Company Quick10K Filing
Quick10K
Fonar
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.27 6 $131
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-05-20 Shareholder Vote
8-K 2019-03-31 Earnings
8-K 2018-12-31 Earnings
8-K 2018-11-08 Earnings
8-K 2018-09-13 Earnings
8-K 2018-06-11 Shareholder Vote
8-K 2018-03-31 Earnings
ALGN Align Technology 25,860
EEFT Euronet Worldwide 7,830
ALE Allete 4,190
ERI Eldorado Resorts 3,700
VNE Veoneer 1,810
TUP Tupperware Brands 1,090
SBPH Spring Bank Pharmaceuticals 110
SEK Swedish Export Credit 0
ESES Eco-Stim 0
CTV Commscope 0
FONR 2019-03-31
Note 1 - Description of Business and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Accounts Receivable, Medical Receivable and Management and Other Fees Receivable
Note 4 - Inventories
Note 5 - Costs and Estimated Earnings on Uncompleted Contracts
Note 6 - Other Intangible Assets
Note 7 - Other Current Liabilities
Note 8 - Stockholders Equity
Note 9 - Segment and Related Information
Note 10- Supplemental Cash Flow Information
Note 11 - Commitments and Contingencies
Note 12 - Income Taxes
Note 13- Subsequent Events
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Item 4. - Controls and Procedures.
Part II - Other Information
Item 1A - Risk Factors: An Investment in The Securities of The Company Is Subject To Various Risks, The Most Significant of Which Are Summarized Below.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds: None
Item 3 - Defaults Upon Senior Securities: None
Item 4 - Mine Safety Disclosure: Not Applicable
Item 5 - Other Information: None
Item 6 - Exhibits and Reports on Form 8-K:
EX-31 fonr_ex-31.htm
EX-32 fonr_ex-32.htm

Fonar Earnings 2019-03-31

FONR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fonar_10-q.htm FONAR FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended MARCH 31, 2019

  

Commission file number 0-10248

 

FONAR CORPORATION

____________________________________________

(Exact name of registrant as specified in its charter)

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit such files. YES _X_ NO ___

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of accelerated filer, large accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.(Check one): Large accelerated filer___ Accelerated filer _X_ Non-accelerated filer___ Smaller reporting company _X__Emerging growth company___

 

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

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date.

 

Class  Outstanding at April 30, 2019
Common Stock, par value $.0001   6,357,482 
Class B Common Stock, par value $.0001   146 
Class C Common Stock, par value $.0001   382,513 
Class A Preferred Stock, par value $.0001   313,438 

 

   

 

 

FONAR CORPORATION AND SUBSIDIARIES

 

INDEX

 

PART I - FINANCIAL INFORMATION   PAGE 
      
Item 1.  Financial Statements     
      
Condensed Consolidated Balance Sheets - March 31, 2019 (Unaudited) and June 30, 2018   3 
      
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2019 and March 31, 2018 (Unaudited)   6 
      
Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)   7 
      

Condensed Consolidated Statements of Changes in Equity for the

Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

   8 
      

Condensed Consolidated Statements of Changes in Equity for the

Three Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

   10 
      
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)   12 
      
Notes to Condensed Consolidated Financial Statements (Unaudited)   13 
      
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   25  
      
Item 3. Quantitative and Qualitative Disclosures About Market Risk   33  
      
Item 4. Controls and Procedures   33  
      
PART II - OTHER INFORMATION   33  
      
Item 1. Legal Proceedings   33  
      
Item 1A. Risk Factors   33  
      
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   35  
      
Item 3. Defaults Upon Senior Securities   35  
      
Item 4. Mine Safety Disclosures   35  
      
Item 5. Other Information   36  
      
Item 6. Exhibits   36  
      
Signatures   36  

 

  

 Page 2 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

 

ASSETS

 

   March 31, 2019  June 30, 2018 *
Cash and cash equivalents  $24,780   $19,634 
 Accounts receivable – net   3,709    3,814 
 Accounts receivable - related party   30    —   
 Medical receivable – net   15,318    13,351 
 Management and other fees receivable – net   24,979    21,863 
 Management and other fees receivable – related medical practices – net   6,204    5,535 
 Inventories   1,810    1,431 
           
Costs and estimated earnings in excess of billings on uncompleted contracts   335    87 
 Prepaid expenses and other current assets   1,647    1,350 
 Total Current Assets   78,812    67,065 
           
Income taxes receivable   1,200    1,200 
 Deferred income tax asset   18,989    22,689 
 Property and equipment – net   17,440    16,492 
 Goodwill   3,985    3,985 
 Other intangible assets - net   4,959    5,602 
 Other assets   1,207    1,278 
 Total Assets  $126,592   $118,311 

 

 

  

*Condensed from audited financial statements.

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 Page 3 

 

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

March 31, 2019

 

June 30, 2018 *

Current Liabilities:          
Current portion of long-term debt and capital leases  $40   $39 
Accounts payable   1,631    1,300 
Other current liabilities   4,973    8,178 
Unearned revenue on service contracts   3,777    4,192 
Unearned revenue on service contracts - related party   27    —   
Customer deposits   834    858 
 Total Current Liabilities   11,282    14,567 
 Long-Term Liabilities:          
Deferred income tax liability   239    239 
Due to related medical practices   93    227 
Long-term debt and capital leases, less current portion   282    306 
Other liabilities   755    737 
 Total Long-Term Liabilities   1,369    1,509 
 Total Liabilities   12,651    16,076 

 

 

*Condensed from audited financial statements.

 

 

See accompanying notes to condensed consolidated financial statements.

 

 Page 4 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

 

LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)

 

 

  

March 31, 2019

 

June 30, 2018 *

STOCKHOLDERS' EQUITY:          
 Class A non-voting preferred stock $.0001 par value; 453 shares authorized at March 31, 2019 and June 30, 2018, 313 issued and outstanding at March 31, 2019 and June 30, 2018  $—     $—   
 Preferred stock $.001 par value; 567 shares authorized at March 31, 2019 and June 30, 2018, issued and outstanding – none   —      —   
 Common Stock $.0001 par value; 8,500 shares authorized at March 31, 2019 and June 30, 2018, 6,369 and 6,299 issued at March 31, 2019 and June 30, 2018; 6,357 and 6,288 outstanding at March 31, 2019 and June 30, 2018   1    1 
 Class B Common Stock (10 votes per share) $ .0001 par value; 227 shares authorized at March 31, 2019 and June 30, 2018, .146 issued and outstanding at March 31, 2019 and June 30, 2018   —      —   
 Class C Common Stock (25 votes per share) $.0001 par value; 567 shares authorized at March 31, 2019 and June 30, 2018, 383 issued and outstanding at March 31, 2019 and June 30, 2018   —      —   
 Paid-in capital in excess of par value   181,086    179,132 
Accumulated deficit   (69,039)   (79,773)
Notes receivable from employee stockholders   —      (9)
Treasury stock, at cost - 12 shares of common stock at March 31, 2019 and June 30, 2018   (675)   (675)
Total Fonar Corporation’s Stockholder Equity   111,373    98,676 
Noncontrolling interests   2,568    3,559 
 Total Stockholders' Equity   113,941    102,235 
 Total Liabilities and Stockholders' Equity  $126,592   $118,311 

 

 

*Condensed from audited financial statements.

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 Page 5 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(UNAUDITED)

  

FOR THE THREE MONTHS

ENDED MARCH 31,

REVENUES  2019  2018
Patient fee revenue, net of contractual allowances and discounts  $6,410   $10,163 
Provision for bad debts for patient fee   —      (4,552)
Patient fee revenue - net   6,410    5,611 
Product sales – net   796    69 
Service and repair fees – net   1,964    2,314 
Service and repair fees – related parties - net   28    28 
Management and other fees – net   11,191    10,670 
Management and other fees – related medical practices – net   2,390    2,287 
Total Revenues – Net   22,779    20,979 
COSTS AND EXPENSES          
Costs related to patient fee revenue   2,740    2,570 
Costs related to product sales   216    173 
Costs related to service and repair fees   752    775 
Costs related to service and repair fees – related parties   10    9 
Costs related to management and other fees   5,834    5,733 
Costs related to management and other fees – related medical practices   1,634    1,281 
Research and development   381    503 
Selling, general and administrative   4,604    5,533 
Total Costs and Expenses   16,171    16,577 
Income From Operations   6,608    4,402 
Interest Expense   (27)   (46)
Investment Income   104    74 
Other Expense   —      (8)
Income Before Provision for Income Taxes and Noncontrolling Interests   6,685    4,422 
Provision for Income Taxes   (1,484)   (160)
Net Income   5,201    4,262 
Net Income - Noncontrolling Interests   (1,338)   (781)
Net Income - Controlling Interests  $3,863   $3,481 
Net Income Available to Common Stockholders  $3,623   $3,263 
Net Income Available to Class A Non-Voting Preferred Stockholders  $179   $163 
Net Income Available to Class C Common Stockholders  $61   $55 
Basic Net Income Per Common Share Available to Common Stockholders  $0.57   $0.52 
Diluted Net Income Per Common Share Available to Common Stockholders  $0.56   $0.51 
Basic and Diluted Income Per Share-Class C Common  $0.16   $0.15 
Weighted Average Basis Shares Outstanding-Common Stockholders   6,357    6,287 
Weighted Average Diluted Shares Outstanding-Common Stockholders   6,485    6,415 
Weighted Average Basic Shares Outstanding – Class C Common   383    383 
Weighted Average Diluted Shares Outstanding – Class C Common   383    383 

 

See accompanying notes to condensed consolidated financial statements.

 Page 6 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(UNAUDITED)

  

FOR THE NINE MONTHS

ENDED MARCH 31,

   2019  2018
REVENUES      
Patient fee revenue, net of contractual allowances and discounts  $17,856   $28,353 
Provision for bad debts for patient fee   —      (12,873)
Patient fee revenue - net   17,856    15,480 
Product sales – net   1,241    508 
Service and repair fees – net   6,116    6,929 
Service and repair fees – related parties - net   83    83 
Management and other fees – net   32,448    30,781 
Management and other fees – related medical practices – net   6,965    6,699 
Total Revenues – Net   64,709    60,480 
COSTS AND EXPENSES          
Costs related to patient fee revenue   8,016    7,619 
Costs related to product sales   539    562 
Costs related to service and repair fees   2,242    2,309 
Costs related to service and repair fees – related parties   30    27 
Costs related to management and other fees   17,493    17,116 
Costs related to management and other fees – related medical practices   4,421    3,692 
Research and development   1,368    1,258 
Selling, general and administrative   12,474    12,899 
Total Costs and Expenses   46,583    45,482 
Income From Operations   18,126    14,998 
Interest Expense   (78)   (138)
Investment Income   336    179 
Other Expense   —      (15)
Income Before Provision for Income Taxes and Noncontrolling Interests   18,384    15,024 
Provision for Income Taxes   (3,826)   (920)
Net Income   14,558    14,104 
Net Income - Noncontrolling Interests   (3,824)   (2,715)
Net Income - Controlling Interests  $10,734   $11,389 
Net Income Available to Common Stockholders  $10,067   $10,675 
Net Income Available to Class A Non-Voting Preferred Stockholders  $496   $532 
Net Income Available to Class C Common Stockholders  $170   $182 
Basic Net Income Per Common Share Available to Common Stockholders  $1.58   $1.70 
Diluted Net Income Per Common Share Available to Common Stockholders  $1.55   $1.66 
Basic and Diluted Income Per Share-Class C Common  $0.44   $0.48 
Weighted Average Basic Shares Outstanding-Common Stockholders   6,353    6,287 
Weighted Average Diluted Shares Outstanding-Common Stockholders   6,481    6,415 
Weighted Average Basic Shares Outstanding – Class C Common   383    383 
Weighted Average Diluted Shares Outstanding – Class C Common   383    383 

 

See accompanying notes to condensed consolidated financial statements.

 Page 7 

 

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

 

 

For the Nine Months Ending March 31, 2019

          
   Common Stock  Paid in capital in excess of par value  Accumulated Deficit
          
Balance – July 1, 2018  1   $179,132   (79,773)
                
Issuance of Common Stock   —      1,954    —   
Net income – Controlling interests   —      —      10,734 
Repayment of notes receivable   —      —      —   
Distributions – Noncontrolling   —      —      —   
Income – Noncontrolling interests   —      —      —   
                
Balance – March 31, 2019  $1   $181,086   $(69,039)

 

 

 

For the Nine Months Ending March 31, 2019

             
   Notes receivable from employee stockholders  Treasury Stock  Non controlling Interests  Total
             
Balance – July 1, 2018  (9)  $(675)  $3,559    $102,235 
                    
Issuance of Common Stock   —      —      —      1,954 
Net income – Controlling interests   —      —      —      10,734 
Repayment of notes receivable   9    —      —      9 
Distributions – Noncontrolling   —      —      (4,815)   (4,815)
Income – Noncontrolling interests   —      —      3,824    3,824 
                     
Balance – March 31, 2019   $—     $(675)  $2,568   113,941 

 

 

 Page 8 

 

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

 

 

For the Nine Months Ending March 31, 2018

                
    Common Stock    Paid in capital in excess of par value    Accumulated Deficit 
                
Balance – July 1, 2017   $1    $179,131   $(101,003)
                
Issuance of Common Stock   —      —      —   
Net income – Controlling interests   —      —      11,389 
Repayment of notes receivable   —      —      —   
Distributions – Noncontrolling   —      —      —   
Income – Noncontrolling interests   —      —      —   
                
Balance – March 31, 2018  $1   $179,131    $(89,614)

  

  

 

For the Nine Months Ending March 31, 2018

             
   Notes receivable from employee stockholders  Treasury Stock 

Non

controlling Interests

  Total
             
Balance – July 1, 2017  $(17)  $(675)  $5,473   82,910 
                     
Issuance of Common Stock   —      —      —      —   
Net income – Controlling interests   —      —      —      11,389 
Repayment of notes receivable   6    —      —      6 
Distributions – Noncontrolling   —      —      (4,456)  (4,456)
Income – Noncontrolling interests   —      —      2,715    2,715 
                     
Balance – March 31, 2018   $(11)   $(675)   $3,732   92,564 

 

 Page 9 

 

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

 

 

For the Three Months Ending March 31, 2019

          
   Common Stock  Paid in capital in excess of par value  Accumulated Deficit
          
Balance – January 1, 2019  $1   181,086    $(72,902)
                
Issuance of Common Stock   —      —      —   
Net income – Controlling interests   —      —      3,863 
Repayment of notes receivable   —      —      —   
Distributions – Noncontrolling   —      —      —   
Income – Noncontrolling interests   —      —      —   
                
Balance – March 31, 2019   $1    $181,086   $(69,039)

 

 

 

For the Three Months Ending March 31, 2019

             
   Notes receivable from employee stockholders  Treasury Stock 

Non

controlling Interests

  Total
             
Balance – January 1, 2019  $(9)  $(675)   $2,355   $109,856 
                     
Issuance of Common Stock   —      —      —      —   
Net income – Controlling interests   —      —      —      3,863 
Repayment of notes receivable   9    —      —      9 
Distributions – Noncontrolling   —      —      (1,125)   (1,125)
Income – Noncontrolling interests   —      —      1,338    1,338 
                     
Balance – March 31, 2019   $—      $(675)  $2,568   $113,941 

 

 

 Page 10 

 

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

 

 

For the Three Months Ending March 31, 2018

          
   Common Stock  Paid in capital in excess of par value  Accumulated Deficit
          
Balance – January 1, 2018  1   179,131   $(93,095)
                
Issuance of Common Stock   —      —      —   
Net income – Controlling interests   —      —      3,481 
Repayment of notes receivable   —      —      —   
Distributions – Noncontrolling   —      —      —   
Income – Noncontrolling interests   —      —      —   
                
Balance – March 31, 2018  $1   $179,131   $(89,614)

 

 

For the Three Months Ending March 31, 2018

             
   Notes receivable from employee stockholders  Treasury Stock 

Non

controlling Interests

  Total
             
Balance – January 1, 2018  (13)  $(675)  $4,646   $89,995 
                     
Issuance of Common Stock   —      —      —      —   
Net income – Controlling interests   —      —      —      3,481 
Repayment of notes receivable   2    —      —      2 
Distributions – Noncontrolling   —      —      (1,695)   (1,695)
Income – Noncontrolling interests   —      —      781    781 
                     
Balance – March 31, 2018  $(11)  $(675)  $3,732   92,564 

 

 

 Page 11 

 

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(UNAUDITED)

 

  

FOR THE NINE MONTHS

ENDED MARCH 31,

   2019  2018
Cash Flows from Operating Activities:          
Net income  $14,557   $14,104 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization   2,852    2,949 
Deferred income tax   3,701    575 
Provision for bad debts   (652)   122 
Stock issued for costs and expenses   1,955    —   
(Increase) decrease in operating assets, net:          
Accounts, medical receivable and management fee(s)   (5,025)   (3,005)
Notes receivable   (13)   —   
Costs and estimated earnings in excess of billings on uncompleted contracts   (248)   649 
Inventories   (378)   (13)
Prepaid expenses and other current assets   (214)   (132)
Other assets   —      (883)
Increase (decrease) in operating liabilities, net:          
Accounts payable   331    (164)
Other current liabilities   (3,593)   (1,681)
Customer advances   (24)   79 
Other liabilities   18    1 
Due to related medical practices   (135)   —   
Net cash provided by operating activities   13,132    12,601 
 Cash Flows from Investing Activities:          
Purchases of property and equipment   (3,069)   (2,594)
Cost of patents   (88)   (75)
Net cash used in investing activities   (3,157)   (2,669)
 Cash Flows from Financing Activities:          
Repayment of borrowings and capital lease obligations   (23)   (150)
Additional acquisition costs   —      (58)
Distributions to noncontrolling interests   (4,815)   (4,455)
Repayment of notes receivable from employee stockholders   9    5 
Net cash used in financing activities   (4,829)   (4,658)
Net Increase in Cash and Cash Equivalents   5,146    5,274 
Cash and Cash Equivalents – Beginning of Period   19,634    10,140 
Cash and Cash Equivalents – End of Period  $24,780   $15,414 

 

See accompanying notes to condensed consolidated financial statements.

 Page 12 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

 

Effective July 1, 2015, the Company restructured the corporate organization of the management of diagnostic imaging centers segment of our business. The reorganization was structured to more completely integrate the operations of Health Management Corporation of America and HDM. Imperial contributed all of its assets (which were utilized in the business of Health Management Corporation of America) to HDM and received a 24.2% interest in HDM. Health Management Corporation of America retained a direct ownership interest of 45.8% in HDM, and the original investors in HDM retained a 30.0% ownership interest in the newly expanded HDM. The entire management of diagnostic imaging centers business segment is now being conducted by HDM, operating under the name “Health Management Company of America”.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed on September 21, 2018 for the fiscal year ended June 30, 2018.

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

  

Revenues

 

On July 1, 2018, the Company adopted the new revenue 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 13 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenues (Continued)

 

The Company applied the modified retrospective approach to all contracts when adopting ASC 606. As a result, at the adoption of ASC 606 the majority of what was previously classified as the provision for bad debts in the statement of operations is now reflected as implicit price concessions (as defined in ASC 606) and therefore included as a reduction to net operating revenues in 2019. For changes in credit issues not assessed at the date of service, the Company will prospectively recognize those amounts in other operating expenses on the statement of operations. For periods prior to the adoption of ASC 606, the provision for bad debts has been presented consistent with the previous revenue recognition standards that required it to be presented separately as a component of net operating revenues. Additionally, upon adoption of ASC 606 the allowance for doubtful accounts of approximately $22.7 million as of July 1, 2018 was reclassified as a component of net patient accounts receivable. Other than these changes in presentation on the condensed consolidated statement of operations and condensed consolidated balance sheet, the adoption of ASC 606 did not have a material impact on the consolidated results of operations for the three months and nine months ended March 31, 2019, and the Company does not expect it to have a material impact on its consolidated results of operations for the remainder of 2019 and on a prospective basis.

 

 

Our revenues generally relate to net patient fees received from various payers and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

 

Earnings Per Share

 

Basic earnings per share (“EPS”) is computed based on weighted average number of shares common stock and stock equivalents outstanding, net of common stock. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used the Two-Class method for calculating basic earnings per share and applied the if converted method in calculating diluted earnings per share for the three and nine months ended March 31, 2019 and 2018.

 

Diluted EPS reflects the potential dilution from the exercise or conversion of all dilutive securities into common stock based on the average market price of common shares outstanding during the period. For the three and nine months ended March 31, 2019 and 2018, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.

 

 Page 14 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Earnings Per Share (Continued)

 

   Three months ended
March 31, 2019
  Three months ended
March 31, 2018
Basic  Total  Common Stock  Class C Common Stock  Total  Common Stock  Class C Common Stock
Numerator:                  
Net income available to common stockholders  $3,863   $3,623   $61   $3,481   $3,263   $55 
Denominator:                              
Weighted average shares  outstanding   6,357    6,357    383    6,287    6,287    383 
Basic income per common  share  $0.61   $0.57   $0.16   $0.55   $0.52   $0.15 
Diluted                              
Denominator:                              
Weighted average shares outstanding        6,357    383         6,287    383 
Convertible Class C Stock        128    —          128    —  
Total Denominator for diluted earnings per share        6,485    383         6,415    383 
Diluted income per common share       $0.56   $0.16        $0.51   $0.15 

 

  

   Nine months ended
March 31, 2019
  Nine months ended
March 31, 2018
Basic  Total  Common Stock  Class C Common Stock  Total  Common Stock  Class C Common Stock
Numerator:                  
Net income available to common stockholders  $10,734   $10,067   $170   $11,389   $10,675   $182 
Denominator:                              
Weighted average shares outstanding   6,353    6,353    383    6,287    6,287    383 
Basic income per common share  $1.69   $1.58   $0.44   $1.81   $1.70   $0.48 
Diluted                               
Denominator:                              
Weighted average shares outstanding        6,353    383         6,287    383 
Convertibloe Class C Stock        128            128     
Total Denominator for diluted earnings per share        6,481    383         6,415    383 
Diluted income per common share       $1.55   $0.44        $1.66   $0.48 

  

 Page 15 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize as revenue the amount that reflects the consideration which it expects to be entitled in exchange for goods and services as it transfers control to its customers. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company earns revenue from the sale of scanners, maintenance contracts, product upgrades, patient services and management fees. Under the new guidance, the reporting for patient services revenue is now reported differently. All other streams of revenue were not impacted by the new guidance. The primary change for healthcare providers under the new guidance relates to revenue generated from patient services, with patient responsibility for payment. Under the new guidance, the Company is required to report an implicit price concession (both initially and for the subsequent changes in estimates) as a reduction of revenues as opposed to bad debt expense as a component of operating expenses. The Company now records any changes in expectation of collection amounts due to patient specific events that suggests that the patient no longer has the ability and intent to pay the amount due through the bad debt expense, as that is more indicative of a change in the customer’s credit worthiness as opposed to change in the transaction price.

 

The new standard supersedes most current revenue guidance, including industry-specific guidance. The guidance became effective for the Company on July 1, 2018 and as part of adopting the standard, the Company identified revenue streams of like contracts to allow for ease of implementation. The Company used primarily a portfolio approach to apply the new model to classes of customers with similar characteristics. The impact of adopting the new standard on our total revenue; and income from operations was not material. While the adoption of ASU 2014-09 did impact the presentation of net operating revenues in our Consolidated Statements of Operations and will impact certain disclosures, it did not materially impact our financial position, results of operations or cash flows. There was no cumulative effect of a change in accounting principle recorded related to the adoption of ASU 2014-09 on July 1, 2018.

 

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance on our consolidated condensed financial statements.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company has adopted this guidance on our consolidated condensed financial statements and it has no impact on the Company’s financial statements.

 

 Page 16 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements (Continued)

 

During February 2016, FAS issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact the adoption of this guidance will have on the Company’s consolidated condensed financial statements.

 

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2019 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2019 or 2018, and it does not believe that any of those pronouncements will have a significant impact on our condensed consolidated financial statements at the time they become effective.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifcations did not have any effect on reported consolidated net income for any periods presented.

 

 

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE

 

Receivables, net is comprised of the following at March 31, 2019:

   Gross Receivable  Allowance for doubtful accounts  Net
Accounts receivable  $3,899   $190   $3,709 
Accounts receivable - related party  $30    —     $30 
Medical receivable – net  $15,318    —     $15,318 
Management and other fees receivable  $34,479   $9,500   $24,979 
Management and other fees receivable from related medical practices ("PC’s")  $8,746   $2,542   $6,204 

 

 

 

 Page 17 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

 

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)

 

Receivables, net is comprised of the following at June 30, 2018:

 

   Gross Receivable  Allowance for doubtful accounts  Net
Accounts receivable  $4,004   $190   $3,814 
Accounts receivable - related party  $—      —     $—   
Medical receivable  $36,079   $22,728   $13,351 
Management and other fees receivable  $32,846   $10,983   $21,863 
Management and other fees receivable from related medical practices ("PC’s")  $7,246   $1,711   $5,535 

 

The Company's customers are concentrated in the healthcare industry.

 

Accounts Receivable

 

Credit risk with respect to the Company’s accounts receivable related to product sales and service and repair fees is limited due to the customer advances received prior to the commencement of work performed and the billing of amounts to customers as sub-assemblies are completed. Service and repair fees are billed on a monthly or quarterly basis and the Company does not continue providing these services if accounts receivable become past due. The Company controls credit risk with respect to accounts receivable from service and repair fees through its credit evaluation process, credit limits, monitoring procedures and reasonably short collection terms. The Company performs ongoing credit authorizations before a product sales contract is entered into or service and repair fees are provided.

 

Medical Receivables

 

Medical receivables are due under fee-for-service contracts from third party payors, such as hospitals, government sponsored healthcare programs, patient’s legal counsel and directly from patients. Substantially all the revenue relates to patients residing in Florida. The carrying amount of the medical receivable is reduced by allowances for contractual adjustments and subsequent changes in credit worthiness based on specific payor class and historical experience at each site.

 

Management and Other Fees Receivable

 

The Company's receivables from the related and non-related professional corporations (PC's) substantially consist of fees outstanding under management agreements. Payment of the outstanding fees is dependent on collection by the PC's of fees from third party medical reimbursement organizations, principally insurance companies and health management organizations.

 

   

 Page 18 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)

 

Payment of the management fee receivables from the PC’s may be impaired by the inability of the PC’s to collect in a timely manner their medical fees from the third party payors, particularly insurance carriers covering automobile no-fault and workers compensation claims due to longer payment cycles and rigorous informational requirements and certain other disallowed claims. Approximately 67% and 66% of the PCs’ net revenues for the three months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. Approximately 67% and 66% of the PCs’ net revenues for the nine months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. The Company considers the aging of its accounts receivable in determining the amount of allowance for doubtful accounts. The Company generally takes all legally available steps to collect its receivables. Credit losses associated with the receivables are provided for in the condensed consolidated financial statements and have historically been within management's expectations.

 

Net revenues from management and other fees charged to the related PCs accounted for approximately 10.5% and 10.9% of the consolidated net revenues for the three months ended March 31, 2019 and 2018, respectively. Net revenues from management and other fees charged to the related PCs accounted for approximately 10.8% and 11.0% of the consolidated net revenues for the nine months ended March 31, 2019 and 2018, respectively.

 

Tallahassee Magnetic Resonance Imaging, PA, Stand Up MRI of Boca Raton, PA and Stand Up MRI & Diagnostic Center, PA (all related medical practices) entered into a guaranty agreement, pursuant to which they cross guaranteed all management fees which are payable to the Company, which have arisen under each individual management agreement. Additional Company managed entities also operate under a guaranty agreement, pursuant to which management fees are payable to the Company.

 

The Company’s patient fee revenue, net of contractual allowances and discounts less the provision for bad debts for the three and nine months ended March 31, 2019 and 2018 are summarized in the following tables.

 

   For the Three Months Ended March 31,
   2019  2018
Commercial Insurance/ Managed Care  $1,345   $1,238 
Medicare/Medicaid   315    337 
Workers' Compensation/Personal Injury   4,569    6,577 
Other   181    2,011 
Patient Fee Revenue, net of contractual allowances and discounts   6,410    10,163 
Provision for Bad Debts and bad debt expense   —      (4,552)
Net Patient Fee for Revenue  $6,410   $5,611 

 

   For the Nine Months Ended March 31,
   2019  2018
Commercial Insurance/ Managed Care  $3,860   $3,452 
Medicare/Medicaid   876    903 
Workers' Compensation/Personal Injury   12,227    18,685 
Other   893    5,313 
Patient Fee Revenue, net of contractual allowances and discounts   17,856    28,353 
Provision for Bad Debts and bad debt expense   —      (12,873)
Net Patient Fee for Revenue  $17,856   $15,480 

 

 Page 19 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

 

 

NOTE 4 - INVENTORIES

 

Inventories included in the accompanying condensed consolidated balance sheet consist of the following:

 

   March 31, 2019  June 30, 2018
Purchased parts, components   and supplies  $1,686   $1,312 
Work-in-process   124    119 
Total Inventories  $1,810   $1,431 

 

 

 

NOTE 5 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

 

Information relating to uncompleted contracts is as follows:

 

   March 31, 2019  June 30, 2018
Costs incurred on uncompleted contracts  $449   $449 
Estimated earnings   742    309 
Subtotal   1,191    758 
Less: Billings to date   856    671 
Total Costs and estimated earnings in excess of billings on uncompleted contracts  $335   $87 

 

 

 

NOTE 6 – OTHER INTANGIBLE ASSETS

 

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

 

   March 31,
2019
  June 30,
2018
Capitalized software development costs  $7,005   $7,005 
Patents and copyrights   4,924    4,836 
Non-compete   4,100    4,100 
Customer relationships   3,800    3,800 
Gross Other intangible assets   19,829    19,741 
Less: Accumulated amortization   14,870    14,139 
Other Intangible Assets – net  $4,959   $5,602 

 

 

 Page 20 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

 

NOTE 6 – OTHER INTANGIBLE ASSETS (CONTINUED)

 

Amortization of patents and copyrights for the three months ended March 31, 2019 and 2018 amounted to $50 and $50, respectively.

 

Amortization of capitalized software development costs for the three months ended March 31, 2019 and 2018 amounted to $0 and $43, respectively.

 

Amortization of non-compete for the three months ended March 31, 2019 and 2018 amounted to $146 and $146, respectively.

 

Amortization of customer relationships for the three months ended March 31, 2019 and 2018 amounted to $48 and $48, respectively.

 

Amortization of patents and copyrights for the nine months ended March 31, 2019 and 2018 amounted to $149 and $152, respectively.

 

Amortization of capitalized software development costs for the nine months ended March 31, 2019 and 2018 amounted to $0 and $173 respectively.

 

Amortization of non-compete for the nine months ended March 31, 2019 and 2018 amounted to $439 and $439, respectively.

 

Amortization of customer relationships for the nine months ended March 31, 2019 and 2018 amounted to $143 and $143, respectively.

 

 

NOTE 7 – OTHER CURRENT LIABILITIES

 

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

 

   March 31, 2019  June 30, 2018
Accrued salaries, commissions and payroll taxes  $1,096   $3,438 
Litigation accruals   145    145 
Sales tax payable   1,695    2,092 
Legal and other professional fees   132    119 
Accounting fees   90    125 
Self-funded health insurance reserve   —      79 
Accrued interest and penalty   1,253    1,498 
Other   562    682 
Total Other Current Liabilities  $4,973   $8,178 

 

 

 

NOTE 8 – STOCKHOLDERS EQUITY

 

Common Stock

 

During the nine months ended March 31, 2019, the Company issued 70 shares of common stock for costs and expenses of $1,955.

 

 Page 21 

 

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

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

(UNAUDITED)

 

 

NOTE 9 - SEGMENT AND RELATED INFORMATION

 

The Company operates in two industry segments - manufacturing and the servicing of medical equipment and management of diagnostic imaging centers.

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies as disclosed in the Company’s 10-K as of June 30, 2018. All inter-segment sales are market-based. The Company evaluates performance based on income or loss from operations.

 

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

 

   Medical
Equipment
  Management
Of
Diagnostic
Imaging
Centers
  Totals
For the three months ended March 31, 2019               
Net revenues from external customers  $2,788   $19,991   $22,779 
Inter-segment net revenues  $228   $—     $228 
(Loss) income from operations  $(27)  $6,635   $6,608 
Depreciation and amortization  $92   $886   $978 
Capital expenditures  $661   $213   $874 
                
For the three months ended March 31, 2018               
Net revenues from external customers  $2,411   $18,568   $20,979 
Inter-segment net revenues  $228