SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 0-10248
FONAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
11-2464137
(State of incorporation)
(IRS Employer Identification Number)
110 Marcus Drive, Melville, New York
11747
(Address of principal executive offices)
(Zip Code)
(631) 694-2929
(Registrant's Telephone Number, including area code)
Securities Registered pursuant to Section 12(b) of the Act
Title of Each Class
Trading Symbol(s)
Exchange Registered
Common Stock, $.0001 par value
FONR
NASDAQ Capital Market
Securities Registered pursuant to Section 12(g) of the Act
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ☐ No ☒ .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ☐ No ☒ .
Page 2
FONAR CORPORATION AND SUBSIDIARIES
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐ .
Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate
website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated
filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging Growth Company ☐
If securities are registers pursuant to Section 12(b) of the Act, indicate by check mark whether the
financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements. Yes ☐ No ☒ .
Indicate by check mark whether any of those error corrections are restatements that required a recovery
analysis of incentive-based compensation received by any of the registrant’s executive officers during the
relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☒ .
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ☐ No ☒ .
The aggregate market value of the shares of Common Stock held by non-affiliates as of December 29,
2023 based on the closing price of $19.56 per share on such date as reported on the NASDAQ System,
was approximately $121.0 million. The other outstanding classes do not have a readily determinable
market value.
As of September 18, 2024, 6,328,294 shares of Common Stock, 146 shares of Class B Common Stock,
382,513 shares of Class C Common Stock and 313,438 shares of Class A Non-voting Preferred Stock of
the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Page 3
FONAR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-K ITEMS
PAGE
PART I
Item 1.
Business
4
Item 1A. Risk Factors
24
Item 1B. Unresolved Staff Comments
27
Item 1C.
Cybersecurity
27
Item 2.
Properties
28
Item 3.
Legal Proceedings
28
Item 4.
Mine Safety Disclosures
28
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
28
Item 6.
[Reserved[
30
Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
30
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
38
Item 8.
Financial Statements and Supplementary Data
38
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
80
Item 9A. Controls and Procedures
80
Item 9B. Other Information
81
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections 81
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
81
Item 11.
Executive Compensation
84
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
87
Item 13.
Certain Relationships and Related Transactions, and Director
Independence
89
Item 14.
Principal Accountant Fees and Services
90
PART IV
Item 15.
Exhibits and Financial Statement Schedules
91
Page 4
FONAR CORPORATION AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
GENERAL
FONAR Corporation, sometimes referred to as the “Company” or “FONAR”, is a Delaware corporation
which was incorporated on July 17, 1978. Our address is 110 Marcus Drive, Melville, New York 11747
and our telephone number is 631-694-2929. FONAR also maintains a website at www.fonar.com.
FONAR provides copies of its filings with the Securities and Exchange Commission on Forms 10-K, 10-
Q and 8-K and amendments to these reports to stockholders on request.
We conduct our business in two segments. Our medical equipment segment is conducted directly through
FONAR. Our physician management and diagnostic services segment is conducted through our
subsidiary Health Management Corporation of America (“HMCA”). HMCA provides management
services, administrative services, billing and collection services, credentialing services, contract
negotiations, compliance consulting, purchasing, IT services, hiring, conducting interviews and managing
personnel, storage of medical records, office space, equipment, repair, maintenance service, and clerical
and other non-medical personnel to medical providers engaged in diagnostic imaging. In addition to
acting as a management company, HMCA owns and operates six diagnostic imaging facilities in Florida,
where the corporate practice of medicine is permitted.
FONAR is engaged in the business of designing, manufacturing, selling and servicing magnetic resonance
imaging scanners, also referred to as “MRI” or “MR” scanners, which utilize MRI technology for the
detection and diagnosis of human disease, abnormalities, other medical conditions and injuries. FONAR’s
founders built the first MRI scanner in 1977 and FONAR introduced the first commercial MRI scanner in
1980. FONAR is also the originator of the iron-core non-superconductive and permanent magnet MRI
technology.
FONAR’s iron frame technology made FONAR the originator of “open” MRI scanners. We introduced
the first “open” MRI in 1980. Since that time we have concentrated on further application of our “open”
MRI, introducing most recently the Upright® Multi-Position™” MRI scanner (also referred to as the
“Upright®” or “Stand-Up®” MRI scanner) and the FONAR 360™ MRI scanner. The FONAR 360™
MRI is not presently being marketed.
See Note 16 to the Consolidated Financial Statements for separate financial information regarding our
medical equipment and physician and diagnostic management services segments.
Page 5
FONAR CORPORATION AND SUBSIDIARIES
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS.
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements”, within
the meaning of the Private Securities Litigation Reform Act of 1995, regarding the plans and objectives of
Management for future operations. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements are based on current expectations that involve numerous
risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the
expansion of business. These assumptions involve judgments with respect to future economic,
competitive and market conditions and future business decisions, all of which are difficult or impossible
to predict accurately and many of which are beyond our control. Although we believe that our
assumptions underlying the forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in
this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in our
forward-looking statements, the inclusion of such information should not be regarded as a representation
by us or any other person that our objectives and plans will be achieved. These statements are not
guarantees of future performance and undue reliance should not be placed on them.
MEDICAL EQUIPMENT SEGMENT
PRODUCTS
The Upright® MRI scanner is our primary product.
The Upright® MRI is a “whole-body” MRI, meaning that it can be used to scan virtually any part of the
body. The Upright® MRI differs from conventional MRI scanners in that it is not limited to scanning
patients in the recumbent posture. For example, patients can be scanned while sitting, standing, bending,
or lying down.
The fact that the patient space is unobstructed permits scanning in a variety of postures that cannot be
duplicated in conventional MRI scanners. Most conventional MRI scanners in use today employ
solenoidal super-conducting magnets whose magnetic field orientation is along the axis of the patient’s
body, which must be placed into the bore of the scanner in either a supine or prone posture. Our
experience is that when presented with a choice between being scanned lying down in a tunnel-like
enclosure or seated in an open MRI, most patients will choose the latter.
The Upright® MRI is also, by design, a non-claustrophobic MRI scanner. The Upright® MRI employs a
dipole magnet whose magnetic field orientation is transverse to the axis of the patient’s body. The gap
between the poles of the magnet is the space into which the patient is placed. Because the magnetic field
direction is horizontal and transverse to the body, a patient who is scanned seated or standing has an
unobstructed view out of the gap of the magnet. In typical installations, patients watch television while
being scanned, without the aid of special glasses with mirrors.
Page 6
FONAR CORPORATION AND SUBSIDIARIES
The Upright® MRI facilitates patient scanning in a variety of postures thanks to a unique, three-axis
patient handling system. The motorized patient table, or bed, can be rotated to any angle between 0
(horizontal) and 84 degrees (nearly vertical). Unlike a conventional recumbent MRI patient table, which
can only move into or out of the scanner’s bore, the Upright® MRI bed can be translated with two
degrees of freedom, in/out and up/down. User-friendly software allows the scanner operator to move the
anatomical region of interest precisely to the center of the magnet using a cursor placed on a localizer
image. Anatomically true image orientation is assured, regardless of the rotation angle of the bed, via
computer read-back of the table’s position. A seat can be hooked onto the bed in a variety of locations, or
removed, as needed. Transpolar VersaRests™ and other devices can be used to keep the patient
comfortable and motionless throughout the scanning process.
IMAGE QUALITY AND FIELD STRENGTH
Most commercially available MRI scanners range in magnetic field strength from about 0.2 T (Tesla) to
7.0 T, and open MRI scanners range from about 0.2 T to 1.2 T.
Field strength is an important characteristic of MRI scanners, but not the only one. Higher field strengths
generally provide higher signal-to-noise ratios (SNR) on account of the Boltzmann distribution, but SNR
is not the only determinant of image quality. For example, the spin-lattice relaxation time T1 that
characterizes the nuclear magnetic resonance (NMR) signal increases with field strength, decreasing the
difference in T1 values between tissues that is an essential contributor to contrast in images. For example,
grey/white matter contrast in the brain falls off rapidly above about 1.0 T, and some studies have shown
that optimal tissue contrast occurs in the mid-field region, down to 0.2 T. Imaging bandwidth, receiver
coil design, pulse sequence design, and scan parameters significantly affect image quality. Indeed,
researchers and MRI vendors are pushing the boundaries of MRI technology in both directions, that is, to
very low (1 – 199 mT) and very high (7.0 T and above) field strengths for a variety of technical and
diagnostic reasons. For instance, one advantage of lower field strengths is that image artifacts arising
from metallic implants such as surgical screws diminish as field strength decreases. This is particularly
important for surgeons referring their postoperative patients for diagnostic imaging studies.
The Upright® MRI operates at a mid-field strength of 0.6 T and enjoys wide acceptance in the
radiological community. The scanner is diagnostically versatile and equipped with a broad range of
clinically proven imaging protocols that produce images of exceptional quality, and a fully-featured,
robust, and user-friendly software interface.
DIAGNOSTIC ADVANTAGES OF POSITIONAL MRI
Apart from its attractiveness as an open, non-claustrophobic, general-purpose MRI, the Upright® MRI
can deliver diagnostically relevant information that correlates with patient posture.
For example, a variety of injuries to and pathologies of the spine, such as spondylolisthesis (“slipped
disc”), may go undetected in the recumbent posture, but manifest themselves when the patient is scanned
in a normal, weight-bearing (“physiological”) position, such as seated, or seated in forward flexion,
extension, or standing.
Page 7
FONAR CORPORATION AND SUBSIDIARIES
The Upright® MRI has demonstrated its value for patients suffering from scoliosis, who typically
undergo regular x-ray exams over a course of years. A study by the National Cancer Institute (2000) of
5,466 women with scoliosis reported a 70% increase in breast cancer resulting from 24.7 chest x-rays
received on average over the course of their treatment. Prior to the advent of the Upright® MRI, the x-ray
machine was the only imaging modality that could evaluate the condition because the patient must be
imaged standing. FONAR has developed an RF receiver coil and a 3D scanning protocol that for the first
time allows scoliosis patients to obtain diagnostic, multi-slice images of their spines while standing,
without the risks associated with radiation, and with the soft-tissue-contrast benefits of MRI over x-ray.
The utility of upright, weight-bearing MRI is not limited to the spine. For example, approximately one in
a thousand people (some 200,000 to 500,000 in the US) have a congenital condition known as Chiari
malformation, an abnormality of the brain at the junction with the spine at the base of the skull. In people
with Chiari malformation, the lowest lying structures of the brain, the tonsils of the cerebellum, descend
into and become entrapped by the foramen magnum, the circular bony opening at the base of the skull
where the spinal cord exits. While most of these individuals are asymptomatic, many suffer from more
severe forms of the syndrome (e.g., type II or Arnold-Chiari syndrome), in which brain stem compression
results in severe neurological symptoms. The Chiari syndrome is also called Cerebellar Tonsillar Ectopia
(CTE) because of the displacement (ectopia) of the cerebellar tonsils. Classic symptoms of Chiari
syndrome include the “drop attack,” in which the afflicted individual unexpectedly experiences an
explosive rush at the base of the brain that runs down the body to the extremities, causing the patient to
collapse in a temporary neuromuscular paralysis. These symptoms subside when the patient is lying
down. Conventional lie-down MRI scanners cannot make an adequate evaluation of the pathology since
this pathology is most visible and the symptoms are most acute when the patient is scanned in the upright,
weight-bearing position (Brain Injury 2010, 24 (7-8) 988-994).
In the body, the Upright® MRI is being utilized in a variety of ways, for example to image pelvic organ
prolapse in the standing posture, inguinal hernias, defecation in the sitting posture (utilizing cine MRI),
and the prostate in the sitting posture (utilizing a flat, multi-channel receiver coil on top of which the
patient simply sits).
PRODUCT MARKETING
FONAR’s principal marketing efforts in the medical equipment segment have been focused on the
Upright® MRI, which we believe is a unique product. We expect to focus on the Upright® MRI going
forward.
The principal markets for the Company’s scanners are private diagnostic imaging centers and hospital
outpatient imaging facilities.
We use internal personnel and independent manufacturer’s representatives for domestic and foreign sales.
FONAR’s marketing strategy has been designed to reach key purchasing decision makers with
information concerning the Upright® MRI. This has led to many inquiries and some sales of the
Upright® MRI scanner and is intended to increase FONAR’s presence in the medical equipment market.
FONAR focuses primarily on four target audiences: neurosurgeons, orthopedic surgeons, radiologists,
and general physicians.
Page 8
FONAR CORPORATION AND SUBSIDIARIES
Our advertising for FONAR and HMCA reinforces the unique value provided by the FONAR Upright®
MRI scanner. We have increased internet awareness of our product by driving patient traffic to the
HMCA scanning centers we manage via the FONAR website as well as through websites for each HMCA
location. These websites give prospective customers of Upright® MRI scanners a view of operating
Upright® MRI centers and highlight the benefits of using the Upright® MRI scanner. A complete list of
the sites managed by HMCA can be found at HMCA’s website, www.hmca.com.
SERVICE AND UPGRADES FOR MRI SCANNERS
Income is generated from the installed base in two principal areas, namely, service and upgrades. Service
and maintenance revenues from our external installed base were approximately $7.6 million in fiscal 2024
and $7.5 million in fiscal 2023.
We expect to maintain service revenues at present levels or better, based on the demonstrated longevity of
the Upright® MRI scanner and continued customer satisfaction with the product. Critical to this longevity
and customer satisfaction is the stream of software improvements and hardware upgrades that FONAR
has delivered over the years to keep the scanners competitive with the latest technology in the
marketplace. We also anticipate that our installed base of scanners will generate income from upgrades in
future fiscal years.
We have engaged with a third-party software vendor, AIRS Medical USA, Inc., to distribute their
SwiftMRTM to our installed base of customers. We believe that the SwiftMRTM product significantly
improves the image quality and efficiency of both the Upright® MRI and the outside manufacturer
equipment that is operated by our installed base. Revenues from the sale of SwiftMRTM are included in
the service and maintenance revenues described above.
We have also formed a new subsidiary, Opus Diagnostic Management, LLC, which is focused on
providing service for MRI scanners sold by other manufacturers. We hope to control the cost of
maintaining and repairing the outside manufacturer equipment operated by HMCA, and eventually
expand into providing maintenance and repair services to third party operators of outside manufacturer
equipment. Revenues from Opus are included in the service and maintenance revenues described above.
RESEARCH AND DEVELOPMENT
During the fiscal year ended June 30, 2024, we incurred expenditures of $1,735,949, none of which were
capitalized, on research and development, as compared to $1,567,749, none of which were capitalized,
during the fiscal year ended June 30, 2023.
Research and development activities have focused principally on software improvements to the user
interface of the MRI scanner. The Windows-based Sympulse™ platform controls all of the functions of
the Upright® scanner except those of the versatile, multi-position patient table. Separate, dedicated,
motion-control software is used to maneuver the Upright® bed, and development of this software is
ongoing as well.
Page 9
FONAR CORPORATION AND SUBSIDIARIES
While software improvements to the user interface are important in their own right, significant value is
added to the MRI scanner by the modification of existing protocols for examining various parts of the
body, and the development of new protocols that utilize new underlying capabilities of the pulse sequence
software. Over time, FONAR users have become accustomed to the steady improvement in the
recommended clinical protocols that accompany new software releases. More significantly, in recent
years we have seen increasing adoption of FONAR-recommended clinical protocols over those developed
on site. This is a testament to the superior image quality they produce in attractively short scan times.
The development of clinically practical scan protocols and software depends on close contact between
research and development scientists and engineers, and end users. That close contact is facilitated in part
by the relationship with HMCA and the scanning centers. In addition to that collaboration, R&D staff
have pursued a variety of novel and Upright® MRI-specific research projects. It is anticipated that these
will ultimately lead to new applications that are made available to existing customers as upgrade add-ons
to their machines. For example, phase-contrast imaging techniques originally developed for angiography
have recently been applied to cerebro-spinal fluid (CSF) flow. Analysis of CSF flow in upright and
recumbent postures may prove to be of significant value in the evaluation of a variety of disorders and
lead to a better understanding of human physiology.
PATENTS AND LICENSES
We currently have numerous patents in effect which relate to the technology and components of our MRI
scanners. We believe that these patents, and the know-how we have developed, are material to our
business.
Our seminal patent, issued in the name of Dr. Damadian and licensed to FONAR, was United States
patent No. 3,789,832, Apparatus and Method for Detecting Cancer in Tissue, also referred to in this report
as the “1974 Patent”. The 1974 Patent was the first MRI patent issued by the United States Patent Office.
The development of our MRI scanners has been based upon the 1974 Patent, and we believe that the 1974
Patent was the first of its kind to utilize MR to scan the human body and to detect cancer. The 1974 Patent
was extended beyond its original 17-year term and expired in February, 1992. A number of FONAR’s
existing patents specifically relate to protecting FONAR’s position in the Upright MRI market. The
patents further enhance Dr. Damadian’s pioneer patent that initiated the MRI industry and provided the
original invention of MRI scanning.
We maintain a robust patent portfolio that provides us, under the aegis of United States patent law, “the
exclusive right to make, use and sell” many of the scanner features which FONAR pioneered and which
are now incorporated in most MRI scanners sold by the industry. As of June 30, 2024, a total of 241
patents have been issued to FONAR. In fiscal year 2024, we obtained two new patents. One such patent
deals with a method of detecting coronary and/or pulmonary deficiencies using Upright® MRI
technology. Another describes a method for quantification of Cerebro-Spinal Fluid flor anywhere in the
cerebro-spinal anatomy. Perhaps most significantly, shortly after the close of fiscal 2024 we obtained
approval for a patent related to the development of our next generation patient positioning system. We
have several other matters pending before the patent office as of this filing.
Page 10
FONAR CORPORATION AND SUBSIDIARIES
PRODUCT COMPETITION
MRI SCANNERS
FONAR faces competition for MRI product sales from companies such as Siemens, General Electric,
Hitachi, Philips, Canon, and United Imaging. Each of these is primarily focused on the high-field (1.0 T
and above) marketplace, though some have produced open MRI scanners for imaging in the recumbent
posture. None of these firms has so far introduced an open, upright MRI.
In recent years, other companies have introduced MRI scanners aimed at the upright, weight-bearing MRI
market. Their success in the US has so far been limited. We believe that the higher field strength and
larger dimensions of the FONAR Upright® MRI magnet, together with the greater variety of patient
positioning possibilities afforded by the FONAR Upright® MRI bed, give us a competitive advantage
over the products introduced by these companies.
Most of our competitors have marketing and financial resources more substantial than those available to
us. They have in the past, and may in the future, heavily discount the sales price of their scanners.
OTHER IMAGING MODALITIES
FONAR’s MRI scanners also compete with other diagnostic imaging systems, all of which are based
upon the ability of some form of energetic wave to penetrate human tissue and be detected by either
photographic film or electronic devices for presentation on a display monitor. Three different kinds of
energy waves – x-ray, gamma, and sound – are used in medical imaging techniques that compete with
MRI, the first two of which involve exposing the patient to potentially harmful radiation. These other
imaging modalities compete with MRI products on the basis of cost, space requirements, and specific
clinical applications.
X-rays are the most common energy source used in imaging the body and are employed in three imaging
modalities: conventional x-ray systems, computerized tomography (CT), and digital radiography. None of
these enjoy the exquisite soft-tissue contrast of MRI, but they do offer high resolution imaging in certain
applications and high speed of image acquisition.
Nuclear medicine systems, which are based upon the detection of photons (gamma radiation) generated
by radioactive pharmaceuticals introduced into the body, are used to provide information concerning soft
tissue and internal body organs and particularly to examine organ function over time.
Ultrasound systems emit, detect, and process high frequency sound waves reflected from organ
boundaries and tissue interfaces to generate images of soft tissue and internal body organs. Although the
images are substantially less detailed than those obtainable with x-rays or MRI, ultrasound is generally
considered harmless and therefore has found applications in imaging the pregnant uterus and the breast, to
name two.
X-ray (including CT), nuclear medicine, and ultrasound compete with the MRI scanners by offering
significantly lower price and space requirements. However, history has shown that the superior tissue
contrast characteristics of MRI have secured its place as the diagnostic imaging modality of choice for a
wide variety of pathologies.
Page 11
FONAR CORPORATION AND SUBSIDIARIES
GOVERNMENT REGULATION
FDA Regulation
The Food and Drug Administration in accordance with Title 21 of the Code of Federal Regulations
regulates the manufacturing and marketing of FONAR’s MRI scanners. The regulations can be classified
as either pre-market or post-market. The pre-market requirements include obtaining marketing clearance,
proper device labeling, establishment registration and device listing. Once the products are on the market,
FONAR must comply with post-market surveillance controls. These requirements include the Quality
Systems Regulation, or “QSR”, also known as Current Good Manufacturing Practices or CGMPs, and
Medical Device Reporting, also referred to as MDR regulations. The QSR is a quality assurance
requirement that covers the design, packaging, labeling and manufacturing of a medical device. The MDR
regulation is an adverse event-reporting program.
Classes of Products
Under the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act, all medical
devices are classified by the FDA into one of three classes. A Class I device is subject only to general
controls, such as labeling requirements and manufacturing practices; a Class II device must comply with
certain performance standards established by the FDA; and a Class III device must obtain pre-market
approval from the FDA prior to commercial marketing. FONAR’s products are Class II devices. Class II
devices are subject to “General Controls”; General Controls include:
1. Establishment registration of companies which are required to register under 21 CFR Part 807.20,
such as manufacturers, distributors, re-packagers and re-labelers.
2. Medical device listing with FDA of devices to be marketed.
3. Manufacturing devices in accordance with the Current Good Manufacturing Practices Quality System
Regulation in 21 CFR Part 820.
4. Labeling devices in accordance with labeling regulations in 21 CFR Part 801 or 809.
5. Submission of a Premarket Notification, pursuant to 510(k), before marketing a device.
In addition to complying with general controls, Class II devices are also subject to special controls.
Special controls may include special labeling requirements, guidance documents, mandatory performance
standards and post-market surveillance.
On October 3, 2000 FONAR received FDA clearance for the Upright® MRI under the name
“Indomitable”.
Premarketing Submission
Page 12
FONAR CORPORATION AND SUBSIDIARIES
Each person who wants to market Class I, II and some III devices intended for human use in the U.S.
must submit a 510(k) to FDA at least 90 days before marketing unless the device is exempt from 510(k)
requirements. A 510(k) is a pre-marketing submission made to FDA to demonstrate that the device to be
marketed is as safe and effective, that is, substantially equivalent, SE, to a legally marketed device that is
not subject to pre-market approval, PMA. Applicants must compare their 510(k) device to one or more
similar devices currently on the U.S. market and make and support their substantial equivalency claims.
The FDA is committed to a 90-day clearance after submission of a 510(k), provided the 510(k) is
complete and there is no need to submit additional information or data.
The 510(k) is essentially a brief statement and description of the product. As FONAR’s scanner products
are Class II products, there are no pre-market data requirements.
An investigational device exemption, also referred to as IDE, allows the investigational device to be used
in a clinical study pending FDA clearance in order to collect safety and effectiveness data required to
support the Premarket Approval, also referred to as PMA, application or a Premarket Notification
pursuant to 510(k), submission to the FDA. Clinical studies are most often conducted to support a PMA.
For the most part, however, we have not found it necessary to utilize IDE’s. The standard 90 day
clearance for our new MRI scanner products classified as Class II products makes the IDE unnecessary,
particularly in view of the time and effort involved in compiling the information necessary to support an
IDE.
Quality System Regulation
The Quality Management System is applicable to the design, manufacture, administration of installation
and servicing of magnetic resonance imaging scanner systems. The FDA has authority to conduct detailed
inspections of manufacturing plants, to establish Good Manufacturing Practices which must be followed
in the manufacture of medical devices, to require periodic reporting of product defects and to prohibit the
exportation of medical devices that do not comply with the law.
Medical Device Reporting Regulation
Manufacturers must report all MDR reportable events to the FDA. Each manufacturer must review and
evaluate all complaints to determine whether the complaint represents an event which is required to be
reported to FDA. Section 820.3(b) of the Quality Systems regulation defines a complaint as, “any written,
electronic or oral communication that alleges deficiencies related to the identity, quality, durability,
reliability, safety, effectiveness, or performance of a device after it is released for distribution.”
A report is required when a manufacturer becomes aware of information that reasonably suggests that one
of their marketed devices has or may have caused or contributed to a death, serious injury, or has
malfunctioned and that the device or a similar device marketed by the manufacturer would be likely to
cause or contribute to a death or serious injury if the malfunction were to recur.
Malfunctions are not reportable if they are not likely to result in a death, serious injury or other significant
adverse event experience.
Page 13
FONAR CORPORATION AND SUBSIDIARIES
A malfunction which is or can be corrected during routine service or device maintenance still must be
reported if the recurrence of the malfunction is likely to cause or contribute to a death or serious injury if
it were to recur.
We have established and maintained written procedures for implementation of the MDR regulation. These
procedures include internal systems that:
provide for timely and effective identification, communication and evaluation of adverse
events;
provide a standardized review process and procedures for determining whether or not an
event is reportable; and
provide procedures to insure the timely transmission of complete reports.
These procedures also include documentation and record keeping requirements for information that was
evaluated to determine if an event was reportable;
all medical device reports and information submitted to the FDA;
any information that was evaluated during preparation of annual certification reports; and
systems that ensure access to information that facilitates timely follow up and inspection by the FDA.
FDA Enforcement
FDA may take the following actions to enforce the MDR regulation:
FDA-Initiated or Voluntary Recalls
Recalls are regulatory actions that remove a hazardous, potentially hazardous, or a misbranded product
from the marketplace. Recalls are also used to convey additional information to the user concerning the
safe use of the product. Either FDA or the manufacturer can initiate recalls.
There are three classifications, i.e., I, II, or III, assigned by the Food and Drug Administration to a
particular product recall to indicate the relative degree of health hazard presented by the product being
recalled.
Class I
Is a situation in which there is a reasonable probability that the use of, or exposure to, a violative product
will cause serious adverse health consequences or death.
Class II
Is a situation in which use of, or exposure to, a violative product may cause temporary or medically
reversible adverse health consequences or where the probability of serious adverse health consequences is
remote.
Page 14
FONAR CORPORATION AND SUBSIDIARIES
Class III
Is a situation in which use of, or exposure to, a violative product is not likely to cause adverse health
consequences.
FONAR has initiated six voluntary recalls which occurred between 1987 and 2016. Five of the recalls
were Class II and one was Class III. The recalls involved making minor corrections to the product in the
field. Frequently, corrections which are made at the site of the device are called field corrections as
opposed to recalls.
Civil Money Penalties
The FDA, after an appropriate hearing, may impose civil money penalties for violations of the FD&C Act
that relate to medical devices. In determining the amount of a civil penalty, FDA will take into account
the nature, circumstances, extent, and gravity of the violations, the violator’s ability to pay, the effect on
the violator’s ability to continue to do business, and any history of prior violations.
Warning Letters
FDA issues written communications to a firm, indicating that the firm may incur more severe sanctions if
the violations described in the letter are not corrected. Warning letters are issued to cause prompt
correction of violations that pose a hazard to health or that involve economic deception. The FDA
generally issues the letters before pursuing more severe sanctions.
Seizure
A seizure is a civil court action against a specific quantity of goods which enables the FDA to remove
these goods from commercial channels. After seizure, no one may tamper with the goods except by
permission of the court. The court usually gives the owner or claimant of the seized merchandise
approximately 30 days to decide a course of action. If they take no action, the court will recommend
disposal of the goods. If the owner decides to contest the government’s charges, the court will schedule
the case for trial. A third option allows the owner of the goods to request permission of the court to bring
the goods into compliance with the law. The owner of the goods is required to provide a bond or, security
deposit, to assure that they will perform the orders of the court, and the owner must pay for FDA
supervision of any activities by the company to bring the goods into compliance.
Citation
A citation is a formal warning to a firm of intent to prosecute the firm if violations of the FD&C Act are
not corrected. It provides the firm an opportunity to convince FDA not to prosecute.
Page 15
FONAR CORPORATION AND SUBSIDIARIES
Injunction
An injunction is a civil action filed by FDA against an individual or company. Usually, FDA files an
injunction to stop a company from continuing to manufacture, package or distribute products that are in
violation of the law.
Prosecution
Prosecution is a criminal action filed by FDA against a company or individual charging violation of the
law for past practices.
Foreign and Export Regulation
We obtain approvals as necessary in connection with the sales of our products in foreign countries. In
some cases, FDA approval has been sufficient for foreign sales as well. Our standard practice has been to
require either the distributor or the customer to obtain any such foreign approvals or licenses which may
be required.
Legally marketed devices that comply with the requirements of the Food Drug & Cosmetic Act require a
Certificate to Foreign Government issued by the FDA for export. Other devices that do not meet the
requirements of the FD&C Act but comply with the laws of a foreign government require a Certificate of
Exportability issued by the FDA. All products which we sell have FDA clearance and would fall into the
first category.
Foreign governments have differing requirements concerning the import of medical devices into their
respective jurisdictions. The European Union’s new medical device regulation, EU 2017/745 went into
effect on May 25, 2021, and contains significant changes from the prior European regulatory scheme. We
have applied to the Notified Body, TUV-SUD, to perform a Conformity Assessment of our technical
documentation and our Quality Management System.
Other countries require that their own testing laboratories perform an evaluation of our devices. This
requires that we must bring the foreign agency’s personnel to the USA to perform the evaluation at our
expense before exporting.
Some countries, including many in Latin America and Africa, have very few regulatory requirements,
beyond FDA clearance.
To date, FONAR has been able to comply with all foreign regulatory requirements applicable to its export
sales.
PHYSICIAN AND DIAGNOSTIC SERVICES MANAGEMENT BUSINESS
Health Diagnostics Management, LLC (HDM) is owned by Health Management Corporation of America
(70.8%) and investors (29.2%). Health Management Corporation of America is owned 100% by FONAR
Corporation.
HDM operates under the assumed name “Health Management Company of America” (“HMCA”).
Page 16
FONAR CORPORATION AND SUBSIDIARIES
The combined business (HDM and Health Management Corporation of America) will be referred to as
“HMCA” for all periods before and after July 1, 2015, unless otherwise indicated.
HMCA provides comprehensive non-medical management services to diagnostic imaging facilities.
These services include administrative services, billing and collection services, credentialing services,
contract negotiations, compliance consulting, purchasing IT services, hiring, conducting interviews,
training, supervision and management of non-medical personnel, storage of medical records, office space,
equipment, repair maintenance services, accounting, assistance with legal and regulatory matters, and the
development and implementation of practice growth and marketing strategies.
As of June 30, 2024, HMCA managed a total of 42 MRI scanners of which twenty-five (25) scanners are
located in New York and seventeen (17) scanners are located in Florida. For the 2024 fiscal year, the
revenues HMCA recognized from the MRI facilities has increased to $94.6 million from $90.4 million in
fiscal 2023. Six of the facilities in Florida are owned by HMCA subsidiaries, where the corporate practice
of medicine is permitted.
We believe the utilization of FONAR Upright® MRI scanning systems, which are produced under the
protection of our patents, accounts for the historically robust patient volume at the scanning facilities.
During fiscal 2024, a new stand-alone facility was opened in the Bronx, New York. During fiscal 2023,
two scanners were installed in Casselberry, Florida. During fiscal year 2025, we intend to install two
additional high field magnets in Naples, Florida and Lynbrook, New York, to supplement the existing
FONAR Upright® MRI scanning systems at those facilities.
HMCA GROWTH STRATEGY
HMCA’s growth strategy focuses on upgrading and expanding the existing facilities it manages and
expanding the number of facilities it either owns or manages for its clients, including new sites. In
connection with improving the performance of the facilities, we have added high field MRI scanners,
extremity scanners and x-ray machines to the Upright® MRI scanners at certain of the sites where such
additional diagnostic imaging modalities are expected to produce the greatest return.
PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES
HMCA’s services to the facilities it manages encompass substantially all of their business operations.
Each facility is controlled, however, not by HMCA, but by the physician owner, or in the case of the six
Florida sites owned by HMCA subsidiaries, by the medical director. All medical services are performed
by physicians and other medical personnel under the physician-owner’s supervision. HMCA is the
management company and performs services of a non-medical nature. These services include:
1. Offices and Equipment. HMCA identifies, negotiates leases for and/or provides office space and
equipment to its clients. This includes technologically sophisticated medical equipment. HMCA also
provides improvements to leaseholds, assistance in site selection and advice on improving, updating,
expanding and adapting to new technology.
2. Personnel. HMCA staffs all the non-medical positions of its clients with its own employees,
eliminating the client’s need to interview, train and manage non-medical employees. HMCA processes
the necessary tax, insurance and other documentation relating to employees.
Page 17
FONAR CORPORATION AND SUBSIDIARIES
3. Administrative. HMCA assists in the scheduling of patient appointments, purchasing of office and
medical supplies and equipment and handling of reporting, accounting, processing and filing systems. It
prepares and files the physician portions of complex applications to enable its clients to participate in
managed care programs and to qualify for insurance reimbursement. HMCA assists the clients to
implement programs and procedures to ensure full and timely regulatory compliance and appropriate cost
reimbursement under no-fault insurance and Workers’ Compensation guidelines, as well as compliance
with other applicable governmental requirements and regulations, including HIPAA and other privacy
requirements.
4. Billing and Collections. HMCA is responsible for the billing and collection of revenues from third-
party payors including those governed by No-Fault and Workers’ Compensation statutes.
5. Cost Saving Programs. Based on available volume discounts, HMCA seeks to assist in obtaining
favorable pricing for office and medical supplies, equipment, contrast agents, and other inventory for its
clients.
6. Diagnostic Imaging and Ancillary Services. HMCA can offer access to diagnostic imaging equipment
through diagnostic imaging facilities it manages. The Company is expanding the ancillary services
offered in its network to include x-rays, and other MRI equipment such as high-field (1.5 or 3.0 Tesla
magnet strength) MRI scanners and extremity MRI scanners.
7. Marketing Strategies. HMCA is responsible for developing and proposing marketing plans for its
clients.
8. Expansion Plans. HMCA assists the clients in developing expansion plans including the opening of
new or replacement facilities where appropriate.
HMCA’s objective is to free physicians from as many non-medical duties as is practicable, allowing
physicians to spend less time on business and administrative matters and more time practicing medicine.
The exceptions to this general model of operation are six of the facilities located in Florida. These Florida
facilities are owned by limited liability companies which, as our subsidiaries, conduct their operations
directly and bill and collect their fees from the patients and third-party payors.
The facilities enter into contracts with third-party payors, including managed care companies. None of
HMCA’s clients, however, participate in any capitated plans or other risk sharing arrangements. Capitated
plans are those HMO programs where the provider is paid a flat monthly fee per patient.
The management fees payable by the facilities to HMCA are flat monthly fees. In fiscal 2024, the
aggregate amount of active management fees was $4,960,733 per month. In fiscal 2023, the aggregate
amount of active management fees was $4,860,732 per month.
Fees under the management agreements are subject to adjustment by mutual agreement on an annual
basis.
Page 18
FONAR CORPORATION AND SUBSIDIARIES
Timothy Damadian currently owns three HMCA-managed MRI facilities in Florida. The facilities were
owned by Dr. Damadian until his passing in August of 2022. The fees for these three sites are flat
monthly fees which are subject to adjustment by mutual agreement on an annual basis. In fiscal 2024 and
fiscal 2023, the aggregate monthly amount of management fees payable to HMCA by these sites was
$995,825.
The six Florida facilities owned by HMCA subsidiaries directly bill their patients or the patients’
insurance carriers. Patient fees net of contractual allowances and discounts were $33,815,796 in fiscal
2024 as compared to $29,793,993 in fiscal 2023.
HMCA MARKETING
HMCA’s marketing strategy is to expand the business and improve the facilities which it manages.
HMCA is seeking to increase the number of locations of those facilities where market conditions are
promising and to promote growth of our clients’ and Florida subsidiaries’ patient volume and revenue.
DIAGNOSTIC IMAGING FACILITIES
Diagnostic imaging facilities managed by HMCA provide diagnostic imaging services to patients referred
by physicians. The facilities are operated in a manner which eliminates the admission and other
administrative inconveniences of in-hospital diagnostic imaging services. Imaging services are performed
in an outpatient setting by trained medical technologists under the direction of physicians. Following
diagnostic procedures, the images are reviewed by the interpreting physicians who prepare reports of
these tests and their findings. The vast majority of reports for the New York facilities are transcribed by
HMCA personnel and the remainder are outsourced to professional transcription services. Reports for the
Florida facilities are outsourced to professional transcription services.
HMCA develops marketing programs and educational programs in an effort to establish and maintain
referring physician relationships for our clients and Florida subsidiaries.
Managed care providers are an important factor in the diagnostic imaging industry. To further its position,
HMCA is seeking to expand the imaging modalities offered at its managed and owned diagnostic imaging
facilities. Four facilities in New York and eight facilities in Florida have two or more MRI scanners. One
facility in New York and two in Florida also perform X-rays.
REIMBURSEMENT
HMCA’s clients receive reimbursements for their services through Medicare, Medicaid, managed care,
private commercial insurance, third-party administrators, Workers’ Compensation, No-Fault and other
insurance.
Page 19
FONAR CORPORATION AND SUBSIDIARIES
Medicare
The Medicare program provides reimbursement for hospitalization, physician, diagnostic and certain
other services to eligible persons 65 years of age and over and certain other individuals. Providers are
paid by the federal government in accordance with regulations promulgated by the Department of Health
and Human Services, HSS, and generally accept the payment with nominal deductible and co-insurance
amounts required to be paid by the service recipient, as payment in full. Hospital inpatient services are
reimbursed under a prospective payment system. Hospitals receive a specific prospective payment for
inpatient treatment services based upon the diagnosis of the patient.
Under Medicare’s prospective payment system for hospital outpatient services, or OPPS, a hospital is
paid for outpatient services on a rate per service basis that varies according to the ambulatory payment
classification group, or APC, to which the service is assigned rather than on a hospital’s costs. Each year
the Centers for Medicare and Medicaid Services, or CMS, publishes new APC rates that are determined in
accordance with the promulgated methodology.
Services provided in non-hospital based freestanding facilities are paid under the Medicare Physician Fee
Schedule, or MPFS. All of HMCA’s clients are presently in this category. The MPFS is updated on an
annual basis and sometimes modified more frequently.
We have experienced reimbursement reductions for radiology services provided to Medicare
beneficiaries. In calendar year 2024, changes to the MPFS included a reduction in the conversion factor.
For our fiscal year ended June 30, 2024, Medicare revenues represented approximately 2.7% of the
revenues for HMCA’s clients and subsidiaries as compared to 2.9% for the fiscal year ended June 30,
2023.
Medicaid
The Medicaid program is a jointly-funded federal and state program providing coverage for low-income
persons. In addition to federally-mandated basic services, the services offered and reimbursement
methods vary from state to state. In many states, Medicaid reimbursement is patterned after the Medicare
program; however, an increasing number of states have established or are establishing payment
methodologies intended to provide healthcare services to Medicaid patients through managed care
arrangements. In fiscal 2024, approximately 0.06% of the revenues of HMCA’s clients were attributable
to Medicaid, as compared to 0.05% in fiscal 2023.
Managed Care and Private Insurance
Health Maintenance Organizations, or HMO’s, Preferred Provider Organizations, or PPOs, and other
managed care organizations attempt to control the cost of healthcare services by a variety of measures,
including imposing lower payment rates, preauthorization requirements, limiting services and mandating
less costly treatment alternatives. Managed care contracting is competitive and reimbursement schedules
in many cases can be at or below Medicare reimbursement levels. Some managed care organizations have
reduced or otherwise limited, and other managed care organizations may reduce or otherwise limit,
reimbursement in response to reductions in government reimbursement. These reductions could have an
adverse impact on our financial condition and results of operations. These reductions have been, and any
future reductions may be, similar to the reimbursement reductions previously proposed.
Page 20
FONAR CORPORATION AND SUBSIDIARIES
HMCA COMPETITION
The physician and diagnostic management services field is highly competitive. A number of large
hospitals have acquired medical practices and this trend may continue. HMCA expects that more
competition will develop. Many competitors have greater financial and other resources than HMCA.
With respect to the diagnostic imaging facilities managed by HMCA, the outpatient diagnostic imaging
industry is highly competitive. Competition focuses primarily on attracting physician referrals at the local
market level and increasing referrals through relationships with managed care organizations, as well as
emphasizing to potential referral sources the advantages of Upright® MRI scanning. HMCA believes that
principal competitors for the diagnostic imaging centers are hospitals and independent or management
company-owned imaging centers. Competitive factors include quality and timeliness of test results, ability
to develop and maintain relationships with managed care organizations and referring physicians, type and
quality of equipment, facility location, convenience of scheduling and availability of patient appointment
times. HMCA believes that it will be able to effectively meet the competition in the outpatient diagnostic
imaging industry with the FONAR Upright® MRI scanners and strategically placed high field MRI
scanners at its facilities.
GOVERNMENT REGULATION APPLICABLE TO HMCA
FEDERAL REGULATION
The healthcare industry is highly regulated and changes in laws and regulations can be significant.
Changes in the law or new interpretation of existing laws can have a material effect on our permissible
activities, the relative costs associated with doing business and the amount of reimbursement by
government and other third-party payors.
Federal False Claims Act
The federal False Claims Act and, in particular, the False Claims Act’s “qui tam” or “whistleblower”
provisions allow a private individual to bring actions in the name of the government alleging that a
defendant has made false claims for payment from federal funds. After the individual has initiated the
lawsuit the government must decide whether to intervene in the lawsuit and to become the primary
prosecutor. If the government declines to join the lawsuit, the individual may choose to pursue the case
alone, although the government must be kept apprised of the progress of the lawsuit, and may intervene
later. Whether or not the federal government intervenes in the case, it will receive the majority of any
recovery.
When an entity is determined to have violated the federal False Claims Act, it must pay three times the
actual damages sustained by the government, plus mandatory civil penalties for each separate false claim
and the government’s attorneys’ fees. Liability arises when an entity knowingly submits, or causes
someone else to submit, a false claim for reimbursement to the federal government. The False Claims Act
defines the term “knowingly” broadly, though simple negligence will not give rise to liability under the
False Claims Act. Examples of the other actions which may lead to liability under the False Claims Act
are set forth below:
Failure to comply with the many technical billing requirements applicable to our Medicare and
Medicaid business;
Page 21
FONAR CORPORATION AND SUBSIDIARIES
Failure to comply with the prohibition against billing for services ordered or supervised by a
physician who is excluded from any federal healthcare program, or the prohibition against
employing or contracting with any person or entity excluded from any federal healthcare
program;
Failure to comply with the Medicare physician supervision requirements for the services we
provide, or the Medicare documentation requirements concerning physician supervision.
The Fraud Enforcement and Recovery Act of 2009 expanded the scope of the False Claims Act by,
among other things, broadening protections for whistleblowers and creating liability for knowingly
retaining a government overpayment, acting in deliberate ignorance of a government overpayment or
acting in reckless disregard of a government overpayment. The healthcare reform bills in the form of the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act of 2010 (collectively, “PPACA”) expanded on changes made by the 2009 Fraud Enforcement and
Recovery Act with regard to such “reverse false claims.” Under PPACA, the knowing failure to report
and return an overpayment within 60 days of identifying the overpayment or by the date a corresponding
cost report is due, whichever is later, constitutes a violation of the False Claims Act. HMCA and its
clients have never been sued under the False Claims Act and believe they are in compliance with the law.
Stark Law
Under the federal Self-Referral Law, also referred to as the “Stark Law”, which is applicable to Medicare
and Medicaid patients, and the self-referral laws of various States, certain health practitioners, including
physicians, chiropractors and podiatrists, are prohibited from referring their patients for the provision of
designated health services, including diagnostic imaging and physical therapy services, to any entity with
which they or their immediate family members have a financial relationship, unless the referral fits within
one of the specific exceptions in the statutes or regulations. The federal government has taken the position
that a violation of the federal Stark Law is also a violation of the Federal False Claims Act. Statutory
exceptions under the Stark Law include, among others, direct physician services, in-office ancillary
services rendered within a group practice, space and equipment rental and services rendered to enrollees
of certain prepaid health plans. Some of these exceptions are also available under the State self-referral
laws. HMCA believes that it and its clients are in compliance with these laws.
Anti-kickback Regulation
We are subject to federal and state laws which govern financial and other arrangements between
healthcare providers. These include the federal anti-kickback statute which, among other things, prohibits
the knowing and willful solicitation, offer, payment or receipt of any remuneration, direct or indirect, in
cash or in kind, in return for or to induce the referral of patients for items or services covered by
Medicare, Medicaid and certain other governmental health programs. Under PPACA, knowledge of the
anti-kickback statute or the specific intent to violate the law is not required. Violation of the anti-kickback
statute may result in civil or criminal penalties and exclusion from the Medicare, Medicaid and other
federal healthcare programs, and according to PPACA, now provides a basis for liability under the False
Claims Act. In addition, it is possible that private parties may file “qui tam” actions based on claims
resulting from relationships that violate the anti-kickback statute, seeking significant financial rewards.
Many states have enacted similar statutes, which are not limited to items and services paid for under
Medicare or a federally funded healthcare program. Neither HMCA nor its clients engage in this practice.
Page 22
FONAR CORPORATION AND SUBSIDIARIES
In fiscal 2024, approximately 2.7% of the revenues of HMCA’s clients were attributable to Medicare and
0.06% were attributable to Medicaid. In fiscal 2023, approximately 2.9% of the revenues of HMCA’s
clients were attributable to Medicare and 0.05% were attributable to Medicaid.
Health Insurance Portability and Accountability Act
Congress enacted the Health Insurance Portability and Accountability Act of 1996, or HIPAA, in part, to
combat healthcare fraud and to protect the privacy and security of patients’ individually identifiable
healthcare information. HIPAA, among other things, amends existing crimes and criminal penalties for
Medicare fraud and enacts new federal healthcare fraud crimes, including actions affecting non-
governmental healthcare benefit programs by means of false or fraudulent representations in connection
with the delivery of healthcare services is subject to a fine or imprisonment, or potentially both. In
addition, HIPAA authorizes the imposition of civil money penalties against entities that employ or enter
into contracts with excluded Medicare or Medicaid program participants if such entities provide services
to federal health program beneficiaries. A finding of liability under HIPAA could have a material adverse
effect on our business, financial condition and results of operations.
Further, HIPAA requires healthcare providers and their business associates to maintain the privacy and
security of individually identifiable protected health information (“PHI”). HIPAA imposes federal
standards for electronic transactions, for the security of electronic health information and for protecting
the privacy of PHI. The Health Information Technology for Economic and Clinical Health Act of 2009
(“HITECH”), signed into law on February 17, 2009, dramatically expanded, among other things, (1) the
scope of HIPAA to now apply directly to “business associates,” or independent contractors who receive
or obtain PHI in connection with providing a service to a covered entity, (2) substantive security and
privacy obligations, including new federal security breach notification requirements to affected
individuals, DHHS and prominent media outlets, of certain breaches of unsecured PHI, (3) restrictions on
marketing communications and a prohibition on covered entities or business associates from receiving
remuneration in exchange for PHI, and (4) the civil and criminal penalties that may be imposed for
HIPAA violations, increasing the annual cap in penalties from $25,000 to $1.5 million per occurrence. In
2013 additional legal requirements were adopted to provide further protection for PHI.
In addition, many states have enacted comparable privacy and security statues or regulations that, in some
cases, are most stringent than HIPAA requirements. In those cases it may be necessary to modify our
operations and procedures to comply with the more stringent state laws, which may entail significant and
costly changes for us. We believe that we are in compliance with such state laws and regulations.
However, if we fail to comply with applicable state laws and regulations, we could be subject to
sanctions.
We believe that we are in compliance with the current HIPAA requirements, as amended by HITECH,
together with other legislation and regulations, and comparable state laws, but we anticipate that we may
encounter certain costs associated with future compliance. Moreover, we cannot guarantee that
enforcement agencies or courts will not make interpretations of the HIPAA standards that are inconsistent
with ours, or the interpretations of our contracted radiology practices or their affiliated physicians. A
finding of liability under the HIPAA standards may result in significant criminal and civil penalties.
Noncompliance also may result in exclusion from participation in government programs, including
Medicare and Medicaid. These actions could have a material adverse effect on our business, financial
condition, and results of operations.
Page 23
FONAR CORPORATION AND SUBSIDIARIES
Civil Money Penalty Law and Other Federal Statutes
The Civil Money Penalty, or CMP, law covers a variety of practices. It provides a means of
administrative enforcement of the anti-kickback statute, and prohibits false claims, claims for medically
unnecessary services, violations of Medicare participating provider or assignment agreements and other
practices. The statute gives the Office of Inspector General of the HHS the power to seek substantial civil
fines, exclusion and other sanctions against providers or others who violate the CMP prohibitions.
In addition, in 1996, Congress created a new federal crime: healthcare fraud and false statements relating
to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme
to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony
and may result in fines, imprisonment or exclusion from government sponsored programs such as the
Medicare and Medicaid programs.
Certificates of Need
Some states require hospitals and certain other healthcare facilities and providers to obtain a certificate of
need, or CON, or similar regulatory approval prior to establishing certain healthcare operations or
services, incurring certain capital projects and/or the acquisition of major medical equipment including
MRI and PET/CT systems. We are not operating in any such states.
State Regulation
In addition to the federal self-referral law and federal Anti-kickback statute, many States, including those
in which HMCA and its clients operate, have their own versions of self-referral and anti-kickback laws.
These laws are not limited in their applicability, as are the federal laws, to specific programs. HMCA
believes that it and its clients are in compliance with these laws.
Various States prohibit business corporations from practicing medicine. Various States, including New
York, also prohibit the sharing of professional fees or fee splitting. Consequently, in New York HMCA
leases space and equipment to clients and provides clients with a range of non-medical administrative and
managerial services for agreed upon fees. Under Florida law a business entity can bill patients and third-
party payors directly if that entity is properly licensed through AHCA. All of the nine facilities in Florida
are licensed healthcare clinics through AHCA.
HMCA’s clients and subsidiaries generate revenue from patients covered by no-fault insurance and
workers’ compensation programs. For the fiscal year ended June 30, 2024 approximately 58.0% of our
clients’ receipts were from patients covered by no-fault insurance and approximately 8.8% of our client’s
receipts were from patients covered by workers’ compensation programs. For the fiscal year ended June
30, 2023, approximately 58.4% of HMCA’s clients’ receipts were from patients covered by no-fault
insurance and approximately 8.6% of HMCA’s clients’ receipts were from patients covered by workers’
compensation programs. The foregoing numbers do not include payments from third-party administrators.
In the event that changes in these laws alter the fee structures or methods of providing service, or impose
additional or different requirements, HMCA could be required to modify its business practices and
services in ways that could be more costly to HMCA or in ways that decrease the revenues which HMCA
receives from its clients.
Page 24
FONAR CORPORATION AND SUBSIDIARIES
Compliance Program
We maintain a program to monitor compliance with federal and state laws and regulations applicable to
the healthcare entities. The compliance program includes the adoption of (i) Standards of Conduct for our
employees and affiliates and (ii) a process that specifies how employees, affiliates and others may report
regulatory or ethical concerns. We believe that our compliance program meets the relevant standards
provided by the Office of Inspector General of the Department of Health and Human Services.
An important part of our compliance program consists of conducting periodic audits of various aspects of
our operations and that of the contracted radiology practices. We also assist our clients with educational
programs designed to familiarize them with the regulatory requirements and specific elements of our
compliance program.
HMCA believes that it and its clients are in compliance with applicable Federal, State and local laws.
HMCA does not believe that such laws will have any adverse material effect on its business.
EMPLOYEES
FONAR and HMCA had approximately 520 employees as of September 12, 2024. This total number
included employees engaged in production, customer support, research and development, information
technology, employees engaged in marketing and sales, billing and collection, legal and compliance
matters, as well as transcriptionists, Florida technologists, field service technicians and individuals in
various administrative positions. A significant number of employees were employed at the MRI facilities
managed or owned by HMCA, primarily in administrative positions.
ITEM 1A. RISK FACTORS
An investment in our securities is subject to various risks, the most significant of which are summarized
below.
1.
Reduced Reimbursement Rates. Most of our revenues are derived from our scanning center
business conducted by HMCA. Our scanning center clients and the Florida facilities owned by
HMCA are experiencing lower reimbursement rates from Medicare, other government programs
and private insurance companies. To the extent possible, we counter these reductions by
increasing scanning volume and controlling operating expenses. Inflation in the cost of both
materials and labor have limited our ability to control our costs, negatively impacting our ability
to maintain profitability in this business segment.
2.
Inflation and Increasing Interest Rates. Inflation has drastically increased our costs for both
materials and labor. The Federal Reserve has increased interest rates substantially in an attempt
to control inflation, which in turn has increased the cost of capital. Diagnostic imaging facilities
require significant amounts of capital to operate, particularly in the context of opening new
diagnostic imaging centers. These increased costs make it more difficult to achieve organic
growth and extend the time that a new center takes to achieve profitability. Continued costs
increases, coupled with reduced reimbursement rates, may threaten the profitability of our current
operations and cause the cost of expansion to become prohibitively high.
Page 25
FONAR CORPORATION AND SUBSIDIARIES
3.
Cybersecurity threats. The healthcare industry has increasingly become a target for threat actors.
Our organization relies on information technology systems and computer networks to operate.
Our partners, vendors and business associates are equally reliant on their own computer systems
to provide the services that we depend on to perform core functions such as scheduling and
billing. Data incidents in the form of breaches, ransomware attacks, denial-of-service attacks,
and a variety of other hazards could materially disrupt our operations, or the operations of our
partners. In addition, the costs to respond to such incidents related to rebuilding internal systems,
restoring data, responding to regulatory investigations and/or litigation could be significant. Our
cybersecurity liability insurance may be inadequate to cover these losses. The cost of
maintaining and improving our security technologies to protect ourselves from these threats is
increasing. Risk outside of our control, such as cybersecurity attacks to our partners, vendors and
business associates could threaten our ability to operate in the short term and reduce operating
margins.
4.
Dependence on Referrals. HMCA derives substantially all of its revenue, directly or indirectly,
from fees charged for the diagnostic imaging services performed at the facilities. We depend on
referrals of patients from unaffiliated physicians and other third parties to the facilities we
manage or own for the services we perform. If these physicians and other third parties were to
reduce the number of patients they refer or discontinue referring patients, scan volumes could
decrease, which would reduce our net revenue and operating margins.
5.
Pressure to Control Healthcare Costs. One of the principal objectives of health maintenance
organizations and preferred provider organizations is to control the cost of healthcare services.
Healthcare providers participating in managed care plans may be required to refer diagnostic
imaging tests to certain providers depending on the plan in which a covered patient is enrolled. In
addition, managed care contracting has become very competitive. The expansion of health
maintenance organizations, preferred provider organizations and other managed care
organizations in New York or Florida could have a negative impact on the utilization and pricing
of services performed at the facilities HMCA manages or owns to the extent these organizations
exert control over patients’ access to diagnostic imaging services, selections of the provider of
such services and reimbursement rates for those services.
6. Scanning Facility Competition. The market for diagnostic imaging services is highly competitive.
The facilities we manage or own compete for patients on the basis of reputation, location and the
quality of diagnostic imaging services. Groups of radiologists, established hospitals, clinics and
other independent organizations that own and operate imaging equipment are the principal
competitors.
Page 26
FONAR CORPORATION AND SUBSIDIARIES
7.
Eligibility Changes to Insurance Programs. Due to potential decreased availability of healthcare
through private employers, the number of patients who are uninsured or participate in
governmental programs may increase. Healthcare reform legislation will increase the
participation of individuals in the Medicaid program in states that elect to participate in the
expanded Medicaid coverage. A shift in payor mix from managed care and other private payors to
government payors or an increase in the number of uninsured patients may result in a reduction in
the rates of reimbursement or an increase in uncollectible receivables or uncompensated care,
with a corresponding decrease in net revenue. Policies now being offered under various insurance
plans are expected to reduce demand for MRI scans as they become less affordable. Changes in
the eligibility requirements for governmental programs such as the Medicaid program and state
decisions on whether to participate in the expansion of such programs also could increase the
number of patients who participate in such programs and the number of uninsured patients. Even
for those patients who remain in private insurance plans, changes to those plans could increase
patient financial responsibility, resulting in a greater risk of uncollectible receivables. These
factors and events could have a material adverse effect on our business, financial condition, and
results of operations.
8.
Federal and state privacy and information security laws. We must comply with numerous federal
and state laws and regulations governing the collection, dissemination, access, use, security and
privacy of PHI, including HIPAA and its implementing privacy and security regulations, as
amended by the federal HITECH Act. If we fail to comply with applicable privacy and security
laws, regulations and standards, properly maintain the integrity of our data, protect our
proprietary rights to our systems, or defend against cybersecurity attacks, our business,
reputation, results of operations, financial position and cash flows could be materially and
adversely affected.
9.
Current and future changes in Florida Insurance Law. On March 24, 2023, Florida Governor Ron
DeSantis signed into law House Bill 837. Dubbed the Tort Reform Act. The bill makes sweeping
changes to Florida’s negligence laws. These changes will negatively impact our Florida
diagnostic imaging facilities (both those we own and those we manage) with more unpaid bills,
and lower reimbursement rates. The full extent of those reductions are unclear at this time.
Florida legislators continue to propose significant changes to the current structure of Florida’s
auto insurance industry, which may impact our future operations in Florida.
10.
Demand for MRI Scanners. The reduced margins have a negative effect on our sales of MRI
scanners. With lower revenue projections, prospective customers demand lower prices for
scanners. Although the reduced reimbursements may not affect foreign demand, a lower number
of sales in the aggregate could reduce economies of scale and consequently, profit margins.
11.
Manufacturing Competition. Many if not most of our competing scanner manufacturers have
significantly greater financial resources, production capacity, and other resources than we do.
Such competitors would include General Electric, Siemens, Hitachi and Phillips. Although
FONAR is the only company which can manufacture and sell the unique Stand-Up® (Upright®)
MRI scanner, potential customers must be convinced that the purchase of a FONAR scanner is
their best choice. We believe that with time, that objective will be reached, particularly with
customers scanning patients having neck, back, knee and various orthopedic issues who would
benefit from being scanned in weight-bearing positions.
Page 27
FONAR CORPORATION AND SUBSIDIARIES
12.
Other changes in Domestic and Worldwide Economic Conditions. We are subject to risk arising
from adverse changes in general domestic and global economic conditions, including recession or
economic slowdown and disruption of credit markets. Turbulence and uncertainty in the United
States and international markets and economies may adversely affect our liquidity, financial
condition, revenues, profitability and business operations generally.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
Our Cybersecurity Risk Management Strategy includes a myriad of tools and resources that are designed
to ensure the integrity of our information systems. We place a particular emphasis on protecting the
privacy of our patient data pursuant to the HIPAA Security Rule. Our cybersecurity risk management
process is integrated with our larger risk management system and is considered a core function of our
overall risk management strategy.
Our strategy is based around the identification, mitigation, avoidance and response to material
cybersecurity risks. We employ physical and electronic safeguards to control access to our systems. We
employ additional electronic safeguards to control/limit access to the data contained in those systems. We
review and re-assess these processes on a rolling basis with the assistance of both internal staff and
outside vendors, including assessors, consultants, auditors, and other third parties. Some steps we take
include the use of standard security protocols such as password maintenance, multi-factor identification,
and penetration testing. We take other steps as may be situationally appropriate for the specific risk
presented.
We require all of our employees to receive cybersecurity training as part of their initial onboarding
process, and employees are required to complete additional training throughout the year.
We evaluate all of our vendors and third-party partners for material cybersecurity risks and take steps to
mitigate risk through insurance and contractual risk transfer provisions when appropriate. Our
Information Technology department works collaboratively with our third party vendors to coordinate a
mutually beneficial approach to cybersecurity in the specific context in which risk is presented. These
collaborations sometimes take place on a rolling basis, and sometimes take place on a semi-annual or
annual basis.
At the present time, risks from cybersecurity threats have not materially affected the Company. However,
cybersecurity threats have the potential to significantly impair our operations and the operations of the
various third parties upon whom we rely.
Page 28
FONAR CORPORATION AND SUBSIDIARIES
Governance
The audit committee of our Board of Directors provides oversight of cybersecurity risks. It receives
regular reports from management, including our General Counsel, on various cybersecurity matters
during each board meeting. Such reports include information on current cybersecurity risks facing the
organization, cybersecurity incidents involving our partners and/or other participants in our industry, and
routine updates on the status of our internal cybersecurity risk management plan.
Our General Counsel oversees and manages our cybersecurity program. Our General Counsel acts as the
coordinator of our cybersecurity team, which includes representatives from our Information Technology
department and Compliance department. In addition, he regularly interacts with various department
heads from both our New York and Florida regions regarding the prevention, detection, mitigation and
remediation of cybersecurity risks. Our General Counsel has an educational background in computer
science and has relevant work experience in cybersecurity insurance and risk management, in addition to
his relevant legal experience.
ITEM 2. PROPERTIES
FONAR and HMCA currently lease approximately 78,000 square feet of office and plant space at its
principal offices in Melville, New York. The term of the lease runs through November, 2033.
Management believes that the premises will be adequate for its current needs. HMCA also maintains
office space for the Facilities owned by its subsidiaries in Florida and for its clients at the clients’ sites in
New York and Florida under leases having various terms. HMCA owns the building for the client’s
premises in Tallahassee, Florida. The Company received approval from the Suffolk County Industrial
Development Agency on February 29, 2016 of a 50% property tax abatement, valued at $440,000, over a
10 year period commencing January, 2017.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings threatened or pending against the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our Common Stock is traded on NASDAQ Capital Markets under the symbol FONR.
On September 12, 2024, we had approximately 978 stockholders of record of our Common Stock, 12
stockholders of record of our Class B Common Stock, 3 stockholders of record of our Class C Common
Stock and 1,008 stockholders of record of our Class A Non-voting Preferred Stock.
Page 29
FONAR CORPORATION AND SUBSIDIARIES
At the present time, the only class of our securities for which there is a market is the Common Stock.
We currently have a policy of retaining earnings to finance the development and expansion of our
business. We expect to continue this policy for the foreseeable future.
Performance Graph
The following graph compares the Company’s cumulative total stockholder return on its Common Stock
against industry and broad-market indexes which have been compiled by the Nasdaq Global Index Group.
The periods commence on June 28, 2020 for five years and end on June 30, 2024. The graph assumes
$100 is invested in FONAR Common Stock (NASDAQ: FONR), the Nasdaq Composite Total Return
(Nasdaq Composite), Nasdaq Health Care Management Services (Nasdaq Health), and Nasdaq Medical
Equipment (Nasdaq Equipment). The comparisons in the graph below are based on historical data and are
not intended to forecast the possible future performance of the common stock.
Date
June 30,
2020
June 30,
2021
June 30,
2022
June 30,
2023
June 30,
2024
FONR Common
Stock
$ 100
$ 83
$ 71
$ 80
$ 75
Nasdaq Composite
$ 100
$ 145
$ 111
$ 140
$ 182
Health Care
Management
Services
$ 100
$ 139
$ 169
$162
$ 177
Medical Equipment
$ 100
$ 145
$ 121
$ 137
$ 143
Page 30
FONAR CORPORATION AND SUBSIDIARIES
Share Repurchase Program
In September 2022, our Board of Directors authorized a program to repurchase up to $9 million of our
common stock. Under this program, we may purchase stock in the open market or through privately
negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged
stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors
including price, capital availability, regulatory requirements, and other market conditions. We are not
obligated to repurchase a specific number of shares under this program and it may be modified,
suspended or discontinued at any time.
The following table summarizes the number of shares repurchased during the three months ended June
30, 2024:
Fiscal Month
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
Maximum Dollar
Value that May Still
Be Purchased Under
the Program (In
Thousands)
April 1, 2024 – April 30, 2024
0
$--
0
5,355
May 1, 2024 – May 31, 2024
17,851
$15.02
17,851
5,087
June 1, 2024 – June 30, 2024
22,847
$15.45
22,847
4,734
Total
40,698
$15.26
40,698
ITEM 6. [Reserved]
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
INTRODUCTION.
FONAR was formed in 1978 to engage in the business of designing, manufacturing and selling MRI
scanners. HMCA, a subsidiary of FONAR, provides management services to diagnostic imaging
facilities.
FONAR’s principal MRI product is its Upright® MRI (also called Stand-Up® MRI) scanner. The
Upright® MRI allows patients to be scanned for the first time under weight-bearing conditions. The
Stand-Up® MRI is the only MRI capable of producing images in the weight-bearing state.
At 0.6 Tesla field strength, the Upright® MRI is among the highest field open MRI scanners in the
industry, offering non-claustrophobic MRI together with high-field image quality. FONAR’s open MRI
scanners were the first high field strength open MRI scanners in the industry.
Page 31
FONAR CORPORATION AND SUBSIDIARIES
HMCA generates revenues from providing comprehensive management services, including development,
administration, accounting, billing and collection services, together with office space, medical equipment,
supplies and non-medical personnel to its clients. Revenues are in the form of fees which are earned under
contracts with HMCA’s clients except for its six Florida subsidiaries which engage in the practice of
medicine, and bill and collect fees from patients, insurers and other third-party payors directly.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of financial condition and results of operations are based on our consolidated
financial statements that were prepared in accordance with U.S. generally accepted accounting principles,
or GAAP. Management makes estimates and assumptions when preparing financial statements. These
estimates and assumptions affect various matters, including:
Our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the
financial statements;
Our disclosure of contingent assets and liabilities at the dates of the financial statements; and
Our reported amounts of net revenue and expenses in our consolidated statements of operations during the
reporting periods
These estimates involve judgments with respect to numerous factors that are difficult to predict and are
beyond management’s control. As a result, actual amounts could differ materially from these estimates.
We believe our critical accounting estimates in the following areas affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition and Receivable Allowances
The Company’s receivables from the related and non-related professional corporations, as well as those
receivables due under fee-for-service contracts at the Florida subsidiaries, are largely dependent on
collection of fees from various third-party payers. As described in greater detail in Note 2, we recognize
revenue in accordance with ASC 606, as the services are provided.
Medical receivables are due under fee-for-service contracts with third-party payors, such as hospitals,
government sponsored healthcare programs, patients legal counsel and directly from patients. The
carrying amount of the medical receivable is reduced by contractual allowances and discounts based on
the historical experience with each payor class on a per location basis.
Management fee receivable is related to the management fees outstanding from the related and no-related
professional corporations (“PCs”) under management agreements. The Company establishes a current
expected credit loss (“CECL”) to address the risk that a portion of the contractually obligated
management fees receivable from the PCs may not be paid. The PCs may be limited in their ability to
pay the full management fees receivable if they do not collect sufficient expected fees from third-party
payers and patients. The Company’s management fees are collateralized, individually and collectively,
by the assets of the PCs. The CECL is determined based upon the difference between the management
fee receivable and the current amount of outstanding fees estimated to be collected by the PCs. The
Company’s considerations into the estimate of the PCs fee collection included historical loss rates to
pools of receivables with similar risks and characteristics, current and forward looking economic
conditions, and the financial condition of each PC.
Page 32
FONAR CORPORATION AND SUBSIDIARIES
We recognize revenue and related costs of revenue from sales contracts for our MRI scanners and major
upgrades, under the percentage-of-completion method. Under this method, we recognize revenue and
related costs of revenue, as each sub-assembly is completed. Amounts received in advance of our
commencement of production are recorded as customer advances.
Income Taxes and Related Tax Asset Valuation Allowances
We qualitatively and quantitatively evaluate the realizability (including both positive and negative
evidence) of the net deferred tax assets and assess the valuation allowance periodically. Our evaluation
considers the financial condition of the Company and both the business conditions and regulatory
environment of the industry. If future taxable income or other factors are not consistent with our
expectations, an adjustment to our allowance for net deferred tax assets may be required. For net deferred
tax assets we consider estimates of future taxable income, including tax planning strategies, in
determining whether our net deferred tax assets are more likely than not to be realized. Our ability to
project future taxable income may be significantly affected by our ability to determine the impact of
regulatory changes which could adversely affect our future profits. As a result, the benefits of our net
operating loss carry forwards could expire before they are utilized.
At June 30, 2023, the net deferred tax asset was valued at $10,041,960. At June 30, 2024, the net deferred
tax asset was valued at $7,223,255.
Long-Lived and Intangible Assets
We depreciate our long-lived assets over their estimated economic useful lives, with the exception of
leasehold improvements. With respect to leasehold improvements, we use the shorter of the assets useful
lives or the lease term of the facility for which these assets are associated.
We amortize our intangible assets, including patents, and capitalized software development costs, over the
shorter of the contractual/legal life or the estimated economic life. Our amortization life for patents and
capitalized software development costs is 15 to 17 years and 5 years, respectively.
Goodwill is recorded as a result of business combinations. Management evaluates goodwill, at a
minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying
amount may not be recoverable. Impairment of goodwill is tested by comparing the reporting unit’s
carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of a reporting
unit is estimated using a combination of the income or discounted cash flows approach and the market
approach, which uses comparable market data. If the carrying amount of the reporting unit exceeds its fair
value, goodwill is considered impaired and a second step is performed to measure the amount of
impairment loss, if any. Based on our test for goodwill impairment, we noted no impairment related to
goodwill. However, if estimates or the related assumptions change in the future, we may be required to
record impairment charges to reduce the carrying amount of goodwill.
We periodically assess the recoverability of long-lived assets, including property and equipment,
intangibles and management agreements, when there are indications of potential impairment, based on
estimates of undiscounted future cash flows. The amount of impairment is calculated by comparing
anticipated discounted future cash flows with the carrying value of the related asset. In performing this
analysis, management considers such factors as current results, trends, and future prospects, in addition to
other economic factors.
Page 33
FONAR CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS. FISCAL 2024 COMPARED TO FISCAL 2023
In fiscal 2024, we recognized net income of $14.1 million on revenues of $102.9 million, as compared to
net income of $12.1 million on revenues of $98.6 million for fiscal 2023. This represents an increase in
revenues of 4.3%. Total costs and expenses increased by 3.0%. Our consolidated operating results
increased by 11.8% to an operating income of $16.5 million for fiscal 2024 as compared to operating
income of $14.8 million for fiscal 2023.
Discussion of Operating Results of Medical Equipment Segment
Fiscal 2024 Compared to Fiscal 2023
Revenues attributable to our medical equipment segment remained constant at $8.3 million in fiscal 2024
and in fiscal 2023, with product sales revenues increasing by 0.8% from $732,000 in fiscal 2023 to
$738,000 in fiscal 2024. Service revenue increased by 0.8% from $7.5 million in fiscal 2023 to $7.6
million in fiscal 2024.
Lower reimbursement rates have reduced the demand for our MRI products, resulting in lower sales
volumes. As a result of fewer sales, service revenues have decreased since as older scanners are taken out
of service, there are fewer new scanners available to sign service contracts.
The operating loss for the medical equipment segment increased from an operating loss of $5.9 million in
fiscal 2023 to an operating loss of $7.0 million in fiscal 2024. The losses are attributable most
significantly to the fact that costs increased by a greater amount than revenues.
The increase in costs was the result of several factors. We made a significant investment into developing
the capacity to service MRI equipment manufactured by third manufacturers through our Opus Diagnostic
Services, LLC subsidiary. We made additional investments into sales and marketing of image
enhancement software SwiftMRTM pursuant to our distribution agreement with AIRS Medical USA, Inc.
We hope these ventures will develop into a viable source of new revenue in the future. We also
discontinued the prosecution of two patents that ultimately did not issue, after substantial investment into
their pursuit.
Research and development expenses increased to $1.7 million in fiscal 2024 from $1.6 million in fiscal
2023. Our expenses for fiscal 2024 represented continued research and development of various upgrades
for the Upright® MRI scanner.
Discussion of Operating Results of Physician and Diagnostic Services Management Segment
Fiscal 2024 Compared to Fiscal 2023
Revenues attributable to the Company’s physician and diagnostic services management segment, HMCA,
increased to $94.6 million in fiscal 2024 as compared to $90.4 million in fiscal 2023. The increase in
revenues was due to an increase of $4.0 million of patient fees (net of contractual allowances and
discounts) from patient and third-party payers recognized by six of the facilities in Florida. Management
and other fees increased by $0.1 million.
Page 34
FONAR CORPORATION AND SUBSIDIARIES
Cost of revenues as a percentage of the related revenues for our physician and diagnostic services
management segment increased from $49.0 million or 54.1% of related revenues for the year ended June
30, 2023 to $53.0 million, or 56.0% of related revenues for the year ended June 30, 2024.
Operating results of this segment increased from operating income of $20.7 million in fiscal 2023 to
operating income of $23.5 million in fiscal 2024. The increase is due mainly to increased patient fee
revenue due to higher scan volumes. We believe that our efforts to expand and improve the operation of
our physician and diagnostic services management segment are directly responsible for the profitability of
this segment and our company as a whole.
For the fiscal year ended June 30, 2024, 11.6% of total revenues were derived from contracts with
facilities that are currently owned by Timothy Damadian, the Chief Executive Officer of FONAR, and
were previously owned and operated by Dr. Raymond V. Damadian until his passing. 12.1% of total
revenues were derived from these contracts for the 2023 fiscal year. The agreements with these MRI
facilities are for one-year terms which renew automatically on an annual basis, unless terminated. The
fees for these sites, which are located in Florida, are flat monthly fees.
Discussion of Certain Consolidated Results of Operations
Fiscal 2024 Compared to Fiscal 2023
Interest and investment income increased in 2024 compared to 2023. We recognized interest income of
$2.1 million in 2024 as compared to $1.2 million in fiscal 2023, representing an increase of 74.0%. This
is due to the increase in the prime interest rate and the Company placing cash in interest bearing accounts
and purchasing short term treasury bills.
Interest expense of $76,997 was recognized in fiscal 2024, as compared to interest expense of $50,131 in
fiscal 2023.
The 29.2% non-controlling interest allocations of $3,530,000 and $2,751,000 for fiscal 2024 and fiscal
2023, respectively, have been calculated by Income from operations, and adding depreciation and
amortization net of miscellaneous losses and other income from the Physician and Diagnostic Service
Management segment (See Note 16).
While revenue increased by 4.3% selling, general and administrative expenses decreased by 8.6% to
$26.9 million in fiscal 2024 from $29.4 million in fiscal 2023. This difference in selling, general and
administrative expenses was due to less reserves on management fees and other receivables due to
increased scan volume as compared to fiscal 2023.
Revenue from service and repair fees increased from $7.5 million in fiscal 2023 to $7.6 million in fiscal
2024.
Page 35
FONAR CORPORATION AND SUBSIDIARIES
Continuing our tradition as the originator of MRI, we remain committed to maintaining our position as
the leading innovator of the industry through investing in research and development. In fiscal 2024 we
continued our investment in the development of various upgrades for the UPRIGHT® MRI, with an
investment of $1,735,949 in research and development, none of which was capitalized, as compared to
$1,567,749, none of which was capitalized, in fiscal 2023. The research and development expenditures
were approximately 20.8% of revenues attributable to our medical equipment segment and 1.7% of total
revenues in 2024, and 18.9% of medical equipment segment revenues and 1.5% of total revenues in fiscal
2023. This represented a 10.7% increase in research and development expenditures in fiscal 2024 as
compared to fiscal 2023.
For the physician and diagnostic services management segment, HMCA, revenues increased to $94.6
million in fiscal 2024 as compared to $90.4 million in fiscal 2023. This is primarily attributable to an
increase in patient scans resulting from our marketing efforts.
For the fiscal year 2024 the Company recorded an income tax expense of $5.2 million compared with an
income tax expense of $3.6 million for 2023. The income tax benefits are attributable to the expected tax
benefits associated with the projected realization and utilization of our net state operating losses in future
periods. The Company has recorded a deferred tax asset of $7.2 million as of June 30, 2024, primarily
relating to the tax benefits from the net state operating loss carry forwards, allowance for credit losses and
tax credits available to offset future taxable income. The utilization of these tax benefits is dependent on
the Company generating future taxable income and other factors. A partial valuation allowance will be
maintained until evidence exists to support that it is no longer needed, (principally related to research and
development credits and unrealizable state operating losses). Although the Company is expecting to
generate taxable income in future periods, we cannot accurately measure the full impact of the adoption
of healthcare regulations, including the impact of continuing changes in MRI scanning reimbursement
rates, which could materially impact operations. A partial valuation allowance will be maintained until
evidence exists to support that it is no longer needed. As of June 30, 2024, the valuation allowance was
$193,000.
We have been taking steps to improve HMCA revenues by our marketing efforts, which focus on the
unique capability of our Upright® MRI scanners to scan patients in different positions. We have also
been increasing the number of health insurance plans in which our clients participate. Operationally, we
have invested in technology that we believe will reduce scan times and improve operational efficiency in
the centers that we manage.
Our management fees are dependent on collection by our clients of fees from reimbursements from
Medicare, Medicaid, private insurance, no fault and workers’ compensation carriers, self–pay and other
third-party payers. The health care industry is experiencing the effects of the federal and state
governments’ trend toward cost containment, as governments and other third-party payers seek to impose
lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. The
cost-containment measures, consolidated with the increasing influence of managed-care payers and
competition for patients, have resulted in reduced rates of reimbursement for services provided by our
clients from time to time. Our future revenues and results of operations may be adversely impacted by
future reductions in reimbursement rates.
Page 36
FONAR CORPORATION AND SUBSIDIARIES
Certain third-party payers have proposed and implemented changes in the methods and rates of
reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging
services that HMCA’s clients provide. To the extent reimbursement from third-party payers is reduced, it
will likely have an adverse impact on the rates they pay us, as they would need to reduce the management
fees they pay HMCA to offset such decreased reimbursement rates. Furthermore, many commercial
health care insurance arrangements are changing, so that individuals bear greater financial responsibility
through high deductible plans, co-insurance and higher co-payments, which may result in patients
delaying or foregoing medical procedures. More frequently, however, patients are scanned and we
experience difficulty in collecting deductibles and co-payments. We expect recent changes to the Florida
insurance laws to result in less patients being reimbursed through no-fault auto insurance, resulting in
both lower reimbursement rates and a higher rate of uncollectible billings. Further, we believe that the
passage of New York Public Health Law Article 49A will have a significant negative impact on our
collection rates. We expect that any further changes to the rates or methods of reimbursement for services,
which reduce the reimbursement per scan of our clients may partially offset the increases in scan volume
we are working to achieve for our clients, and indirectly will result in a decline in our revenues.
In addition, the use of radiology benefit managers, or RBM’s has increased in recent years. It is common
practice for health insurance carriers to contract with RBMs to manage utilization of diagnostic imaging
procedures for their insureds. In many cases, this leads to lower utilization of imaging procedures based
on a determination of medical necessity. The efficacy of RBMs is still a highly controversial topic. We
cannot predict whether the use of RBMs will negatively impact our business, but it is possible that our
financial position and results of operations could be negatively affected.
LIQUIDITY AND CAPITAL RESOURCES
Cash, and cash equivalents increased by 9.9% from $51.3 million at June 30, 2023 to $56.3 million at
June 30, 2024.
Cash provided by operating activities for fiscal 2024 approximated $14.1 million. Cash provided by
operating activities was attributable to the net income of $14.1 million, depreciation and amortization of
$4.6 million, provision for credit losses of $1.9 million, deferred income tax expense benefit of $2.8
million which was offset by the increase in accounts, and medical and management fee receivables of
$11.7 million.
Cash used in investing activities for fiscal 2024 approximated $851,000. The cash used in investing
activities was attributable to purchases of property and equipment of $790,000, purchase of short term
investments of $103,000, costs of patents of $33,000, offset by proceeds from sale of equipment of
$75,000.
Cash used in financing activities for fiscal 2024 approximated $8.2 million. The principal uses of cash
used in financing activities included the repayment of borrowings and capital lease obligations of
$45,000, purchase of treasury stock of $2.5 million and distributions to non-controlling interests of $5.6
million.
Total liabilities increased by 15.5% during fiscal 2024, from approximately $49.8 million at June 30,
2023 to approximately $57.5 million at June 30, 2024.
Page 37
FONAR CORPORATION AND SUBSIDIARIES
At June 30, 2024, we had working capital of approximately $122.5 million as compared to working
capital of $110.00 million at June 30, 2023, and stockholders’ equity of $156.8 million at June 30, 2024
as compared to stockholders’ equity of $150.8 million at June 30, 2023. For the year ended June 30, 2024,
we realized a net income of $14.1 million.
Our principal sources of liquidity are derived from revenues.
Our business plan includes a program for manufacturing and selling our Upright® MRI scanners. In
addition, we are enhancing our revenue by participating in the physician and diagnostic services
management business through our subsidiary, HMCA. As of June 30, 2024, HMCA manages a total of 42
MRI scanners of which 25 MRI scanners are located in New York and 17 are located in Florida. We have
also intensified our marketing activities through the hiring of additional marketers for HMCA’s clients.
Our business plan also calls for a continuing emphasis on providing our customers with enhanced
equipment service and maintenance capabilities and delivering state-of-the-art, innovative and high
quality equipment upgrades at competitive prices. Fees for on-going service and maintenance from our
installed base of scanners were $7.5 million for the year ended June 30, 2023 and $7.6 million for the year
ended June 30, 2024.
In order to promote profitability and to reduce demands on our cash and other liquid reserves, we
maintain an aggressive program of cost containment. Previously, these measures included consolidating
HMCA’s office space with FONAR’s office space and reducing the size of our workforce, compensation
and benefits. We continue to attempt to contain expenses across the board, despite significant increases in
the cost of labor and materials as the result of inflation. The cost control efforts are intended to enable us
to withstand periods of low volumes of MRI scanner sales, by keeping expenditures at levels which can
be supported by service revenues and HMCA revenues. To this end, we have formed a subsidiary, Opus
Diagnostic Management, LLC, to provide in-house repair and maintenance of third party manufactured
MRI equipment that we operate. We hope this entity will contain and eventually reduce the maintenance
and repair costs of our equipment fleet, and eventually expand into providing service to outside entities.
Current economic credit conditions have contributed to a slower than optimal business environment. As a
result our business may suffer, should the credit markets not improve in the near future. The direct impact
of these conditions is not fully known.
Revenues from HMCA have been the principal reason for our profitability, and we have so far been able
to maintain and increase such revenues by increasing the number of scans being performed by the sites
we manage and those we own, notwithstanding reductions in reimbursement rates from third-party
payers. The likelihood and effect of any subsequent reimbursement reductions is not fully known.
Capital expenditures for fiscal 2024 approximated $926,000. Capitalized patent costs were approximately
$33,000. Purchases of property and equipment were approximately $790,000. Purchase of short term
investments was $103,000.
FONAR has committed to making any material capital expenditures in the 2025 fiscal year by installing
an additional scanner in two of its current locations. One is being installed in Florida and is expected to
be completed by October 2024 and the other is being installed in New York and is expected to be
completed in the third quarter of fiscal 2025.
Page 38
FONAR CORPORATION AND SUBSIDIARIES
The Company believes that its business plan has been responsible for the past five consecutive fiscal
years of profitability (fiscal 2024, fiscal 2023, fiscal 2022, fiscal 2021 and fiscal 2020) and that its capital
resources will be adequate to support operations at current levels through September 30, 2025.
On September 13, 2022, the Company adopted a stock repurchase plan. On September 26, 2022, the
Board of Directors has approved up to $9 million to be repurchased under the plan which will be
purchased on the open market at prevailing prices. During fiscal 2024, we repurchased 156,206 shares for
$2.5 million.
During January 2024 the Company renewed their revolving credit agreement. The terms include
borrowing limits of up to $10,000,000 and the agreement was extended to November 14, 2024. The
interest rate on unpaid principal remains at 4% along with certain financial covenants still applicable.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any investments in marketable securities, foreign currencies, mutual funds,
certificates of deposit or other fixed rate instruments. All of our funds are in cash accounts or money
market accounts which are liquid.
All of our revenue, expense and capital purchasing activities are transacted in United States dollars.
See Note 10 to the consolidated Financial Statements for information on long-term debt.
ITEM 8. – FINANCIAL STATEMENTS AND FOOTNOTES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(PCAOB ID 688)
39
CONSOLIDATED BALANCE SHEETS
42
As of June 30, 2024 and 2023
CONSOLIDATED STATEMENTS OF INCOME
45
For the Years Ended June 30, 2024 and 2023
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
47
For the Years Ended June 30, 2024 and 2023
CONSOLIDATED STATEMENTS OF CASH FLOWS
49
For the Years Ended June 30, 2024 and 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
51
Page 39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
FONAR Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FONAR Corporation and Subsidiaries
(the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of income,
stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2024, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of June 30,
2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period
ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audit. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and
are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
Page 40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)
Medical Receivable– Refer to Note 2 to the financial statements
Critical Audit Matter Description
Medical receivables are due under fee-for-service contracts from third-party payors, such as hospitals,
government sponsored healthcare programs, patients legal counsel, and directly from patients. Medical
receivables are recorded at net realizable value based on the estimated amounts the Company expects to
receive from patients and third-party payers. The medical receivable is reduced by estimated contractual
adjustments based on historical experience with each payor class at each location. The principal
consideration for our determination that performing procedures of the medical receivable is a critical audit
matter is due to the nature and extent of audit effort required to perform procedures over management’s
estimates of the contractual allowances.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the net realizable value of medical receivables included the following:
-
We obtained an understanding, evaluated the design and implementation, of certain controls that
address the risks of material misstatement relating to the measurement of patient fee revenue and
medical receivables.
-
We tested information technology general controls around the Company’s billing system and
associated database.
-
We evaluated and tested management’s methodology and related assumptions in the
determination of amounts estimated to be collected from patients and third-party payors.
-
We tested the underlying data related to the recognition of patient level charges and the
subsequent activities, including cash collections and non-cash adjustments.
-
We tested the estimated contractual adjustments set forth by the third-party payers.
-
We tested the mathematical accuracy of the estimates applied to the medical receivables.
Management Fees Receivable – Refer to Note 2 to the financial statements.
Management fees receivable is related to management fees outstanding from the related and non-related
professional corporations (“PCs”) under management agreements. The Company has established a current
expected credit loss (“CECL”) to address the risk that a portion of the contractually obligated
management fees receivable from the PCs may not be paid. The PCs may be limited in their ability to pay
the full management fee receivable if they do not collect sufficient expected fees from third-party payers
and patients. The Company’s management fees are collateralized, individually and collectively, by the
assets of the PCs. The CECL is determined based on the difference between the management fee
receivable and the current amount of outstanding fees estimated to be collected by the PCs. The
Company’s considerations into the estimate of the PCs’ fee collection include historical loss rates to pools
of receivables with similar risks characteristics, current and forward-looking economic conditions, and the
financial condition of each PC. The principal consideration for our determination that the management
fees receivable is a critical audit matter is due to the nature and extent of audit effort required to perform
procedures over the Company’s CECL estimate.
Page 41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the CECL estimate of management fees receivable included the following:
-
We obtained an understanding, and evaluated the design and implementation of, certain controls
that address the risk of material misstatement related to the measurement of the CECL estimate.
-
We verified that all management fees for the year agreed with the executed management fee
contracts with each PC.
-
We tested information technology general controls surrounding the billing system utilized by the
PCs.
-
We evaluated and tested management’s methodology and related assumptions in the
determination of the PC’s amounts estimated to be collected from patients and third-party payors.
-
We obtained and verified the terms of the cross-collateralization agreements.
-
We tested the mathematical accuracy of the calculations used to determine the CECL estimate.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 1990, such date takes into account the merger of Tabb,
Conigliaro, McGann, P.C. (“Tabb”) into another firm in approximately 2001 and the former partners of
Tabb joining Marcum LLP in 2002.
New York, NY
September 27, 2024
Page 42
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
2024
2023
Current Assets:
Cash and cash equivalents
$
56,341,193
$
51,279,707
Short-term investments
136,102
32,799
Accounts receivable – net of allowances for credit
losses of $166,049 and $198,593 at June 30, 2024 and
2023, respectively
4,035,336
3,861,512
Medical receivables – net
23,991,533
21,259,262
Management and other fees receivable – net of
allowances for credit losses of $12,369,921 and
$12,608,567 as of June 30, 2024 and 2023, respectively
41,953,657
35,888,253
Management and other fees receivable – related party
medical practices – net of allowances for credit losses
of $6,110,399 and $3,989,692 as of June 30, 2024 and
2023, respectively
9,865,061
9,161,870
Inventories
2,715,441
2,569,666
Prepaid expenses and other current assets
1,285,962
1,607,768
Total Current Assets
140,324,285
125,660,837
Accounts receivable – long term
829,473
710,085
Note receivable – related party
581,183
-
Deferred income tax asset
7,223,255
10,041,960
Property and equipment – net
18,708,920
22,146,373
Right-of-use-assets – operating leases
38,427,757
33,068,755
Right-of-use-asset – financing lease
530,348
729,229
Goodwill
4,269,277
4,269,277
Other intangible assets – net
2,870,324
3,431,865
Other assets
481,147
523,506
Total Assets
$ 214,245,969
$ 200,581,887
See accompanying notes to consolidated financial statements.
Page 43
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
June 30,
2024
2023
Current Liabilities:
Current portion of long-term debt
$
47,002
$
43,767
Accounts payable
1,855,879
1,579,240
Other current liabilities
7,941,039
5,443,724
Operating lease liabilities – current portion
3,473,674
3,905,484
Financing lease liability – current portion
225,786
217,597
Unearned revenue on service contracts
3,870,229
3,832,184
Customer deposits
443,471
602,377
Total Current Liabilities
17,857,080
15,624,373
Long-Term Liabilities:
Unearned revenue on service contracts
1,174,844
760,242
Deferred income tax liability
371,560
394,758
Due to related party medical practices
92,663
92,663
Operating lease liabilities – net of current portion
37,467,746
32,105,405
Financing lease liability – net of current portion
394,723
620,481
Long-term debt and capital leases, less current portion
66,938
115,075
Other liabilities
32,026
41,750
Total Long-Term Liabilities
39,600,500
34,130,374
Total Liabilities
$ 57,457,580
$ 49,754,747
Commitments and Contingencies
See accompanying notes to consolidated financial statements.
Page 44
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
STOCKHOLDERS’ EQUITY
June 30,
2024
2023
Stockholders’ Equity:
Class A non-voting preferred stock $.0001 par value;
453,000 shares authorized at June 30, 2024 and 2023,
313,438 issued and outstanding at June 30, 2024 and
2023
$
31
$
31
Preferred stock $.001 par value; 567,000 shares
authorized at June 30, 2024 and 2023, issued and
outstanding – none
—
—
Common stock $.0001 par value; 8,500,000 shares
authorized at June 30, 2024 and 2023, 6,373,375 and
6,462,345 issued at June 30, 2024 and 2023,
respectively 6,328,294 and 6,450,882 outstanding at
June 30, 2024 and 2023, respectively
635
647
Class B convertible common stock (10 votes per share)
$.0001 par value; 227,000 shares authorized at June 30,
2024 and 2023, 146 issued and outstanding at June 30,
2024 and 2023
—
—
Class C common stock (25 votes per share) $.0001 par
value; 567,000 shares authorized at June 30, 2024 and
2023, 382,513 issued and outstanding at June 30, 2024
and 2023
38
38
Paid-in capital in excess of par value
180,607,510
182,612,518
Accumulated deficit
(13,623,585 )
(24,190,981)
Treasury stock, at cost – 45,081 and 11,463 shares of
common stock at June 30, 2024 and 2023, respectively
(1,016,632 )
(515,820)
Total Fonar Corporation’s Stockholders’ Equity
165,967,997
157,906,433
Noncontrolling interests
(9,179,608 )
(7,079,293)
Total Stockholders’ Equity
156,788,389
150,827,140
Total Liabilities and Stockholders’ Equity
$ 214,245,969
$ 200,581,887
See accompanying notes to consolidated financial statements.
Page 45
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended June 30,
2024
2023
Revenues
Patient fee revenue, net of contractual allowances and
discounts
$ 33,815,796
$ 29,793,993
Product sales
737,727
731,607
Service and repair fees
7,452,212
7,419,104
Service and repair fees – related parties
139,167
110,000
Management and other fees
48,789,287
48,640,497
Management and other fees – related party medical
practices
11,949,900
11,949,900
Total Revenues – Net
102,884,089
98,645,101
Costs and Expenses
Costs related to product sales
1,052,159
852,025
Costs related to service and repair fees
3,577,570
3,033,967
Costs related to service and repair fees – related parties
144,413
44,983
Costs related to patient fee revenue
18,199,579
16,183,166
Costs related to management and other fees
28,626,595
26,975,563
Costs related to management and other fees – related
party medical practices
6,143,728
5,807,454
Research and development
1,735,949
1,567,749
Selling, general and administrative expenses
26,868,732
29,390,932
Total Costs and Expenses
86,348,725
83,855,839
Income from Operations
16,535,364
14,789,262
Other Income and (Expenses):
Interest expense
(76,997)
(50,131)
Investment income – related party
25,959
—
Investment income
2,126,439
1,222,176
Other income – related party
576,857
—
Other income (expense)
78,763
(202,720)
Income before provision for income taxes and
noncontrolling interests
19,266,385
15,758,587
Provision for Income Taxes
(5,168,968)
(3,632,071)
Net Income
$ 14,097,417
$ 12,126,516
Net Income – Noncontrolling Interests
(3,530,021)
(2,750,740)
Net Income – Attributable to FONAR
$ 10,567,396
$
9,375,776
See accompanying notes to consolidated financial statements.
Page 46
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the Years Ended June 30,
2024
2023
Net Income Available to Common Stockholders
$
9,908,920
$
8,801,974
Net Income Available to Class A Non-Voting Preferred
Stockholders
$
490,776
$
427,666
Net Income Available to Class C Common Stockholders
$
167,700
$
146,136
Basic Net Income Per Common Share Available to
Common Stockholders
$
1.56
$
1.35
Diluted Net Income Per Common Share Available to
Common Stockholders
$
1.53
$
1.32
Basic and Diluted Income Per Share – Class C Common
$
0.44
$
0.38
Weighted Average Basic Shares Outstanding – Common
Stockholders
6,350,862
6,539,376
Weighted Average Diluted Shares Outstanding – Common
Stockholders
6,478,366
6,666,880
Weighted Average Basic and Diluted Shares Outstanding –
Class C Common
382,513
382,513
See accompanying notes to consolidated financial statements.
Page 47
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2024 AND 2023
Class A
Non-Voting
Preferred
Common
Shares
Stock
Amount
Class C
Common
Stock
Balance, July 1, 2022
$
31 6,554,210
$
657 $
38
Net income
—
—
—
—
Purchase of treasury shares
—
—
—
—
Cancellation of shares
—
(103,328)
(10)
—
Distributions to noncontrolling interests
—
—
—
—
Balance, June 30, 2023
$
31 6,450,882
$
647 $
38
Net income
—
—
—
—
Purchase of treasury shares
—
—
—
—
Cancellation of shares
—
(122,588)
(12)
—
Distributions to noncontrolling interests
—
—
—
—
Balance, June 30, 2024
$
31 6,328,294
$
635 $
38
Paid-in Capital
in Excess of
Par Value
Accumulated
Deficit
Balance, July 1, 2022
$ 184,531,535 $ ( 33,566,757)
Net income
—
9,375,776
Purchase of treasury shares
—
—
Cancellation of shares
(1,919,017)
—
Distributions to noncontrolling interests
—
—
Balance, June 30, 2023
$ 182,612,518 $ (24,190,981)
Net income
—
10,567,396
Purchase of treasury shares
—
—
Cancellation of shares
(2,005,008)
—
Distributions to noncontrolling interests
—
—
Balance, June 30, 2024
$ 180,607,510 $ (13,623,585)
See accompanying notes to consolidated financial statements.
Page 48
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2024 AND 2023
Treasury
Stock
Noncontrolling
Interests
Total
Balance, July 1, 2022
$
(675,390)
$
(4,053,833 )
$ 146,236,281
Net income
—
2,750,740
12,126,516
Purchase of treasury shares
(1,759,457)
—
(1,759,457)
Cancellation of shares
1,919,027
—
—
Distributions to noncontrolling interests
—
(5,776,200 )
(5,776,200)
Balance, June 30, 2023
$
(515,820)
$
(7,079,293 )
$ 150,827,140
Net income
—
3,530,021
14,097,417
Purchase of treasury shares
(2,505,832)
—
(2,505,832)
Cancellation of shares
2,005,020
—
—
Distributions to noncontrolling interests
—
(5,630,336 )
(5,630,336)
Balance, June 30, 2024
$ (1,016,632)
$
(9,179,608 )
$ 156,788,389
See accompanying notes to consolidated financial statements.
Page 49
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES
2024
2023
Net Income
$14,097,417
$12,126,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
4,596,421
4,540,135
Provision for credit losses
1,882,061
5,513,476
Deferred income tax - net
2,795,507
2,979,550
Amortization on right-of-use assets
4,311,762
4,264,818
Gain on sale of equipment – related party
(581,183 )
—
(Gain)Loss on disposition of fixed assets
(75,411 )
213,244
Abandoned patents
225,419
—
Changes in assets and liabilities
Accounts, medical and management fee receivables
(11,676,139 )
(8,055,843)
Notes receivable
55,200
(64,532)
Inventories
(145,775 )
(209,845)
Prepaid expenses and other current assets
266,606
(438,911)
Other assets
42,359
2,763
Accounts payable
276,639
19,685
Other current liabilities
2,949,962
(2,527,100)
Customer advances
(158,906 )
241,132
Operating lease liabilities
(4,541,352 )
(3,862,814)
Financing lease liabilities
(217,569 )
(210,353)
Other liabilities
(9,724 )
(64,791)
NET CASH PROVIDED BY OPERATING
ACTIVITIES
14,093,294
14,467,130
See accompanying notes to consolidated financial statements.
Page 50
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended June 30,
2024
2023
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
(789,961 )
(4,218,084 )
Purchase of Short-term investment
(103,303 )
(473 )
Proceeds from sale of equipment
75,411
—
Cost of patents
(32,885 )
(119,571 )
NET CASH USED IN INVESTING ACTIVITIES
(850,738 )
(4,338,128 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings and capital lease obligations
(44,902 )
(36,615 )
Purchase of treasury stock
(2,505,832 )
(1,759,457 )
Distributions to noncontrolling interests
(5,630,336 )
(5,776,200 )
NET CASH USED IN FINANCING ACTIVITIES
(8,181,070 )
(7,572,272 )
NET INCREASE IN CASH AND CASH EQUIVALENTS
5,061,486
2,556,730
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
51,279,707
48,722,977
CASH AND CASH EQUIVALENTS - END OF YEAR
$56,341,193
$51,279,707
See accompanying notes to consolidated financial statements.
Page 51
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY AND CAPITAL RESOURCES
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 marketing 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 our service and upgrade programs.
FONAR, through its wholly-owned subsidiary Health Management Corporation of America (“HMCA”)
provides comprehensive management services to diagnostic imaging facilities. The services provided by
the Company include development, administration, leasing of office space, facilities and medical
equipment, provision of supplies, staffing and supervision of non-medical personnel, legal services,
accounting, billing and collection and the development and implementation of practice growth and
marketing strategies.
On 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 year ended June 30, 2022, the Company purchased
noncontrolling interests for $546,000 giving the Company a direct ownership interest of 70.8% and the
investors’ a 29.2% ownership interest. The entire management of diagnostic imaging centers business
segment is now being conducted by HDM.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of FONAR Corporation, its majority and
wholly-owned subsidiaries and partnerships. The operating activities of subsidiaries are included in the
accompanying consolidated statements from the date of acquisition. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Page 52
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in
the consolidated financial statements and accompanying notes. The most significant estimates relate to
receivable allowances, income taxes and related tax asset valuation allowances, contingencies, and
revenue recognition. In addition, healthcare industry reforms and reimbursement practices will continue
to impact the Company’s operations and the determination of contractual and other allowance estimates.
Actual results could differ from those estimates.
Inventories
Inventories consist of purchased parts, components and supplies, as well as work-in-process, and are
stated at the lower of cost or net realizable value.
Property and Equipment
Property and equipment procured in the normal course of business is stated at cost less accumulated
depreciation. Property and equipment purchased in connection with an acquisition is stated at its
estimated fair value, generally based on an appraisal. Property and equipment is being depreciated for
financial accounting purposes using the straight-line method over their estimated useful lives. Leasehold
improvements are being amortized over the shorter of the useful life or the remaining lease term. Upon
retirement or other disposition of these assets, the cost and related accumulated depreciation of these
assets are removed from the accounts and the resulting gains or losses are reflected in the results of
operations. Expenses for maintenance and repairs are charged to operations. Renewals and betterments
are capitalized. Maintenance and repair expenses totaled approximately $2,948,000 and $2,801,000 for
the years ended June 30, 2024 and 2023 respectively. The estimated useful lives in years are generally as
follows:
Estimated Useful Life in Years for Property and Equipment
Diagnostic equipment
5–13
Research, development and demonstration equipment
3-7
Machinery and equipment
2-7
Furniture and fixtures
3-9
Leasehold improvements
5–10
Building
28
Page 53
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
The Company periodically assesses the recoverability of long-lived assets, including property and
equipment and intangibles, other than goodwill, when events or changes in circumstances indicate that the
carrying value of long-lived assets may not be recoverable. If indicators are present, the Company
performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows
attributable to the asset group in question to its carrying amount. An impairment loss is recognized if it is
determined that the long-lived asset group is not recoverable and is calculated by comparing the
discounted future cash flows with the carrying value of the related asset group. In performing this
analysis, management considers such factors as current results, trends, and future prospects, in addition to
other economic factors.
Other Intangible Assets
1) Patents and Copyrights
Patent and copyrights are professional costs incurred to acquire certain patent and copyrights.
Amortization is calculated on the straight-line basis over 15 years.
2) Non-Competition Agreements
The non-competition agreements are agreements entered into with past principal owners of entities that
the Company had acquired. The non-competition agreements are being amortized on the straight-line
basis over the length of the agreement (7 years).
3) Customer Relationships
Customer relationships represents customer lists acquired in acquisition of prior entities. Amortization is
calculated on the straight-line basis over 20 years.
Goodwill
Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired.
Goodwill is not amortized and is reviewed for impairment annually, or more frequently if facts and
circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its
carrying amount including goodwill. If it is more likely than not that the fair value of a reporting unit is
less than its carrying amount, the Company performs a quantitative test to identify and measure the
amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its
carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered
impaired, and that excess is recognized as a goodwill impairment loss.
Page 54
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue on sales contracts for scanners, included in “product sales” in the accompanying consolidated
statements of operations, is recognized under the percentage-of-completion method in accordance with
FASB ASC 606, “Revenue Recognition – Construction-Type and Production-Type Contracts”. The
Company manufactures its scanners under specific contracts that provide for progress payments.
Production and installation take approximately three to six months.
Revenue on scanner service contracts is recognized on the straight-line method over the related contract
period, usually one year. As of June 30, 2023, the Company had unearned revenue on service contracts of
$3,832,184 of which all was recognized as revenue in the fiscal year ending June 30, 2024.
Revenue from product sales (upgrades and supplies) is recognized upon shipment.
Revenue under management contracts is recognized based upon contractual agreements for management
services rendered by the Company primarily under various long-term agreements with various medical
providers (the “PCs”). As of June 30, 2024, the Company has 22 management agreements of which 3
were with PC’s owned by Timothy Damadian, Chairman of the Board, President, Chief Executive Officer
and Treasurer (formerly owned by Raymond V. Damadian, M.D., Chairman of the Board of FONAR
until his unexpected death in August 2022)(“the Related medical practices”) and 19 are with PC’s, which
are all located in the state of New York (“the New York PC’s”), owned by two unrelated radiologists. The
contractual fees for services rendered to the PCs consists of fixed monthly fees per diagnostic imaging
facility ranging from approximately $84,000 to $447,000. All fees are re-negotiable at the anniversary of
the agreements and each year thereafter. The Company records a credit loss expense for estimated
uncollectible fees, which is reflected in other operating expenses on the Consolidated Statement of
Operations.
The Company currently recognizes revenue in accordance with the recognition accounting standard
issued by the Financial Accounting Standards Board (“FASB”) and codified in the ASC as topic 606
(“ASC 606”). 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
judgments employed in the determination of revenue.
.
Page 55
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
The Company’s 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.
The Company’s patient fee revenues, net of contractual allowances and discounts for the years ended June
30, 2024 and 2023 are summarized in the following table.
For the Years Ended June 30
2024
2023
Commercial Insurance/ Managed Care
$
4,952,712
$
4,124,646
Medicare/Medicaid
1,138,176
1,063,846
Workers’ Compensation/Personal Injury
20,673,483
18,670,019
Other
7,051,425
5,935,482
Net Patient Fee Revenue
$ 33,815,796
$ 29,793,993
Medical Receivable and Management and Other Fees Receivable
Medical Receivable
Management fees receivable is related to management fees outstanding from the related and non related
PCs under management agreements. The Company has established a current expected credit loss
(“CECL”) to address the risk that a portion of the contractually obligated management fees receivable
from the PCs may not be paid. The PC’s may be limited in their ability to pay the full management fee
receivable if they do not collect sufficient expected fees from third-party payers and patients. The
Company’s management fees are collateralized, individually and collectively, by the assets of the PCs.
The CECL is determined based on the difference between the management fee receivable and the current
amount of outstanding fees estimated to be collected by the PCs.
Page 56
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management and Other Fees Receivable
Management fees receivable is related to management fees outstanding from the related and non related
PCs under management agreements. The Company has established a current expected credit loss
(“CECL”) to address the risk that a portion of the contractually obligated management fees receivable
from the PCs may not be paid. The PC’s may be limited in their ability to pay the full management fee
receivable if they do not collect sufficient expected fees from third-party payers and patients. The
Company’s management fees are collateralized, individually and collectively, by the assets of the PCs.
The CECL is determined based on the difference between the management fee receivable and the current
amount of outstanding fees estimated to be collected by the PCs.
The Company’s considerations into the estimate of the PC’s fee collection is based on a combination of
factors. As each management agreement specifies the Company’s ultimate collateral for unpaid
management fees are the patient fee receivables owned by each PC, the Company considers the historical
loss rates to pools of receivables with similar risks characteristics, aging of the patient fee receivables, and
the financial condition of each PC. In addition, the Company subjectively adjusts its estimated expected
credit losses for current and forward-looking economic conditions which would include trends seen
within the industry and newly enacted regulation. The Company also incorporates qualitative factors,
such as changes in the nature and volume of receivables, regulatory changes, and other relevant factors.
Specifically, insurance carriers covering automobile no-fault and workers compensation claims incur
longer payment cycles and rigorous informational requirements and certain other disallowed claims.
Approximately 67% of the PCs’ 2024 and 2023 net revenues were derived from no-fault and personal
injury protection claims.
The Company combines an objective and subjective loss-rate methodology to estimate expected credit
losses based on the collateral owned by each PC. This involves objectively using historical loss rates to
pools of receivables with similar risk characteristics (i.e., various insurance payors) and then subjectively
adjusting for current and forward-looking economic conditions which would include trends seen within
the industry and newly enacted regulation. The Company also incorporates qualitative factors, such as
changes in the nature and volume of the receivables, regulatory changes, and other relevant factors.
The provision for credit losses for the year ended June 30, 2024 was $1,882,061. This can be attributable
to an increase in scan volume at all the PC’s and due to the nature of the payor classes, where there is a
longer expected payment terms. Additionally newly proposed legislation around credit reporting on
individual medical debts increasing the likelihood of non-payment of individual patient accounts. The
management fee receivable for unrelated and related parties as of July 1, 2022 was $33,419,219 and
$8,602,561, respectively.
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. The
account receivable balance for scanner service contracts as of July 1, 2022 was $4,335,956.
Page 57
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs
Research and development costs are charged to expense as incurred. The costs of equipment that are
acquired or constructed for research and development activities, and have alternative future uses (either in
research and development, marketing or production), are classified as property and equipment and
depreciated over their estimated useful lives.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense approximated $731,000 and $570,000
and for the years ended June 30, 2024 and 2023, respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
The ultimate realization of deferred tax assets is dependent on the generation of future taxable income
during the periods in which temporary differences become deductible or when such net operating losses
can be utilized. The Company considers projected future taxable income, the regulatory environment of
the industry, and tax planning strategies in making this assessment. At present, the Company believes that
it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be
fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial
value of the deferred tax asset, which principally related to certain state net operating losses. A valuation
allowance will be maintained until sufficient positive evidence exists to support the reversal of the
remainder of the valuation.
In accordance with ASC 740, “Accounting for Income Taxes”, 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 740. The Company believes there
are no uncertain tax positions in prior year’s tax filings and therefore it has not recorded a liability for
unrecognized tax benefits.
In accordance with ASC 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. Penalties for the years
ended June 30, 2024 and June 30, 2023 were $20,444 and $31,122, respectively.
Page 58
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Customer Advances
Cash advances and progress payments received on sales orders are reflected as customer advances until
such time as revenue recognition occurs.
Earnings Per Share
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 used the
Two-Class method for calculating basic earnings per share and applied the if converted method in
calculating diluted earnings per share for the years ended June 30, 2024 and 2023.
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 years ended June 30, 2024 and 2023, diluted EPS for common shareholders includes 127,504 shares
upon conversion of Class C Common.
June 30, 2024
Basic
Total
Common Stock
Class C Common
Stock
Numerator:
Net income available to common
stockholders
$
10,567,396 $
9,908,920 $
167,700
Denominator:
Weighted average shares
outstanding
6,350,862
6,350,862
382,513
Basic income per common share $
1.66 $
1.56 $
0.44
Diluted
Denominator:
Weighted average shares
outstanding
6,350,862
382,513
Class C Common Stock
127,504
—
Total Denominator for diluted
earnings per share
6,478,366
382,513
Diluted income per common
share
$
1.53 $
0.44
Page 59
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share (Continued)
June 30, 2023
Basic
Total
Common
Stock
Class C
Common
Stock
Numerator:
Net income available to common stockholders
$
9,375,776
$
8,801,974
$
146,136
Denominator:
Weighted average shares outstanding
6,539,376
6,539,376
382,513
Basic income per common share
$
1.43
$
1.35
$
0.38
Diluted
Denominator:
Weighted average shares outstanding
6,539,376
382,513
Class C Common Stock
127,504
—
Total Denominator for diluted earnings per
share
6,666,880
382,513
Diluted income per common share
$
1.32
$
0.38
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, cash in banks, investments in certificates of deposit
with original maturities of 90 days or less, and money market funds.
Short-Term Investments
Short-term investments include certificates of deposit with original maturities of greater than 90 days.
Interest is recorded as earned.
Concentration of Credit Risk
Cash: The Company maintains its cash and cash equivalents with various financial institutions, which
exceed federally insured limits throughout the year. At June 30, 2024, the Company had cash on deposit
of approximately $53,883,000 in excess of federally insured limits of $250,000.
Related Parties: Net revenues from related parties accounted for approximately 12% of the consolidated
net revenues for the years ended June 30, 2024 and 2023. Net management fee receivables from the
related party medical practices accounted for approximately 12% and 13% of the consolidated accounts
receivable as of June 30, 2024 and 2023, respectively.
See Note 3 regarding the Company’s concentrations in the healthcare industry.
Page 60
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The Company measures fair value in accordance with ASC 820-10, “Fair Value Measurements and
Disclosures”. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be
received by selling an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be determined based on
assumptions.
The standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
and revaluing fair value. These tiers include, Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own assumptions.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount approximates fair value because of the short-term
maturity of those instruments.
Fair Value of Financial Instruments (Continued)
Short-term investments: The carrying amount approximates fair value because of the short-term maturity
of those instruments. Such amounts include Certificates of Deposits with original maturities greater than
90 days. These securities are classified as Level 1.
Receivable and accounts payable: The carrying amounts approximate fair value because of the short
maturity of those instruments.
Notes receivable: The carrying amount approximates fair value because the discounted present value of
the cash flow generated by the parties approximates the carrying value of the amounts due to the
Company.
Long-term debt and notes payable: The carrying amounts of debt and notes payable approximate fair
value due to the length of the maturities, the interest rates being tied to market indices and/or due to the
interest rates not being significantly different from the current market rates available to the Company.
All of the Company’s financial instruments are held for purposes other than trading.
Page 61
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Standards
In December 2023, The Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income
Taxes (740) “Improvements to Income Tax Disclosures”, which requires the annual financial statements
to include consistent categories and great disaggregation of information in the rate reconciliation and
income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual
reporting beginning after December 15, 2024, with early adoption permitted, and should be applied on a
prospective basis, with a retrospective option. The Company is currently evaluating the effect that the
adoption of ASU 2023-09 will have on our disclosures.
In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280)”, which is intended to
improve reportable segment disclosure requirements through enhanced disclosures about significant
segment expenses. The amendments require disclosure of significant segment expenses regularly
provided to the chief operating decision maker (CODM) as well as other segment items, extended certain
annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit
more than one measure of profit or loss to be reported under certain conditions, and require disclosure of
the title and position of the CODM. The effective date for public entities is for fiscal years beginning
after December 15, 2023 and interim periods with fiscal years beginning after December 15, 2024. The
Company is expected to adopt the new disclosures as required and are currently evaluating the impact on
the related disclosures.
Recently Adopted Accounting Standards
The Company adopted ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326)
“Measurement of Credit Losses on Financial Instruments”, on July 1, 2023, as amended which replaces
the incurred loss methodology with an expected loss methodology that is referred to as the current
expected credit loss (CECL) methodology, The measurement of expected credit losses under the CECL
methodology is applicable to financial assets measured at amortized cost, including loan receivables and
held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as
insurance (loan commitments, standby letters of credit, financial guarantees, and other similar
instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.
The Company used a modified retrospective approach, which required a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting in which the standard was effective. The
adoption did not have a material effect on the Company’s consolidated financial statements.
FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards,
updates, and regulations as of June 30, 2024 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 2024 or 2023, and it does not
believe that any of those standards will have a significant impact on the Company’s consolidated financial
statements at the time they become effective.
Page 62
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND
OTHER FEES RECEIVABLE
Long Term Accounts Receivable
Long term accounts receivable balances at June 30, 2024 and June 30, 2023 amounted to $829,473 and
$710,085, respectively. 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 at June
30, 2024 is as follows:
Receivables - Non Current - net
2026
$
631,415
2027
369,429
2028
87,000
2029
87,000
Total
$
1,174,844
The following represents a summary of allowance for credit losses for the years ended June 30, 2024 and
2023, respectively:
Summary of Allowance For Credit Losses
Description
Balance
June 30,
2023
Additions(Recovery)
(1)
Deductions
Balance
June 30,
2024
Accounts receivable
$
198,593 $
— $ 32,544 $
166,049
Management and other fees receivable
12,608,567
(238,646)
— 12,369,921
Management and other fees receivable -
related medical practices
3,989,692
2,120,707
— 6,110,399
Notes receivable
777,354
—
—
777,354
Balance
Balance
Description
June 30, 2022
Additions
Deductions
June 30, 2023
Accounts receivable
$
204,597 $
55,000 $
61,004 $
198,593
Management and other fees receivable
16,627,917 4,007,382 8,026,732 12,608,567
Management and other fees receivable -
related medical practices
4,686,893 1,451,094 2,148,295
3,989,692
Notes receivable
777,354
—
—
777,354
(1)
Included in provision for credit losses.
Page 63
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND
OTHER FEES RECEIVABLE (CONTINUED)
Net revenues from management and other fees charged to the related party medical practices accounted
for approximately 12% and 12%, of the consolidated net revenues for the years ended June 30, 2024 and
2023, respectively.
Tallahassee Magnetic Resonance Imaging, PA, Stand Up MRI of Boca Raton, PA and Stand Up MRI &
Diagnostic Center, PA (all related party 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.
The following table sets forth the number of our facilities for the years ended June 30, 2024 and 2023.
Total Facilities
For the Year Ended June 30,
2024
2023
Total Facilities Owned or Managed (at Beginning of Year)
27
27
Facilities Added by:
Internal development
1
1
Managed Facilities Closed
—
(1)
Total Facilities Owned or Managed (at End of Year)
28
27
NOTE 4 – INVENTORIES
Inventories included in the accompanying consolidated balance sheets consist of:
As of June 30,
2024
2023
Purchased parts and components
$
2,524,201
$
2,346,300
Work-in-process
191,240
223,366
Inventories
$
2,715,441
$
2,569,666
Page 64
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, less accumulated depreciation and amortization, at June 30, 2024 and
2023, is comprised of:
As of June 30,
2024
2023
Diagnostic equipment
$
33,243,694
$ 33,144,266
Research, development and demonstration equipment
6,199,941
6,199,941
Machinery and equipment
2,069,055
2,069,055
Furniture and fixtures
3,742,169
3,714,499
Leasehold improvements
16,312,904
15,650,041
Building
939,614
939,614
62,507,377
61,717,416
Less: Accumulated depreciation and amortization
43,798,457
39,571,043
$
18,708,920
$ 22,146,373
Depreciation and amortization of property and equipment for the years ended June 30, 2024 and 2023 was
$4,227,414 and $4,148,544, respectively.
NOTE 6 – OPERATING & 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 19 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 June 30, 2024 is as follows:
Page 65
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 6 – OPERATING & FINANCING LEASES (CONTINUED)
Reconciliation of operating
and financing lease
payments
Year Ending June 30,
Operating Lease Payments
Financing Lease Payments
2025
$
5,895,014
$
244,343
2026
5,561,968
244,343
2027
5,226,352
162,897
2028
5,194,655
—
2029
4,865,285
—
Thereafter
29,295,110
—
Present value discount
(15,096,964 )
(31,074)
Total lease liability
$
40,941,420
$
620,509
Weighted Average Remaining Lease Term
Operating leases - years
11.0
Finance lease - years
2.6
Weighted Average Discount Rate
Operating leases
6.4%
Finance lease
3.6%
The components of lease expense were as follows:
Components of lease expense
For Year Ended June 30,
2024
2023
Operating lease cost
$
5,685,008
$
5,887,390
Finance lease cost:
Depreciation of leased equipment
$
198,881
$
198,881
Interest on lease liabilities
26,534
35,833
Total finance lease cost
$
225,415
$
234,714
Page 66
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 6 – OPERATING & FINANCING LEASES (CONTINUED)
Supplemental cash flow information related to leases was as follows:
Supplemental cash flow information related to leases
For Year Ended June 30,
Cash paid for amounts included in the measurement of
lease liabilities:
2024
2023
Operating cash flows from operating leases
$
6,363,561
$
5,577,578
Financing cash flows from financing leases
$
244,344
$
244,344
Right-of-use and equipment assets obtained in exchange
for lease obligations:
Operating leases
$
3,715,138
$
2,902,584
NOTE 7 - OTHER INTANGIBLE ASSETS
Other intangible assets, net of accumulated amortization, at June 30, 2024 and 2023, are comprised of:
As of June 30,
2024
2023
Capitalized software development costs
$
7,004,847
$
7,004,847
Patents and copyrights
5,259,811
5,452,345
Non-competition agreements
4,150,000
4,150,000
Customer relationships
3,900,000
3,900,000
20,314,658
20,507,192
Less: Accumulated amortization
17,444,334
17,075,327
$
2,870,324
$
3,431,865
The estimated amortization of other intangible assets for the five years ending June 30, 2029 and
thereafter is as follows:
Schedule Of Other Intangible Assets For
the Years Ending June 30,
Total
Patents and
Copyrights
Customer Relationships
2025
$
351,882
$
151,882
$
200,000
2026
339,179
139,179
200,000
2027
326,502
126,502
200,000
2028
320,232
120,232
200,000
2029
313,052
113,052
200,000
Thereafter
1,219,477
505,310
714,167
Other intangible assets - net
$
2,870,324
$
1,156,157
$
1,714,167
Page 67
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 7 - OTHER INTANGIBLE ASSETS (CONTINUED)
The weighted average amortization period for other intangible assets is 9.9 years and they have no
expected residual value.
Information related to the above intangible assets for the years ended June 30, 2024 and 2023 is as
follows:
Other Intangible Assets
For the Year-ended June 30,
2024
2023
Balance – Beginning of Year
$
3,431,865
$
3,703,885
Amounts capitalized
32,885
119,571
Patents written off
(225,419)
—
Amortization
(369,007)
(391,591)
Balance – End of Year
$
2,870,324
$
3,431,865
Amortization of patents and copyrights for the years ended June 30, 2024 and 2023 amounted to
$169,007 and $191,591, respectively.
Amortization of customer relationships for the years ended June 30, 2024 and 2023 amounted to
$200,000 and $200,000, respectively.
NOTE 8 - CAPITAL STOCK
Common Stock
Cash dividends payable on the common stock shall, in all cases, be on a per share basis, one hundred
twenty percent (120%) of the cash dividend payable on shares of Class B common stock and three
hundred sixty percent (360%) of the cash dividend payable on a share of Class C common stock.
Class B Common Stock
Class B common stock is convertible into shares of common stock on a one-for-one basis. Class B
common stock has 10 votes per share. There were 146 of such shares outstanding at June 30, 2024 and
2023.
Page 68
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 8 - CAPITAL STOCK (CONTINUED)
Class C Common Stock
The Class C common stock has 25 votes per share, as compared to 10 votes per share for the Class B
common stock and one vote per share for the common stock. The Class C common stock was offered on a
three-for-one basis to the holders of the Class B common stock. Although having greater voting power,
each share of Class C common stock has only one-third of the rights of a share of Class B common stock
to dividends and distributions. Class C common stock is convertible into shares of common stock on a
three-for-one basis.
Class A Non-Voting Preferred Stock
On April 3, 1995, the stockholders ratified a proposal consisting of the creation of a new class of Class A
non-voting preferred stock with special dividend rights and the declaration of a stock dividend on the
Company’s common stock consisting of one share of Class A non-voting preferred stock for every five
shares of common stock. The stock dividend was payable to holders of common stock on October 20,
1995. Class A non-voting preferred stock issued pursuant to such stock dividend approximates 313,000
shares.
The Class A non-voting preferred stock is entitled to a special dividend equal to 3-1/4% of the first $10
million, 4-1/2% of the next $20 million and 5-1/2% on amounts in excess of $30 million of the amount of
any cash awards or settlements received by the Company in connection with the enforcement of five of
the Company’s patents in its patent lawsuits, less the revised special dividend payable on the common
stock with respect to one of the Company’s patents.
The Class A non-voting preferred stock participates on an equal per share basis with the common stock in
any dividends declared and ranks equally with the common stock on distribution rights, liquidation rights
and other rights and preferences (other than the voting rights).
Stock Bonus Plans
On April 23, 2010, the Board approved the 2010 Stock Bonus Plan. The plan entitles the Company to
reserve 2,000,000 shares of common stock. On August 10, 2010, the Company filed Form S-8 to register
the 2,000,000 shares. As of June 30, 2024, 450,177 shares of common stock of FONAR were available
for future grant under this plan. For the years ended June 30, 2024 and 2023, 0 shares were issued.
Page 69
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 8 - CAPITAL STOCK (CONTINUED)
Treasury Stock
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 $9 million to be repurchased under the plan which will be purchased on
the publicly traded open market at prevailing prices.
The Company utilizes the cost method of accounting to value the treasury stock when repurchasing stock.
Under this method, the shares are valued at the price paid and recorded to treasury stock. When the
treasury stock is cancelled, the par value of the stock is reduced and the additional paid in capital is
reduced for the remaining value based upon the original stock sale. For the year ended June 30, 2024, the
Company purchased 156,206 shares at a cost of $2,505,832 and cancelled 122,588 shares valued at
$2,005,020. For the year ended June 30, 2023, the Company purchased 103,148 shares at a cost of
$1,759,457 and cancelled 103,328 shares valued at $1,919,027.
Page 70
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 9 – CONTROLLING AND NONCONTROLLING INTERESTS
On February 13, 2013, the Company entered into an agreement with outside investors to acquire a 50.5%
controlling interest in a newly formed limited liability company, Health Diagnostics Management LLC
(HDM). According to the February 13, 2013, LLC operating agreement of HDM there are two classes of
members; Class A members and one Class B member. The Class A members have an ownership interest
of 49.5% of HDM. The Class B member (HMCA) has an ownership of 50.5% of HDM. On all matters on
which members may vote every member is entitled to cast the percentage of votes equal to their
percentage of ownership interest. Profits and losses on all items of income, gain or loss, deductions or
other allocations of the Company will be allocated among the members in the same proportions as their
membership interests in the Company bear to all the Class A and Class B membership interests of the
Company in the aggregate outstanding. All of the depreciation and amortization of the assets of the
Company will be allocated solely to the Class A members, unless and until their interests have been
redeemed by the Company in full pursuant to the provisions of the operating agreement. The Company
contributed $20,200,000 to HDM and the group of outside investors contributed $19,800,000 for its non-
controlling membership interest.
On March 5, 2013, HDM purchased from Health Diagnostics, LLC (“HD”) and certain of its subsidiaries,
a business managing twelve (12) Stand-Up MRI Centers and two (2) other scanning centers located in the
States of New York and Florida for a total purchase price (including consideration of $1.5 million to
outside investors) aggregating $35.9 million. Concurrently with the acquisition, HDM entered into several
consulting and non-competition agreements for a consideration of $4.1 million. The acquisition was
accounted for using the purchase method in accordance with ASC 805, “Business Combinations”. The
Company recognized and measured goodwill as of the acquisition date, as the excess of the fair value of
the consideration paid over the fair value of the identified net assets acquired.
On January 8, 2015, the Company purchased 20% of the Class A members ownership interest at a cost of
$4,971,094. The Company has a 60.4% ownership interest in HDM after this transaction. During the year
ended June 30, 2022, the Company purchased noncontrolling interests for $546,000 giving the Company
a direct ownership interest of 70.8% and the investors’ a 29.2% ownership interest.
The amount of each class of HDM members’ equity as of June 30, 2024 and 2023 is as follows:
June 30, 2024
June 30, 2023
Class A
Members
Class B
Member
Class A
Members
Class B
Member
Opening Members' Equity
($7,079,293)
$54,781,813
($4,053,833)
$50,292,073
Share of Net Income
$3,530,021
$20,705,681
$2,750,740
$18,513,540
Buyout of noncontrolling
interests
-
-
-
-
Distributions
($5,630,336)
$(13,669,664)
($5,776,200)
$(14,023,800)
Ending Members' Equity
($9,179,608)
$61,817,830
($7,079,293)
$54,781,813
Page 71
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 10 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES
Long-term debt, notes payable and capital leases consist of the following:
2024
2023
Note payable requiring monthly payments of interest at a
rate of 7% until May 2009 followed by 240 monthly
payments of $4,472 through October 2026. The loan is
collateralized by a building with a net book value of
$310,827 as of June 30, 2024.
$
113,940
$
158,842
The revolving credit note was extended to November 14,
2024. The Company can borrow up to $10,000,000 and
prepay the loan in whole or part in multiples of $100,000
at any time without penalty. The note bears interest at a
rate of 8.5% per annum and is payable monthly. The loan
is collateralized by substantially all of the Company’s
assets. The loan also contains certain financial covenants
that must be met on a periodic basis. The Company still
has the ability to draw down on the line.
—
—
113,940
158,842
Less: Current portion
47,002
43,767
$
66,938
$
115,075
The maturities of debt over the next three years are as follows:
Maturities Of Long-Term Debt
Years Ending June 30,
2025
$
47,002
2026
50,448
2027
16,490
Long-Term Debt Over Five Years
and Thereafter
$
113,940
Page 72
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 11 - INCOME TAXES
The Company has recorded a deferred tax asset of $7,223,255 and a deferred tax liability of $371,560 as
of June 30, 2024, primarily relating to its allowance for credit losses of $3,970,000 and tax credits of
approximately $1,323,000 available to offset future taxable income through 2043. During fiscal 2024, the
Company utilized all Federal loss carryforwards. In addition the Company has state operating loss
carryforwards of approximately $4,516,000 and city operating loss carryforwards of approximately
$618,000. The net operating losses begin to expire in 2026 for state income tax purposes. The Company
has also recorded a valuation allowance against $2,746,000 of the state operating losses since the
Company doesn’t anticipate being able to utilize them.
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 2020.
Future ownership changes as determined under Section 382 of the Internal Revenue code could further
limit the utilization of net operating loss carryforwards. As of June 30, 2024, no such changes in
ownership have occurred.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions
imposing a 1% excise tax on share repurchases that occur after December 31, 2022 and introduces a
15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The CAMT
will be effective for tax years beginning after December 31, 2022. Currently, the IRA did not have a
material impact to the Company’s financial statements.
The valuation allowance for deferred tax assets decreased during the year ended June 30, 2024, by
approximately $171,000. The valuation allowance decreased by approximately $78,000 during the year
ended June 30, 2023.
Page 73
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 11 - INCOME TAXES (CONTINUED)
Components of the provision for income taxes are as follows:
Components Of The Provision For Income Taxes
Years Ended June 30,
Current:
2024
2023
Federal
$
429,873
$
—
State
1,943,588
652,521
Subtotal
2,373,461
652,521
Deferred:
Federal deferred taxes
2,585,515
2,770,980
State deferred taxes
209,992
208,570
Subtotal
2,795,507
2,979,550
Provision (Benefit) for Income Taxes - Net
$
5,168,968
$
3,632,071
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate as reported is
as follows:
Reconciliation Of Federal Statutory Income Tax Rate To
Company's Effective Tax Rate
Years Ended June 30,
2024
2023
Taxes at federal statutory rate
21.0%
21.0%
State and local income taxes (benefit), net of federal
benefit
7.1%
5.1%
Non-controlling interest
(5.3)%
(4.6)%
Expiration of tax credits
2.2%
2.8%
Return to provision adjustments
—%
(2.3)%
Change in the valuation allowance
(0.2)%
(0.5)%
Other
2.0%
1.5%
Effective income tax rate
26.8%
23.0%
Page 74
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 11 - INCOME TAXES (CONTINUED)
As of June 30, 2024, the Company utilized all Federal net operating loss (“NOL”) carryforwards as
compared to NOL’s of approximately $9,110,000 as of June 30, 2023. The utilization of certain of the
NOLs is limited by separate return limitation year rules pursuant to Section 1502 of the Internal Revenue
Code.
The Company has, for federal income tax purposes, research and development tax credits and investments
tax credits carryforwards aggregating $1,323,000. However, the realization of these credits may be
limited as a result of expiring prior to their utilization. These credits can only be applied after all net
operating losses have been used.
Significant components of the Company’s deferred tax assets and liabilities at June 30, 2024 and 2023
are as follows:
June 30,
2024
2023
Deferred tax assets:
Allowance for credit losses
$
3,969,819 $
3,360,809
Non-deductible accruals
758,700
707,400
Net operating carryforwards
396,092
2,768,844
Tax credits
1,323,018
2,981,214
Capitalized research and development
747,407
369,675
Right of use assets and lease liabilities
114,116
112,938
Inventories
106,879
105,310
Deferred Tax Assets - gross
7,416,031
10,406,190
Valuation allowance
(192,776 )
(364,230)
Total deferred tax assets
7,223,255
10,041,960
Property and equipment and depreciation
(267,124 )
(151,007)
Intangibles
(104,436 )
(243,751)
Total deferred tax liabilities
(371,560 )
(394,758)
Net deferred tax asset
$
6,851,695 $
9,647,202
Page 75
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 12 - OTHER CURRENT LIABILITIES
Included in other current liabilities are the following:
June 30,
2024
2023
Accrued salaries, commissions and payroll taxes
$
4,677,690
$
4,413,044
Sales tax payable
197,317
193,041
State income taxes payable
1,461,336
48,353
Legal and other professional fees
11,207
11,207
Accounting fees
119,800
100,000
Self-funded health insurance reserve
121,445
100,971
Accrued interest and penalty
3,534
3,534
Other
1,348,710
573,574
Other current liabilities
$
7,941,039
$
5,443,724
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Leases
The Company rents its operating facilities and certain equipment, pursuant to operating lease agreements
expiring at various dates through November 2033. The leases for certain facilities contain escalation
clauses relating to increases in real property taxes as well as certain maintenance costs.
Rent expense for operating leases approximated $5,685,000 and $5,887,000, for the years ended June 30,
2024 and 2023, respectively.
The Company received approval from the Suffolk County Industrial Development Agency on February
29, 2016 of a 50% property tax abatement, valued at $440,000, over a 10 year period commencing
January 2017.
Employee Benefit Plans
The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-
union employees who are at least 21 years of age with no minimum service requirements. There were $0
and $36,523 employer contributions to the Plan for the years ended June 30, 2024 and 2023, respectively.
The stockholders of the Company approved the 2000 Employee Stock Purchase Plan (“ESPP”) at the
Company’s annual stockholders’ meeting in April 2000. The ESPP provides for eligible employees to
acquire common stock of the Company at a discount, not to exceed 15%. This plan has not been put into
effect as of June 30, 2024.
Page 76
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Matters
The Company is subject to other legal proceedings and claims arising from the ordinary course of its
business, including personal injury, customer contract and employment claims besides the claim above. In
the opinion of management, and with consultation with legal counsel, 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.
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 $110,000 per person
and for a maximum potential claim liability based on member enrollment. With respect to this program,
the Company considers historical and projected medical utilization data when estimating its health
insurance program liability and related expense. As of June 30, 2024 and 2023, the Company had
approximately $121,000 and $101,000, respectively, in reserve for its self-funded health insurance
programs. The reserves are included in “Other current liabilities” in the consolidated balance sheets.
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 years covered by this report.
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended June 30, 2024 and 2023 the Company paid $76,997 and $50,132 for interest,
respectively.
During the years ended June 30, 2024 and 2023 the Company paid $507,139 and $1,439,507 for income
taxes, respectively.
Page 77
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 15 – RELATED PARTY TRANSACTIONS
On December 31, 2023, the Company entered into an agreement with Magnetic Resonance Management,
LLC (“MRM”) for the sale of a MRI scanner. MRM is owned by the CEO and President of the
Company. The sales price of the equipment was $576,857 which is payable based upon a promissory
note dated December 1, 2023. The note bears interest at a rate of 9% and is payable in full at the maturity
of the note in December 2028. The MRI scanner had zero basis, which resulted in a gain of $576,857.
The Company has the option but not the obligation to re-take possession of the scanner in lieu of payment
upon maturity of the note.
Bensonhurst MRI Limited Partnership (“Bensonhurst”), in which the CEO and President of the Company
holds an interest, is party to an agreement with the Company for the service and maintenance of its
Upright MRI Scanner for a price of $110,000 per annum. On February 1, 2024, Bensonhurst entered into
a second contract with the Company for the service and maintenance of a High-Field MRI Scanner for a
price of $70,000 per annum. Also during fiscal year ended June 30, 2024, the Company charged
Bensonhurst MRI Limited Partnership $190,362 for reimbursable salaries and marketing expenses.
The CEO and President of the Company was a minority owner of a billing company, which performs
billing and collection services with respect to No-Fault and Workers’ Compensation claims of the
Company’s clients. The Company terminated this agreement on January 1, 2021. On June 1, 2017, the
Company had also entered into a one year renewable agreement to provide IT services to the billing
company for a monthly fee of $23,884. The agreement was terminated on May 31, 2023.
Radian Healthcare Management, LLC (“Radian”), which is owned by the son-in-law of the CEO and
President of the Company provided the Company with personnel recruitment of 32 new employees at a
fee of approximately $200,000 during the fiscal year ended June 30, 2024.
NOTE 16 - SEGMENT AND RELATED INFORMATION
The Company provides segment data in accordance with the provisions of ASC 280, “Disclosures about
Segments of an Enterprise 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. All intersegment 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:
Page 78
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 16 - SEGMENT AND RELATED INFORMATION (CONTINUED)
Summarized Segment Financial Information
Manufacturing
and Servicing
of Medical
Management of
Diagnostic
Imaging
Fiscal 2024:
Equipment
Center
Totals
Net revenues from external customers
$
8,329,106
$
94,554,983
$ 102,884,089
Intersegment net revenues *
$
1,073,333
$
—
$
1,073,333
(Loss) Income from operations
$
(6,958,012 )
$
23,493,376
$
16,535,364
Depreciation and amortization
$
238,802
$
4,357,619
$
4,596,421
Total identifiable assets
$ 30,360,188
$ 183,885,781
$ 214,245,969
Capital expenditures
$
32,885
$
789,961
$
822,846
Fiscal 2023:
Net revenues from external customers
$
8,260,711
$
90,384,390
$
98,645,101
Intersegment net revenues *
$
985,833
$
—
$
985,833
(Loss) Income from operations
$
(5,875,126 )
$
20,664,388
$
14,789,262
Depreciation and amortization
$
263,720
$
4,276,415
$
4,540,135
Total identifiable assets
$ 30,892,807
$ 170,153,612
$ 201,046,419
Capital expenditures
$
119,571
$
4,218,084
$
4,337,655
*
Amounts eliminated in consolidation
Export Product Sales
The Company’s areas of operations are principally in the United States. The Company had export sales of
medical equipment amounting to 0.2% and 14.1% of product sales revenues to third parties for the years
ended June 30, 2024 and 2023, respectively.
The foreign product sales, as a percentage of product sales to unrelated parties, were made to customers in
the following countries:
For the Years Ended June 30
2024
2023
Canada
0.2%
8.5%
Germany
—
4.9%
United Arab Emirates
—
0.7%
0.2%
14.1%
Page 79
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024 and 2023
NOTE 16 - SEGMENT AND RELATED INFORMATION (CONTINUED)
Foreign Service and Repair Fees
The Company’s areas of service and repair are principally in the United States. The Company had foreign
revenues of service and repair of medical equipment amounting to 7.4% and 6.4% of consolidated net
service and repair fees for the years ended June 30, 2024 and 2023, respectively. Foreign service and
repair fees, as a percentage of total service and repair fees, were provided principally to the following
countries:
Foreign Service and Repair Fees
For the Years Ended June 30,
2024
2023
Puerto Rico
1.9 %
1.5%
Switzerland
0.3
0.3
Germany
2.0
1.6
England
0.7
0.6
United Arab Emirates
0.3
0.1
Dominican Republic
1.2
0.5
Canada
—
0.6
Greece
0.3
0.3
Australia
0.7
0.9
7.4 %
6.4%
The Company does not have any material assets outside of the United States.
NOTE 17 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date, but before the consolidated
financial statements are issued.
As of September 18, 2024, the Company repurchased 19,914 shares at a cost of $340,933 which was
authorized under the stock repurchase plan adopted in September 2022.
Page 80
FONAR CORPORATION AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no disagreements with our independent registered public accounting firm or other
matters requiring disclosure under Regulation S-K, Item 304(b).
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we performed an evaluation
under the supervision of and with the participation of management, including our Principal Executive
Officer and our Acting Principal Financial Officer, of the design and effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934 as amended (the “Exchange Act”). Based upon that evaluation, our Principal Executive Officer and
Acting Principal Financial Officer concluded, as of the end of the period covered by this Annual Report
that our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as is defined in the Exchange Act. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external reporting purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO-2013). Based on this evaluation, our
management concluded that our internal control over financial reporting was effective at June 30, 2024.
Based on the COSO criteria, management concluded that our internal controls were effective to prevent
material misstatements of the Company’s annual or interim financial statements for the fiscal year ending
June 30, 2024.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) during the most recent fiscal quarter and year ended June 30, 2024 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Page 81
FONAR CORPORATION AND SUBSIDIARIES
Item 9B. OTHER INFORMATION
Rule 10b5-1 Trading Plan
During the fiscal quarter ended June 30, 2024, none of our directors or executive officers adopted or
terminated any contract, instruction or written plan for the purchase or sale of Company securities that
was intend to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1
trading arrangement”.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
Directors serve from the date of their election until the next annual meeting of stockholders and until their
successors are elected and qualify. During fiscal 2024, each director received a base fee of $20,000 per
annum for his or her service as a director, with greater amounts for additional services on the Board of
Directors. Officers serve at the discretion of the Board of Directors.
A majority of our board of directors is composed of independent directors: consisting of, Ronald G.
Lehman, Richard E. Turk and Jessica Maher. The outside directors also serve as the members of the audit
committee, which is a standing committee of the board of directors having a charter describing its
responsibilities.
We have adopted a code of ethics applicable to, among other personnel, our principal executive officer,
principal financial officer, controllers and persons performing similar functions. The code is designed to
deter wrongdoing and to promote: 1. honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional relationships; 2. full, fair, accurate,
timely and understandable disclosure in reports and documents that we file or submit to the Securities and
Exchange Commission and in other public communications we make; 3. compliance with applicable
governmental laws, rules and regulations; 4. the prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code and 5. accountability for adherence to the code. We
will provide a copy of the code to any person who requests a copy. A person may request a copy by
writing to FONAR Corporation, 110 Marcus Drive, Melville, New York 11747, to the attention of the
Legal Department or Investor Relations.
The officers and directors of the Company are set forth below:
Timothy R. Damadian
60
Chairman of the Board, President, Chief Executive Officer and Treasurer
Luciano B. Bonanni
69
Executive Vice President, Chief Operating Officer and acting Principal
Financial Officer
Claudette J.V. Chan
86
Director
Ronald J. Lehman
48
Director
Richard E. Turk
40
Director
Jessica Maher
27
Director
Page 82
FONAR CORPORATION AND SUBSIDIARIES
Timothy Damadian has been the Chairman of the Board and Treasurer of FONAR since September 7,
2022 and the President and Chief Executive Officer of FONAR since February 11, 2016. From 2010 to
2016 he served as an independent consultant, with a focus on the Company’s MRI facility management
business. Timothy Damadian began his career at FONAR in 1985, installing MRI scanners and
components for FONAR customers. Over the course of the following 16 years, he held positions of
increasing authority, eventually becoming Vice President of Operations. In 1997, Timothy Damadian was
appointed President of the newly formed Health Management Corporation of America (HMCA), a
wholly-owned subsidiary of FONAR that was formed to manage medical and diagnostic imaging offices.
In 2001, Timothy Damadian left FONAR to form Integrity Healthcare Management, Inc., a diagnostic
imaging management company that would eventually manage MRI scanning centers in New York and
Florida. The company was a success and was sold to Health Diagnostics, LLC in 2007. Mr. Damadian
returned to FONAR as a consultant in 2010. He also serves as a Manager of Health Diagnostics
Management, LLC, which are subsidiaries of HMCA.
Luciano B. Bonanni has served as Chief Operating Officer (COO) and Executive Vice President (EVP)
for FONAR Corporation since June 27, 2016. In September 2022, he was appointed to fill the position of
acting Principal Financial Officer. Prior to his appointment as COO, Mr. Bonanni had served the
Company as Vice President since 1989, during which time he oversaw general operations, research and
development, manufacturing, service, sales, finance, accounting and regulatory compliance. Prior to 1989,
Mr. Bonanni held the title of Vice President of Production and Engineering from the time of FONAR’s
initial public offering in 1981. Mr. Bonanni joined the Company as an electrical engineer in 1978. He
holds a Bachelor of Electrical Engineering degree from Manhattan College.
Claudette J.V. Chan has been a Director of FONAR since October 1987 and Secretary of FONAR since
January 2008. Mrs. Chan was employed from 1992 through 1997 by Raymond V. Damadian, M.D. MR
Scanning Centers Management Company and since 1997 by HMCA, as “site inspector,” in which
capacity she is responsible for supervising and implementing standard procedures and policies for MRI
scanning centers. From 1989 to 1994 Mrs. Chan was employed by St. Matthew’s and St. Timothy’s
Neighborhood Center, Inc., as the director of volunteers in the “Meals on Wheels” program, a program
which cares for the elderly. From approximately 1983 to 1989, Mrs. Chan was President of the Claudette
Penot Collection, a retail mail-order business specializing in women’s apparel and gifts. Mrs. Chan
practiced and taught in the field of nursing until 1973, when her son was born. She received a Bachelor of
Science degree in nursing from Cornell University in 1960.
Ronald G. Lehman has been a Director of FONAR since April, 2012, and chair of the audit committee
since 2021. Mr. Lehman is Managing Director and Head of Investment Banking at Bruderman Advisory
Group, LLC where he is responsible for the firm’s sell-side advisory and capital raising processes. Mr.
Lehman is also a Partner at Sandy Hill Investors, LLC, participating in and overseeing many of the firm's
investments. He is Chairman of portfolio company Persante Acquisition Corp., and was a board member
at Seviroli Foods, LLC during the firm’s investment period. From 2000-2008, Mr. Lehman worked for
various Bruderman entities as a buy and sell-side advisor, and as a principal in several private equity
transactions. In 2008, Mr. Lehman joined Health Diagnostics, LLC, one of the country's fastest growing
diagnostic imaging providers, as Senior Vice President of Acquisitions, where he managed the company's
acquisition and corporate finance activities. Mr. Lehman returned to Bruderman in 2010 to lead the firm's
investment banking efforts. Lehman is a graduate of Columbia University and worked at Deutsche Bank
from 1998-2000.
Page 83
FONAR CORPORATION AND SUBSIDIARIES
Richard E. Turk has been a Director of FONAR since June, 2020. Mr. Turk is the Chief Financial Officer
of PRISM Vision Group, a private equity-backed, multi-location, outpatient comprehensive eye care
practice headquartered in New Providence, New Jersey. Mr. Turk joined PRISM in November, 2018 as
the Chief Development Officer and became CFO in March 2021. Mr. Turk has helped PRISM expand
from a single-specialty (retina) provider with 17 locations and 21 physicians to a comprehensive,
vertically-integrated, multi-specialty, eye care organization with approximately 190 physicians and more
than 90 locations across New Jersey, Pennsylvania, Delaware, Virginia, Washington, DC, and Maryland.
Prior to his tenure at PRISM, Mr. Turk was employed by Professional Physical Therapy, a private equity-
backed outpatient physical and occupational therapy company headquartered in Uniondale, New York
with more than 180 locations across New York, New Jersey, Connecticut, Massachusetts and New
Hampshire. During his four years at Professional Physical Therapy, Mr. Turk sourced, analyzed, and
completed 32 acquisitions comprised of 116 clinics, expanding the company’s services and adding three
states to its geographic footprint. From 2007 to 2014, Mr. Turk was employed by Bruderman Brothers, a
broker dealer involved in investment banking, merchant banking, investment advisory, and consulting for
lower middle market companies ($10M-$250M of enterprise value) in a variety of industries, including
healthcare. Mr. Turk was Vice President of Bruderman Brothers from 2011 to 2014. Mr. Turk graduated
from Columbia University in 2007.
Jessica Maher has been a Director of FONAR since March 2023. Mrs. Maher is a staff accountant at Ives
& Sultan, LLP in Woodbury, New York, where she is responsible for preparing audited financial
statements for various clients, overseeing audit testing areas, audits of 401(k) plans, and personal and
company tax returns. Mrs. Maher holds a Bachelor of Science in Accounting with a minor in Accounting
Information Systems, and a Master of Science in Accounting from Fairfield University in Fairfield,
Connecticut. During her early undergraduate years, Mrs. Maher worked for Tritech Healthcare
Management in Melville, New York, where she reviewed patient files, insurance, charts and documents to
ensure that the services provided by clients were being properly billed. In her senior year, Mrs. Maher
interned at Northwell Health in Westbury, New York, where she supported the financial reporting team
for two hospitals, reported into accounts receivable software, and analyzed patient billing records to
identify overpayments. Mrs. Maher’s first position out of college was with PriceWaterhouseCoopers in
Melville, New York, where she was assigned to two private equity clients, was responsible for a variety
of the audit areas, and assisted managers in reviewing financial statements, footnote disclosures, and audit
opinions.
Page 84
FONAR CORPORATION AND SUBSIDIARIES
Board Diversity Matrix as of September 12, 2024
Total Number of Directors
5
Part I: Gender Identity
Female
Male
Directors
2
3
Part II: Demographic Background
White
2
3
Board Diversity Matrix as of September 12, 2023
Total Number of Directors
5
Part I: Gender Identity
Female
Male
Directors
2
3
Part II: Demographic Background
White
2
3
ITEM 11. EXECUTIVE COMPENSATION.
With the exception of the Chief Executive Officer and the Chairman of the Board of Directors, the
compensation of the Company’s executive officers is based on a combination of salary and bonuses based
on performance. The Chief Executive Officer and the Chairman of the Board have no understandings with
the Company with respect to bonuses, options or other incentives; they are not subject to our general
policy later discussed.
The Board of Directors does not have a compensation Committee. The Chief Executive Officer and the
Chief Operating Officer participate in the determination of compensation for the Company’s management
and other employees.
The Board of Directors has established an audit committee. The members of the committee are Ronald G.
Lehman, Richard E. Turk and Jessica Maher.
Our compensation policy includes a combination of salary, commissions, bonuses, stock bonuses and
stock options, designed to incentivize our employees. There is no universal plan applicable to all of our
employees. The fixed and variable components of our employees’ compensation tend to be
individualized, based on a combination of the employees’ performance, responsibilities and position, our
assessment of how best to motivate a person in such a position and the needs and preferences of the
particular employees, as negotiated between employees and their supervisors or management.
There is set forth in the following Summary Compensation Table the compensation provided by us
during fiscal 2024, 2023 and 2022 to our Principal Executive Officer, and our acting Principal Financial
Officer. There is set forth in the following Outstanding Equity Awards Table and Director Compensation
Table the required information.
Page 85
FONAR CORPORATION AND SUBSIDIARIES
I.
SUMMARY COMPENSATION TABLE
(Reflects information up to end of Fiscal 2024)
Name and All Other Principal
Position
Year
Salary
($)
Cash
Bonuses
($)
Stock
Awards
($)
Total
Compensation
($)
(a)
(b)
(c)
(d)
(e)
(f)
Timothy R. Damadian
2024 $
0 $
372,885 $
0 $
372,885
President, Principal
2023 $
0 $
152,900 $
0 $
152,900
Executive Officer
2022 $
0 $
305,800 $
0 $
305,800
Luciano Bonanni
2024 $148,241 $
350,000 $
0 $
498,241
Chief Operating Officer,
2023 $143,416 $
305,800 $
0 $
449,216
Executive Vice President and
2022 $148,572 $
305,800 $
0 $
458,895
acting Principal Financial
Officer
Raymond V. Damadian
2024 $
0 $
0 $
0 $
0
Chairman of the Board,
2023 $ 23,553 $
305,800 $
0 $
329,353
Treasurer and
2022 $153,095 $
305,800 $
0 $
458,895
Principal Financial Officer
II.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name
Number Of Securities
Underlying
Unexercised Options
(#) Exercisable
Option
Exercise
Price ($)
Option
Exercise
Expiration
Date
(a)
(b)
(c)
Timothy R. Damadian, President and
Principal Executive Officer
0
0
N/A
Luciano Bonanni, Chief Operating
Officer, Executive Vice President
and acting Principal Financial
Officer
0
0
N/A
Raymond V. Damadian, Chairman of
the Board, Treasurer and Principal
Financial Officer
0
0
N/A
Page 86
FONAR CORPORATION AND SUBSIDIARIES
III
DIRECTOR COMPENSATION
The following table shows the compensation paid to the Directors for fiscal 2024:
Name
Fees
earned in
paid
in cash
($)
Stock
awards
($)
Option
awards
($)
Non-
equity
incentive
plan
compen-
sation
Nonqualified
deferred
compen-
sation
earnings
($)
All other
compen-
sation ($)
Total
($)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
A. Claudette J.V. Chan
$ 20,000
0
0
0
0
38,880 $ 58,880
B. Ronald G. Lehman
$ 20,000
0
0
0
0
65,000 $ 85,000
C. Richard E. Turk
$ 20,000
0
0
0
0
$15,000 $ 35,000
D. Jessica Maher
$ 20,000
0
0
0
0
$15,000 $ 35,000
EMPLOYEE COMPENSATION PLANS
FONAR adopted its 2010 Stock Bonus Plan, on June 28, 2010. This Plan permits FONAR to issue an
aggregate of 2,000,000 shares of common stock of FONAR as bonus or compensation. As of June 30,
2024, 450,177 shares were available for issuance.
Page 87
FONAR CORPORATION AND SUBSIDIARIES
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the number and percentage of shares of FONAR’s securities held by each
director, by each person known by us to own in excess of five percent of FONAR’s voting securities and
by all officers and directors as a group as of September 20, 2024.
Name and Address of Beneficial Owner (1)
Shares Beneficially Owned
Percent of Class
Timothy R. Damadian, as Trustee of the FONAR
Class C Trust
c/o FONAR Corporation, Melville, New York
Class C Stock
382,447
99.98%
Kayne Anderson Rudnick
Investment Management LLC
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Common Stock
609,789
9.64%
The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355-2331
Common Stock
390,345
5.80%
Dimensional Fund Advisors LP
Building One
6300 Bee Cave Road
Austin, Texas 78746
Common Stock
380,808
6.01%
Money Concepts Capital Corp..
11440 North Jog Road
Palm Beach Gardens, FL 33418-3764
Common Stock
362,447
5.72%
Timothy R. Damadian,
Chairman of the Board, President,
Chief Executive Officer and Treasurer
Common Stock
79,059
*
Class A Preferred
800
*
Page 88
FONAR CORPORATION AND SUBSIDIARIES
Continued:
Name and Address of Beneficial Owner (1)
Shares Beneficially Owned
Percent of Class
Luciano B. Bonanni,
Executive Vice President,
Chief Operating Officer and acting
Principal Financial Officer
Common Stock
54,253
*
Class A Preferred
1,285
*
Claudette Chan
Director and Secretary
Common Stock
106
*
Class A Preferred
32
*
Ronald G. Lehman
Director
Common Stock
4,330
*
Richard E. Turk
Director
Common Stock
0
*
Jessica Maher
Director
Common Stock
0
*
All Officers and Directors
as a Group (6 persons)
Common Stock
137,721
2.18%
Class C Stock
382,447
99.98%
Class A Preferred
2,117
*
* Less than one percent
1. Address provided for each beneficial owner owning more than five percent of the voting securities of
FONAR.
Page 89
FONAR CORPORATION AND SUBSIDIARIES
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
Pursuant to HMCA’s management agreements with its clients, HMCA provides comprehensive non-
medical management and administrative services, including billing and collection of accounts, payroll and
accounts payable processing, office facilities, supplies and utilities. Under the management agreements,
HMCA also provides service for the Fonar Upright® MRI scanners through Fonar. In total, as of
September 5, 2024, 22 of our clients had management agreements with HMCA. Six sites in Florida are
owned and operated directly by HMCA subsidiaries.
The fees charged under the management agreements are flat fees charged on a monthly basis. These fees
ranged from $84,152 to $446,639 per month in fiscal 2024.
Timothy Damadian, Chairman of the Board, President, Chief Executive Officer and Treasurer (formerly
owned by Dr. Raymond Damadian, the Chairman of the Board and principal stockholder of the Company
until his death in August 2022), owned three of the imaging facilities in Florida managed by HMCA. (See
note below) The facilities owned by Timothy Damadian in Florida pay HMCA flat rate monthly fees
ranging from $245,535 to $411,589 per month. These fees are renegotiable on an annual basis.
During the fiscal years ended June 30, 2024, June 30, 2023 and June 30, 2022, the net revenues received
by HMCA from the imaging facilities owned by Timothy Damadian and formerly Dr. Damadian were
approximately $11.9 million, $11.9 million and $11.6 million respectively.
Timothy Damadian, the President and Chief Executive Officer of Fonar, is one of the former owners of a
billing company, which performed billing and collection services for HMCA with respect to No-Fault and
Workers’ Compensation claims of HMCA’s clients. On June 1, 2017, the Company also entered into a
one year renewable agreement to provide IT services to the billing company for a monthly fee of $23,884.
On May 31, 2023, this agreement was terminated. Timothy Damadian is also a Manager of Health
Management Company of America.
Magnetic Resonance Management, LLC, in which Timothy Damadian, the CEO and President of the
Company owns, entered into an agreement to purchase equipment from the Company. The selling price
of such equipment was $567,857 which is payable based upon a promissory note dated December 1,
2023. The note bears interest at a rate of 9% and is payable in full at the maturity of the note in December
2028. The equipment had a zero basis which resulted in a gain of $576,857. The Company has the
option but not the obligation to re-take possession in lieu of payment upon maturity of the note.
Bensonhurst MRI Limited Partnership, in which Timothy Damadian, the CEO and President of the
Company holds an interest, is party to two agreements with the Company for the service and maintenance
of its Upright MRI and High-Field Scanners for a price of $110,000 per annum and $70,000 per annum,
respectively. Also during fiscal year ended June 30, 2024, the Company charged Bensonhurst MRI
Limited Partnership $190,362 for reimbursable salaries and marketing expenses.
Radian Healthcare Management, LLC which Matt Pluta, the son-in-law of Timothy Damadian, the CEO
and President of the Company owns, provided the Company with personnel recruitment of 32 new
employees at a fee $200,347 during the fiscal year ended June 30, 2024.
Page 90
FONAR CORPORATION AND SUBSIDIARIES
Ronald Lehman, a Director of Fonar, holds a .0378% interest in Health Management Company of
America’s Class A membership interests.
Jessica Maher, a Director of Fonar, holds a .015% interest in Health Management Company of America’s
Class A membership interests.
Claudette J.V. Chan, a Director and the Secretary of Fonar, owns a .0378% interest in Health
Management Company of America’s Class A Membership interests.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
The aggregate fees billed by Marcum LLP for the audit of our annual consolidated financial statements
for the fiscal year ended June 30, 2024 and the reviews of the financial statements included in our Forms
10-Q for the fiscal year ended June 30, 2024 were $442,000.
The aggregate fees billed by Marcum LLP for the audit of our annual financial statements for the fiscal
year ended June 30, 2023 and the reviews of the financial statements included in our Forms 10-Q for the
fiscal year ended June 30, 2023 were $379,000.
Audit Related Fees
No fees were billed by Marcum LLP for the fiscal years ended June 30, 2024 or June 30, 2023 for
services related to the Audit or review of our financial statements that are not included under the caption
“Audit Fees”.
No fees were billed by Marcum LLP for the fiscal years ended June 30, 2024 or June 30, 2023 for
designing, operating, supervising or implementing any of our financial information systems or any
hardware or software systems for our financial information.
Tax Fees
No fees were billed by Marcum LLP for tax compliance, tax advice and tax planning in the fiscal year
ended June 30, 2024.
No fees billed by Marcum LLP for tax compliance, tax advice and tax planning in the fiscal year ended
June 30, 2023.
All Other Fees
No fees were billed by Marcum LLP for any other services during the fiscal years ended June 30, 2024
and June 30, 2023.
Page 91
FONAR CORPORATION AND SUBSIDIARIES
Since January 1, 2003, the audit committee has adopted policies and procedures for pre-approving all
non-audit work performed by the auditors. Specifically, the committee must pre-approve the use of the
auditors for all such services. The audit committee has pre-approved all non-audit work since that time
and in making its determination has considered whether the provision of such services was compatible
with the independence of the auditors.
Our audit committee believes that the provision by Marcum LLP of services in addition to audit services
in previous years were compatible with maintaining their independence.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-
K.
a) FINANCIAL STATEMENTS AND SCHEDULES
b)
The following consolidated financial statements are included in Part II, Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as at June 30, 2024 and 2023.
Consolidated Statements of Income for the Years Ended June 30, 2024 and 2023.
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2024 and 2023.
Consolidated Statements of Cash Flows for the Years Ended June 30, 2024 and 2023 .
Notes to Consolidated Financial Statements.
Information required by schedules called for under Regulation S-X is either not applicable or is included
in the consolidated financial statements or notes to the consolidated financial statements.
c) REPORTS ON FORM 8-K
1. Registrant’s Report on Form 8-K: Item 2.02, Results of Operations and Financial Condition for the
Fiscal Year ended June 30, 2023, reported September 28, 2023. Commission File No. 0-10248.
2. Registrant’s Report on Form 8-K: Item 5.02, Departure of Directors or Certain Officers, reported May
20, 2024. Commission File No. 0-10248.
Page 92
FONAR CORPORATION AND SUBSIDIARIES
c) EXHIBITS
3.1 Certificate of Incorporation, as amended, of the Registrant incorporated by reference to Exhibit 3.1 to
the Registrant’s registration statement on Form S-1,Commission File No. 33-13365.
3.2 Article Fourth of the Certificate of Incorporation, as amended, of the Registrant incorporated by
reference to Exhibit 4.1 to the Registrant’s registration statement on Form S-8, Commission File No. 33-
62099.
3.3 Section A of Article Fourth of the Certificate of Incorporation, as amended, of the Registrant
incorporated by reference to Exhibit 4.3 to the Registrant’s registration statement on Form S-3,
Commission File No. 333-63782.
3.4 Section A of Article Fourth of the Certificate of Incorporation, as amended, of the Registrant
incorporated by reference to Exhibit 3.3 of the Registrant’s Annual Report on Form 10-K for the fiscal
year ended June 30, 2003, Commission File No. 0-10248.
3.5 By-Laws, as amended, of the Registrant incorporated by reference to Exhibit 3.2 to the Registrant’s
registration statement on Form S-1, Commission File No. 33-13365.
4.1 Specimen Common Stock Certificate incorporated by reference to Exhibit 4.1 to the Registrant’s
registration statement on Form S-1, Commission File No. 33-13365.
4.2 Specimen Class B Common Stock Certificate incorporated by reference to Exhibit 4.2 to the
Registrant’s registration statement on Form S-1, Commission File No. 33-13365.
10.1 License Agreement between the Registrant and Raymond V. Damadian incorporated by reference to
Exhibit 10 (e) to Form 10-K for the fiscal year ended June 30, 1983, Commission File No. 0-10248.
10.2 Stock Purchase Agreement, dated July 31, 1997, by and between U.S. Health Management
Corporation, Raymond V. Damadian, M.D. MR Scanning Centers Management Company and Raymond
V. Damadian, incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, July 31, 1997,
commission File No: 0-10248.
10.3 Merger Agreement and Supplemental Agreement dated June 17, 1997 and Letter of Amendment
dated June 27, 1997 by and among U.S. Health Management Corporation and Affordable Diagnostics Inc.
et al., incorporated by reference to Exhibit 2.1 to the Registrant’s 8-K, June 30, 1997, Commission File
No: 0-10248.
10.4 Stock Purchase Agreement dated March 20, 1998 by and among Health Management Corporation of
America, FONAR Corporation, Giovanni Marciano, Glenn Muraca et al., incorporated by reference to
Exhibit 2.1 to the Registrant’s 8-K, March 20, 1998, Commission File No: 0-10248.
10.5 Stock Purchase Agreement dated August 20, 1998 by and among Health Management Corporation
of America, FONAR Corporation, Stuart Blumberg and Steven Jonas, incorporated by reference to
Exhibit 2 to the Registrant’s 8-K, September 3, 1998, Commission File No. 0-10248.
Page 93
FONAR CORPORATION AND SUBSIDIARIES
10.6 2002 Incentive Stock Option Plan incorporated by reference to Exhibit 99.1 to the Registrant’s
registration statement on Form S-8, Commission File No.: 333-96557.
10.7 Asset Purchase Agreement dated July 28, 2005 among Health Plus Management Services, L.L.C.,
Health Management Corporation of America, Dynamic Healthcare Management, Inc. and FONAR
Corporation, incorporated by reference to Exhibit 2 to the Registrant’s Form 8-K, August 2, 2005,
Commission File No. 0-10248.
10.8 Partnership Interest Purchase Agreement dated September 29, 2008 by and between Diagnostic
Management, LLC and Raymond V. Damadian, M.D. MR Scanning Centers Management Company,
incorporated by reference to Exhibit 10.35 to Form 10-K for the fiscal year ended June 30, 2008.
Commission File No. 0-10248.
10.9 2010 Stock Bonus Plan, incorporated by reference to Exhibit 99.1 to the Registrant’s registration
statement on Form S-8, Commission File No. 333-168771.
10.10 Operating Agreement for Imperial Management Services, LLC, incorporated by reference to
Exhibit 10.37 to Form 10-K for the fiscal year ended June 30, 2011. Commission File No. 0-10248.
10.11 Operating Agreement for Health Diagnostics Management, LLC, incorporated by reference to
Exhibit 10.38 to Form 10-K for the fiscal year ended June 30, 2013. Commission File No. 0-10248.
10.12 Modification to Operating Agreement for Health Diagnostics Management, LLC., See Exhibits.
incorporated by reference to Exhibit 10.38 to Form 10-K for the fiscal year ended June 30, 2013.
Commission File No. 0-10248.
10.13 Purchase Agreement dated March 5, 2013 among Health Diagnostics Management, LLC, Health
Diagnostics, LLC and others. Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed
March 11, 2013. Commission File No. 0-10248.
14.1 Code of Ethics, incorporated by reference to Exhibit 14.1 of Registrant’s Form 10-K for the fiscal
year ended June 30, 2004, Commission File No.: 0-10248.
21.1 Subsidiaries of the Registrant. See Exhibits.
23.1 Consent of Marcum LLP Independent Registered Public Accounting Firm. See Exhibits.
31.1 Section 302 Certification. See Exhibits.
32.1 Section 906 Certification. See Exhibits.
97.1 Policy for the Recovery of Erroneously Awarded Compensation Pursuant to SEC Exchange Act
Rule 10D-1
Page 94
FONAR CORPORATION AND SUBSIDIARIES
SIGNATURES.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FONAR CORPORATION
Dated: September 28, 2024
By: /s/Timothy Damadian
Timothy Damadian,
Chairman of the Board of Directors
Chief Executive Officer
President and Treasurer
By
/s/Luciano B. Bonanni
Luciano B. Bonanni
Executive Vice President,
Chief Operating Officer and
Acting Principal Financial Officer
Signature
Title
Date
/s/ Timothy R. Damadian
Chairman of the Board of Directors
September 27, 2024
Timothy R. Damadian
Chief Executive Officer
President and Treasurer
/s/Claudette J.V. Chan
Director
September 27, 2024
Claudette J.V. Chan
/s/Ronald G. Lehman
Director
September 27, 2024
Ronald G. Lehman
/s/Richard E. Turk
Director
September 27, 2024
Richard E. Turk
/s/Jessica Maher
Director
September 27, 2024
Jessica Maher