10-Q 1 fonar_10q.htm FONAR 10-Q ENDED MARCH 31, 2021

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, 2021

Commission file number 0-10248

FONAR CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

Class	Outstanding at May 5, 2021
Common Stock, par value $.0001		6,554,210
Class B Common Stock, par value $.0001		146
Class C Common Stock, par value $.0001		382,513
Class A Preferred Stock, par value $.0001		313,438

Page 1

FONAR CORPORATION AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION		PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2021 (Unaudited) and June 30, 2020		3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2021 and March 31, 2020 (Unaudited)		6
Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2021 and March 31, 2020 (Unaudited)		7
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2021 and March 31, 2020 (Unaudited)		8
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended March 31, 2021 and March 31, 2020 (Unaudited)		9
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 and March 30, 2020 (Unaudited)		10
Notes to Condensed Consolidated Financial Statements (Unaudited)		11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		35
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3. Defaults Upon Senior Securities		38
Item 4. Mine Safety Disclosures		38
Item 5. Other Information		38
Item 6. Exhibits		38
Signatures		38

Page 2

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

ASSETS

	March 31, 2021		June 30, 2020 *
Current Assets:
Cash and cash equivalents	$	40,809	$	36,802
Short term investments		32		32
Accounts receivable – net		4,308		4,313
Accounts receivable - related party		42		6
Medical receivable – net		17,021		16,172
Management and other fees receivable – net		30,313		27,438
Management and other fees receivable – related medical practices – net		7,530		6,896
Inventories		1,971		1,649
Contract assets		218		153
Income tax receivable		—		671
Prepaid expenses and other current assets		1,330		1,758
Total Current Assets		103,574		95,890

Accounts receivable		2,790		2,730
Deferred income tax asset		17,098		18,810
Property and equipment – net		22,133		21,364
Right-of-use Asset – operating lease		29,462		31,392
Right-of-use Asset – financing lease		1,177		1,326
Goodwill		4,269		3,985
Other intangible assets – net		4,090		4,109
Other assets		659		653
Total Assets	$	185,252	$	180,259

*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, 2021		June 30, 2020 *
Current Liabilities:
Current portion of long-term debt and capital leases	$	193	$	108
Accounts payable		1,776		1,965
Other current liabilities		6,252		8,185
Unearned revenue on service contracts		4,121		4,105
Unearned revenue on service contracts – related party		28		—
Operating lease liability - current portion		3,482		3,370
Financing lease liability - current portion		201		75
Customer deposits		1,038		855

Total Current Liabilities		17,091		18,663

Long-Term Liabilities:
Unearned revenue on service contracts		2,718		2,656
Deferred income tax liability		234		234
Due to related medical practices		93		93
Operating lease liability – net of current portion		28,288		30,105
Financing lease liability – net of current portion		1,099		1,251
Long-term debt and capital leases, less current portion		770		865
Other liabilities		164		150

Total Long-Term Liabilities		33,366		35,354
Total Liabilities		50,457		54,017

*Condensed from audited financial statements.

See accompanying notes to condensed consolidated financial statements.

Page 4

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(UNAUDITED)

LIABILITIES AND STOCKHOLDERS’ EQUITY (Continued)

STOCKHOLDERS' EQUITY:	March 31, 2021			June 30, 2020 *
Class A non-voting preferred stock $.0001 par value; 453 shares authorized at March 31, 2021 and June 30, 2020, 313 issued and outstanding at March 31, 2021 and June 30, 2020	$	—		$	—
Preferred stock $.001 par value; 567 shares authorized at March 31, 2021 and June 30, 2020, issued and outstanding – none		—			—
Common Stock $.0001 par value; 8,500 shares authorized at March 31, 2021 and June 30, 2020, 6,566 and 6,459 issued at March 31, 2021 and June 30, 2020, 6,554 and 6,447 outstanding at March 31, 2021 and June 30, 2020		1			1
Class B Common Stock (10 votes per share) $.0001 par value; 227 shares authorized at March 31, 2021 and June 30, 2020; .146 issued and outstanding at March 31, 2021 and June 30, 2020		—			—
Class C Common Stock (25 votes per share) $.0001 par value; 567 shares authorized at March 31, 2021 and June 30, 2020, 383 issued and outstanding at March 31, 2021 and June 30, 2020		—			—
Paid-in capital in excess of par value		185,101			183,076
Accumulated deficit		(46,728	)		(56,215	)
Treasury stock, at cost - 12 shares of common stock at March 31, 2021 and June 30, 2020		(675	)		(675	)
Total Fonar Corporation’s Stockholders’ Equity		137,699			126,187
Noncontrolling interests		(2,904	)		55
Total Stockholders' Equity		134,795			126,242
Total Liabilities and Stockholders' Equity	$	185,252		$	180,259

*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	2021			2020
Patient fee revenue – net of contractual allowances and discounts	$	6,043		$	5,713
Product sales – net		503			92
Service and repair fees – net		1,914			1,942
Service and repair fees - related parties – net		28			28
Management and other fees – net		11,808			11,218
Management and other fees - related medical practices – net		2,794			2,693
Total Revenues – Net		23,090			21,686
COSTS AND EXPENSES
Costs related to patient fee revenue		2,828			2,840
Costs related to product sales		152			235
Costs related to service and repair fees		627			674
Costs related to service and repair fees - related parties		9			9
Costs related to management and other fees		7,073			6,004
Costs related to management and other fees – related medical practices		1,746			1,550
Research and development		419			535
Selling, general and administrative		6,114			7,224
Total Costs and Expenses		18,968			19,071
Income From Operations		4,122			2,615
Other Income/(Expense)		144			—
Interest Expense		(19	)		(17	)
Investment Income		64			126
Income Before Provision for Income Taxes and Noncontrolling Interests		4,311			2,724
Provision for Income Taxes		(12	)		(810	)
Net Income		4,299			1,914
Net Income - Noncontrolling Interests		(431	)		(653	)
Net Income – Attributable to FONAR	$	3,868		$	1,261
Net Income Available to Common Stockholders	$	3,634		$	1,184
Net Income Available to Class A Non-Voting Preferred Stockholders	$	174		$	57
Net Income Available to Class C Common Stockholders	$	60		$	20
Basic Net Income Per Common Share Available to Common Stockholders	$	0.55		$	0.18
Diluted Net Income Per Common Share Available to Common Stockholders	$	0.54		$	0.18
Basic and Diluted Income Per Share – Class C Common	$	0.16		$	0.05
Weighted Average Basic Shares Outstanding – Common Stockholders		6,554			6,447
Weighted Average Diluted Shares Outstanding - Common Stockholders		6,682			6,575
Weighted Average Basic and Diluted Shares Outstanding – Class C Common		383			383

See accompanying notes to condensed consolidated financial statements.

Page 6

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(UNAUDITED)

	FOR THE NINE MONTHS ENDED MARCH 31,
REVENUES	2021			2020
Patient fee revenue – net of contractual allowances and discounts	$	16,372		$	17,754
Product sales – net		534			288
Service and repair fees – net		5,702			6,044
Service and repair fees - related parties – net		83			83
Management and other fees – net		34,362			33,242
Management and other fees - related medical practices – net		8,181			7,473
Total Revenues – Net		65,234			64,884
COSTS AND EXPENSES
Costs related to patient fee revenue		7,997			8,660
Costs related to product sales		477			685
Costs related to service and repair fees		1,861			2,196
Costs related to service and repair fees - related parties		27			30
Costs related to management and other fees		18,861			18,203
Costs related to management and other fees – related medical practices		4,696			4,707
Research and development		1,243			1,590
Selling, general and administrative		16,818			15,691
Total Costs and Expenses		51,980			51,762
Income From Operations		13,254			13,122
Other Income/(Expense)		4			1
Interest Expense		(57	)		(57	)
Investment Income		251			413
Income Before Provision for Income Taxes and Noncontrolling Interests		13,452			13,479
Provision for Income Taxes		(1,974	)		(2,849	)
Net Income		11,478			10,630
Net Income - Noncontrolling Interests		(1,991	)		(2,966	)
Net Income – Attributable to FONAR	$	9,487		$	7,664
Net Income Available to Common Stockholders	$	8,915		$	7,194
Net Income Available to Class A Non-Voting Preferred Stockholders	$	426		$	350
Net Income Available to Class C Common Stockholders	$	146		$	120
Basic Net Income Per Common Share Available to Common Stockholders	$	1.37		$	1.12
Diluted Net Income Per Common Share Available to Common Stockholders	$	1.35		$	1.10
Basic and Diluted Income Per Share – Class C Common	$	0.38		$	0.31
Weighted Average Basic Shares Outstanding – Common Stockholders		6,489			6,442
Weighted Average Diluted Shares Outstanding - Common Stockholders		6,617			6,570
Weighted Average Basic and Diluted Shares Outstanding – Class C Common		383			383

See accompanying notes to condensed consolidated financial statements.

Page 7

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

For the Three Months Ending March 31, 2021

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit			Treasury Stock			Non Controlling Interests			Total
Balance – December 31, 2020	$	1	$	185,101	($	50,596	)	($	675	)	($	1,955	)	$	131,876
Issuance of Common Stock		—		—		—									—
Net income		—		—		3,868			—			—			3,868
Distributions - Non controlling		—		—		—			—			(1,380	)		(1,380	)
Income - Non controlling interests		—		—		—			—			431			431
Balance – March 31, 2021	$	1	$	185,101	($	46,728	)	($	675	)	($	2,904	)	$	134,795

For the Three Months Ending March 31, 2020

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit			Treasury Stock			Non Controlling Interests			Total
Balance - December 31, 2019	$	1	$	183,076	($	58,053	)	($	675	)	$	734		$	125,083
Net income		—		—		1,261						—			1,261
Distributions - Non controlling		—		—		—			—			(1,410	)		(1,410	)
Income - Non controlling interests		—		—		—			—			653			653
Balance - March 31, 2020	$	1	$	183,076	($	56,792	)	($	675	)	($	23	)	$	125,587

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, 2021

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

For the Nine Months Ending March 31, 2020

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit			Treasury Stock			Non Controlling Interests			Total
Balance - June 30, 2019	$	1	$	181,086	($	64,455	)	($	675	)	$	2,156		$	118,112
Issuance of Common Stock		—		1,990		—						—			1,990
Net income		—		—		7,664			—			—			7,664
Distributions - Non controlling		—		—		—			—			(5,145	)		(5,145	)
Income - Non controlling interests		—		—		—			—			2,966			2,966
Balance - March 31, 2020	$	1	$	183,076	($	56,792	)	($	675	)	($	23	)	$	125,587

Page 9

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(UNAUDITED)

	FOR THE NINE MONTHS ENDED MARCH 31,
	2021			2020
Cash Flows from Operating Activities:
Net income	$	11,478		$	10,630
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,100			3,001
Amortization on right-of-use assets		1,543			2,505
Provision(Recovery) for bad debts		5,103			1,711
Deferred income tax – net		1,712			2,481
Compensatory element of stock issuances		83			—
Stock issued for costs and expenses		1,941			1,990
Abandoned patents		1			—
(Increase) decrease in operating assets, net:
Accounts, medical and management fee receivables		(9,551	)		(6,808	)
Notes receivable		36			22
Contract assets		(65	)		372
Inventories		(323	)		23
Income tax receivable		671			—
Prepaid expenses and other current assets		424			570
Other assets		(1	)		(142

SEC Form 10-Q filed by Fonar Corporation