Fonar(FONR) - 2025 Q4 - Annual Report

PART I Item 1. Business FONAR operates in medical equipment and physician management services, known for pioneering 'open' MRI, with a privatization offer General FONAR Corporation, incorporated in 1978, operates in medical equipment and physician management segments - FONAR Corporation, incorporated July 17, 1978, is based in Melville, New York[14] - The company conducts business in two segments: medical equipment (FONAR) and physician management and diagnostic services (HMCA)[15] Cautionary Note Regarding Forward Looking Statements Forward-looking statements are subject to risks and uncertainties, with no public update commitment - The report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially from expectations[20][21] - The company does not undertake to publicly update or revise any forward-looking statement unless required by law[23] Physician and Diagnostic Services Management Segment HMCA provides non-medical management services to diagnostic imaging facilities, with $95.4 million revenue in fiscal 2025 - HMCA provides comprehensive non-medical management services to diagnostic imaging facilities, including administrative, billing, IT, personnel, and marketing services[26][33][34][35][36][38][39] - As of June 30, 2025, HMCA managed 44 MRI scanners (26 in NY, 18 in FL), with revenues increasing to $95.4 million in fiscal 2025 from $94.6 million in fiscal 2024[29] - HMCA's growth strategy focuses on upgrading and expanding existing facilities and increasing the number of owned or managed facilities, including adding high field MRI scanners, extremity scanners, and x-ray machines[32] - Aggregate active management fees increased from $4,960,733 per month in fiscal 2024 to $5,160,735 per month in fiscal 2025[43] - Patient fees net of contractual allowances and discounts for HMCA-owned Florida facilities decreased from $33,815,796 in fiscal 2024 to $33,179,446 in fiscal 2025[45] - HMCA's clients receive reimbursements from various sources, including Medicare (2.6% of revenues in FY25, down from 2.7% in FY24) and Medicaid (0.05% in FY25, down from 0.06% in FY24)[51][55][58] - The healthcare industry is highly regulated by federal laws (False Claims Act, Stark Law, Anti-Kickback, HIPAA) and state laws, which can significantly impact permissible activities and reimbursement[62][63][67][70][71][80][81] - Approximately 58.0% of client receipts in fiscal 2025 and 2024 were from no-fault insurance, and 9.1% (FY25) and 8.8% (FY24) from workers' compensation programs[82] Medical Equipment Segment FONAR's Upright® MRI scanner offers unique weight-bearing imaging, with $8.4 million service revenue in fiscal 2025 - The Upright® MRI scanner is FONAR's primary product, offering whole-body scanning in various postures (sitting, standing, bending, lying down) and a non-claustrophobic experience[87][88][89] - The Upright® MRI operates at a mid-field strength of 0.6 T, providing diagnostically versatile images and unique advantages for conditions like spondylolisthesis, scoliosis, and Chiari malformation by imaging in weight-bearing positions[94][95][96][97][100] - Service and maintenance revenues from the external installed base increased to $8.4 million in fiscal 2025 from $7.6 million in fiscal 2024[105] - FONAR distributes AIRS Medical USA, Inc.'s SwiftMR product to improve image quality and efficiency and formed Opus Diagnostic Management, LLC in 2024 to service MRI scanners from other manufacturers[109][110] - Research and development expenditures decreased by 9.2% from $1,735,949 in fiscal 2024 to $1,576,086 in fiscal 2025, focusing on software improvements and new clinical protocols for the Upright® MRI[111][112][113][222] - FONAR holds 245 patents as of June 30, 2025, including new patents for a next-generation patient positioning system and methods for monitoring treatment effectiveness and assessing cerebral palsy risk[119] - FONAR competes with major MRI manufacturers (Siemens, GE, Philips) primarily in the high-field market, but believes its Upright® MRI offers a competitive advantage due to higher field strength, larger dimensions, and diverse patient positioning[120][121] - The FDA regulates FONAR's MRI scanners as Class II medical devices, requiring compliance with pre-market (510(k) clearance, labeling) and post-market (Quality Systems Regulation, Medical Device Reporting) requirements[129][130][132][133][137][138] - FONAR has initiated six voluntary recalls between 1987 and 2016 (five Class II, one Class III) involving minor product corrections[148] - The company complies with foreign regulatory requirements for export sales, including the EU's new medical device regulation (EU 2017/745)[157][158][159][160] Employees FONAR and HMCA employed approximately 535 individuals across various functions as of August 7, 2025 - FONAR and HMCA had approximately 535 employees as of August 7, 2025, across various functions including production, customer support, R&D, IT, marketing, sales, billing, and administrative roles[161] - FONAR operates in two segments: medical equipment (MRI scanners) and physician management/diagnostic services (HMCA)[15] - FONAR pioneered the first MRI scanner (1977), first commercial MRI (1980), and first 'open' MRI (1980), focusing on the Upright® Multi-Position™ MRI[16][17] - A non-binding proposal was received on July 7, 2025, from a group led by the CEO and COO to acquire all outstanding common stock and other securities not currently owned by the group, aiming to de-list the company from NASDAQ[19] Item 1A. Risk Factors The company faces risks from reduced reimbursement, inflation, cybersecurity, and intense competition - Reduced reimbursement rates from Medicare, other government programs, and private insurance companies negatively impact scanning center revenues and profitability[162] - Inflation has drastically increased costs for materials and labor, making organic growth more difficult and extending the time for new centers to achieve profitability[164] - Cybersecurity threats, including breaches and ransomware, pose a material risk to operations, data integrity, and could result in significant response costs and regulatory investigations[165] - The company is highly dependent on patient referrals from unaffiliated physicians and third parties; a reduction in referrals would decrease net revenue and operating margins[166] - Recent changes to Florida insurance law (House Bill 837, Tort Reform Act) negatively impact Florida diagnostic imaging facilities through more unpaid bills, higher administrative costs, and lower reimbursement rates[167] - The diagnostic imaging industry is highly competitive, with hospitals and independent imaging centers as principal competitors, particularly intense in the Florida market[168](index=168&type=