Fonar(FONR) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements FONAR Corporation's unaudited condensed consolidated financial statements for March 31, 2022, detail asset growth, revenue increases, and positive net income Condensed Consolidated Balance Sheets As of March 31, 2022, total assets and stockholders' equity increased, while total liabilities decreased | Balance Sheet Items | March 31, 2022 ($ thousands) | June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 114,334 | 108,583 | | Total Assets | 195,649 | 189,506 | | Total Current Liabilities | 14,166 | 20,049 | | Total Liabilities | 51,375 | 54,136 | | Total Stockholders' Equity | 144,274 | 135,370 | Condensed Consolidated Statements of Income For the nine months ended March 31, 2022, total revenues and net income increased, with mixed results for the third quarter | Metric (in thousands, except EPS) | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Total Revenues – Net | $ 72,780 | $ 65,234 | | Income From Operations | $ 17,863 | $ 13,254 | | Net Income – Attributable to FONAR | $ 10,198 | $ 9,487 | | Diluted EPS (Common) | $ 1.43 | $ 1.35 | | Metric (in thousands, except EPS) | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Total Revenues – Net | $ 24,571 | $ 23,090 | | Income From Operations | $ 5,638 | $ 4,122 | | Net Income – Attributable to FONAR | $ 2,291 | $ 3,868 | | Diluted EPS (Common) | $ 0.32 | $ 0.54 | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2022, operating cash flow decreased, with net cash increasing due to investing and financing activities | Cash Flow Activity (in thousands) | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 10,117 | $ 13,140 | | Net cash used in investing activities | $ (4,413) | $ (4,173) | | Net cash used in financing activities | $ (4,154) | $ (4,960) | | Net Increase in Cash | $ 1,550 | $ 4,007 | | Cash and Cash Equivalents - End of Period | $ 46,010 | $ 40,809 | Notes to Condensed Consolidated Financial Statements The notes detail the company's business segments, accounting policies, COVID-19 impact, and financial specifics including segment performance and a recent acquisition - The company's business is organized into two main segments: manufacturing and servicing of medical equipment, and the management of diagnostic imaging centers, with the latter being the larger segment[34][70] - The COVID-19 pandemic has impacted the company through workforce disruptions and fluctuating scan volumes, but positive cash flows and low debt are expected to sustain operations[36] - On March 29, 2021, the company acquired certain assets of Rockland Management Group for a total purchase consideration of $1.123 million, recorded as a business combination[90] | Segment Performance (Nine Months Ended Mar 31, 2022) | Medical Equipment ($ thousands) | Management of Diagnostic Imaging Centers ($ thousands) | | :--- | :--- | :--- | | Net revenues from external customers | 6,284 | 66,496 | | (Loss) Income from operations | (1,054) | 18,917 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results for the periods ended March 31, 2022, highlighting revenue growth from diagnostic services, COVID-19 operational impacts, and strong liquidity - For the nine months ended March 31, 2022, revenues increased 11.6% to $72.8 million, and operating income grew to $17.9 million from $13.3 million year-over-year[94][97] - The Diagnostic Facilities Management Services (HMCA) segment is the primary growth driver, with revenues increasing 12.9% to $66.5 million for the nine-month period, accounting for 91.4% of total revenues[113][128] - Despite challenges from COVID-19 variants and vaccine mandates affecting staffing, scan volumes increased from approximately 131,000 to 141,000 in the first nine months of fiscal 2022 compared to the prior year[103][118] - The company maintains a strong liquidity position with $46.0 million in cash and cash equivalents and working capital of $100.2 million as of March 31, 2022[151][158] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports minimal market risk exposure, with funds in liquid accounts and all transactions in U.S. dollars, mitigating foreign currency risk - The company's funds are maintained in liquid accounts, and it does not invest in fixed-rate instruments[171] - All revenue, expense, and capital purchasing activities are transacted in United States dollars, mitigating foreign currency risk[171] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[172] - No changes were made to the internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[173] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports no material changes in litigation since its previous annual and quarterly reports - There were no material changes in litigation from that reported in the company's previous annual and quarterly reports[174] Item 1A. Risk Factors This section details significant business risks, including reduced reimbursement rates, intense competition, referral dependence, COVID-19 impacts, and cybersecurity threats - Reduced Reimbursement Rates: Lower rates from Medicare and private insurers negatively affect revenues for both the scanning center business and demand for MRI scanners[178][179] - Competition: The company faces significant competition from larger, better-resourced scanner manufacturers (e.g., GE, Siemens) and from other diagnostic imaging service providers[180][183] - Dependence on Referrals: The diagnostic imaging business relies heavily on patient referrals from unaffiliated physicians, and a reduction in these referrals could significantly harm revenue[181] - COVID-19: The pandemic continues to pose a risk, with new variants and vaccine mandates creating staffing shortages and affecting the ability to operate at full capacity[192] - Information Security: The company must comply with HIPAA and other privacy laws and faces increasing risks from cybersecurity attacks targeting protected health information[188][191] Other Items (2, 3, 4, 5, 6) The company reports no unregistered equity sales, no defaults on senior securities, no other material information, and notes mine safety disclosures are not applicable - The company reported 'None' for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information)[194] - Item 4 (Mine Safety Disclosure) was marked as 'Not Applicable'[194]