
Depreciation and amortization  $67   $1,023   $1,090 
Capital expenditures  $18   $799   $817 

 

   Medical
Equipment
  Management
of Diagnostic
Imaging
Centers
  Totals
For the nine months ended March 31, 2022         
Net revenues from external customers  $6,284   $66,496   $72,780 
Inter-segment net revenues  $720   $     $720 
(Loss) Income from operations  $(1,054)  $18,917   $17,863 
Depreciation and amortization  $199   $3,344   $3,543 
Capital expenditures  $230   $3,577   $3,807 
                
For the six months ended March 31, 2021               
Net revenues from external customers  $6,319   $58,915   $65,234 
Inter-segment net revenues  $665   $     $665 
(Loss) Income from operations  $(242)  $13,496   $13,254 
Depreciation and amortization  $199   $2,901   $3,100 
Capital expenditures  $108   $2,942   $3,050 
 Page 21 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022 and 2021

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

 

NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION

 

During the nine months ended March 31, 2022 and March 31, 2021, the Company paid $279 and $55 for interest, respectively.

 

During the nine months ended March 31, 2022 and March 31, 2021, the Company paid $1,105 and $261 for income taxes, respectively.

 

 

NOTE 11 – 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, 2021.

 

Other Matters

 

In September 2019, the Company was notified by one of its landlords that it was required to vacate the premises within 180 days under the demolition clause in the lease. The Company believed the lease renewal which was not negotiated in good faith sinc