Fonar(US:FONR)2023-09-27 16:00Part I Business FONAR Corporation operates in medical equipment manufacturing (Upright® MRI) and diagnostic services management (HMCA) - The company's business is divided into two main segments: Medical Equipment (FONAR) and Physician Management and Diagnostic Services (HMCA)11 - FONAR's primary product is the Upright® Multi-Position™ MRI scanner, enabling scans in various weight-bearing postures1318 - HMCA manages 41 MRI scanners across New York and Florida, with revenues increasing to $90.4 million in fiscal 202397 Medical Equipment Segment The Medical Equipment segment focuses on the Upright® MRI, a unique weight-bearing scanner, with $7.5 million in service revenue - The primary product is the Upright® MRI, a whole-body scanner capable of scanning patients in various weight-bearing postures1820 Medical Equipment Segment Financials (Fiscal Years 2023 vs. 2022) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Service & Maintenance Revenue | $7.5 million | $7.7 million | | R&D Expenditures | $1,567,749 | $1,494,181 | | Order Backlog (as of Sept) | $608,000 | $844,000 | - As of June 30, 2023, FONAR holds 225 issued patents with 8 pending, including two new patents issued in fiscal 202348 - The company's MRI scanners are regulated by the FDA as Class II medical devices, requiring compliance with QSR and MDR regulations6061 Physician and Diagnostic Services Management Business (HMCA) HMCA provides non-medical management services to 41 diagnostic imaging facilities, generating $90.4 million in fiscal 2023 revenue HMCA Segment Revenue (Fiscal Years 2023 vs. 2022) | Revenue Source | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total HMCA Revenue | $90.4 million | $89.4 million | | Patient Fees (6 FL facilities) | $29,793,993 | $29,582,238 | | Aggregate Monthly Management Fees | $4,860,732 | $4,865,443 | - HMCA's client receipts are heavily reliant on no-fault insurance (58.4%) and workers' compensation programs (8.6%)158 - The business is subject to significant government regulation, including the federal Stark Law, Anti-kickback statutes, and HIPAA138139145 - As of September 12, 2023, FONAR and HMCA had approximately 561 employees164 Risk Factors The company faces significant risks from reduced reimbursement rates, inflation, competition, and changes in Florida's insurance laws - Reduced reimbursement rates from Medicare and private insurers, coupled with inflation, negatively impact profitability and MRI scanner demand166 - The company faces strong competition from larger scanner manufacturers and local hospitals in the diagnostic services market168 - The business is heavily dependent on patient referrals from unaffiliated physicians, and a reduction would significantly harm revenue168 - Recent changes to Florida's insurance laws (House Bill 837) are expected to negatively impact reimbursement rates and increase uncollectible billings172 Properties FONAR and HMCA lease approximately 78,000 square feet for their principal offices in Melville, NY, with leases for other facilities - The company leases its main office and plant space of 78,000 square feet in Melville, NY, with the lease extending to November 2026175 Legal Proceedings The company reports no material legal proceedings currently threatened or pending against it - There are no material legal proceedings threatened or pending against the Company176 Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable177 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities FONAR's Common Stock trades on NASDAQ (FONR), with a policy of retaining earnings for business development and no current dividends - The Company's Common Stock is traded on the NASDAQ Capital Market (symbol: FONR)179 - The company has a policy of retaining earnings for business expansion and does not currently pay dividends180 Stock Performance Comparison (Investment of $100) | Date | FONR Common Stock | Nasdaq Composite | Nasdaq Health | Nasdaq Equipment | | :--- | :--- | :--- | :--- | :--- | | June 28, 2019 | $100 | $100 | $100 | $100 | | June 30, 2020 | $99 | $127 | $114 | $106 | | June 30, 2021 | $82 | $184 | $58 | $54 | | June 30, 2022 | $71 | $141 | $193 | $129 | | June 30, 2023 | $79 | $178 | $185 | $145 | Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, net income decreased to $12.1 million despite a slight revenue increase to $98.6 million, driven by higher costs Consolidated Results of Operations (Fiscal Years 2023 vs. 2022) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total Revenues | $98.6 million | $97.6 million | | Net Income | $12.1 million | $17.2 million | | Operating Income | $14.8 million | $22.0 million | - Selling, general and administrative (SG&A) expenses increased by 25.0% to $29.4 million in fiscal 2023, primarily due to higher reserves on receivables218 - Cash and cash equivalents increased by 5.2% to $51.3 million at June 30, 2023, with $14.5 million provided by operating activities230231 - Under its stock repurchase plan, the company repurchased 103,148 shares for $1.8 million during fiscal 2023244 Quantitative and Qualitative Disclosures About Market Risk The company has no investments in marketable securities or foreign currencies, limiting market risk as all business is in U.S. dollars - The Company does not hold investments in marketable securities or foreign currencies and transacts all business in United States dollars, minimizing market risk247 Financial Statements and Supplementary Data Consolidated financial statements for fiscal 2023 and 2022 are presented with an unqualified auditor opinion, showing $200.6 million in total assets Report of Independent Registered Public Accounting Firm Marcum LLP issued an unqualified opinion on the financial statements, highlighting critical audit matters for accounts receivable reserves - The auditor, Marcum LLP, provided an unqualified opinion on the financial statements, indicating fair presentation in conformity with U.S. GAAP249 - Critical Audit Matters identified were reserves for Medical Accounts Receivable and Management Fee Accounts Receivable, due to complex judgment in estimating net realizable value255258 Consolidated Financial Statements Consolidated financial statements show total assets of $200.6 million and stockholders' equity of $150.8 million as of June 30, 2023 Consolidated Balance Sheet Highlights (as of June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $125.7 million | $118.7 million | | Total Assets | $200.6 million | $199.3 million | | Total Current Liabilities | $15.6 million | $16.7 million | | Total Liabilities | $49.8 million | $53.1 million | | Total Stockholders' Equity | $150.8 million | $146.2 million | Consolidated Income Statement Highlights (for the year ended June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues – Net | $98,645,101 | $97,592,145 | | Income from Operations | $14,789,262 | $22,007,182 | | Net Income | $12,126,516 | $17,234,388 | | Diluted Net Income Per Common Share | $1.32 | $1.75 | Consolidated Cash Flow Highlights (for the year ended June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $14,467,130 | $15,301,360 | | Net Cash Used in Investing Activities | ($4,338,128) | ($5,179,323) | | Net Cash Used in Financing Activities | ($7,572,272) | ($5,859,471) | | Net Increase in Cash | $2,556,730 | $4,262,566 | Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, and financial results, highlighting the diagnostic management segment's $90.4 million revenue - The company's revenue recognition for scanner sales uses the percentage-of-completion method, while service and management fee revenues are recognized straight-line or by contract306307308 - Under a stock repurchase plan, the company purchased 103,148 shares for $1,759,457 in fiscal 2023370371 Segment Financial Information (Fiscal 2023) | Segment | Net Revenues (External) | (Loss) Income from Operations | | :--- | :--- | :--- | | Manufacturing and Servicing | $8,260,711 | ($5,875,126) | | Management of Diagnostic Imaging | $90,384,390 | $20,664,388 | - As of June 30, 2023, the company has federal net operating loss (NOL) carryforwards of approximately $9.1 million available, expiring from 2025384 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - The Principal Executive Officer and Acting Principal Financial Officer concluded that disclosure controls and procedures were effective as of fiscal year-end426 - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2023, based on the COSO-2013 framework429 Part III Directors, Executive Officers and Corporate Governance This section details the company's leadership, including key executive officers and a board of directors with a majority of independent members - The key executive officers are Timothy R. Damadian (Chairman, President, CEO, Treasurer) and Luciano B. Bonanni (EVP, COO, acting PFO)439440 - A majority of the board of directors is independent, including Ronald G. Lehman, Richard E. Turk, and Jessica Maher435 Executive Compensation Executive compensation for fiscal 2023 included $152,900 for CEO Timothy R. Damadian and $449,216 for COO Luciano Bonanni Summary Compensation Table (Fiscal 2023) | Name and Position | Salary ($) | Cash Bonuses ($) | Total Compensation ($) | | :--- | :--- | :--- | :--- | | Timothy R. Damadian (President, CEO) | 0 | 152,900 | 152,900 | | Raymond V. Damadian (Former Chairman) | 23,553 | 305,800 | 329,353 | | Luciano Bonanni (COO, acting PFO) | 143,416 | 305,800 | 449,216 | - There were no outstanding unexercised options or stock awards for the named executive officers at the end of fiscal year 2023458 Security Ownership of Certain Beneficial Owners and Management Timothy R. Damadian, as trustee, beneficially owns 99.98% of the Class C Common Stock, holding significant voting power - Beneficial owners with over 5% of Common Stock include Kayne Anderson (9.75%), Dimensional Fund Advisors (6.35%), and The Vanguard Group (5.80%)464 - Timothy R. Damadian, as trustee, holds 99.98% of the Class C Common Stock, which has 25 votes per share464364 - All officers and directors as a group beneficially own 1.50% of the Common Stock and 99.98% of the Class C Stock466 Certain Relationships and Related Transactions, and Director Independence The company discloses related-party transactions, primarily involving CEO Timothy Damadian, including $11.9 million in net revenues from managed facilities - Three imaging facilities owned by CEO Timothy Damadian are managed by HMCA, paying approximately $11.9 million in net revenues in fiscal 2023471472 - The company provided IT services to a billing company partially owned by CEO Timothy Damadian, billing $191,072 in fiscal 2023474 Principal Accountant Fees and Services This section details fees paid to independent auditor Marcum LLP, with audit fees of $374,000 in fiscal 2023 Audit Fees Billed by Marcum LLP | Fiscal Year | Audit Fees | | :--- | :--- | | 2023 | $374,000 | | 2022 | $379,000 | - No fees were billed by Marcum LLP for audit-related, tax, or other services in fiscal years 2023 or 2022479480481 Part IV Exhibits, Financial Statement Schedules, and Reports on Form 8-K This section lists financial statements, schedules, and exhibits filed as part of the 10-K report, including corporate documents - The section lists all financial statements and schedules included in the report, found in Part II, Item 8486 - Three Form 8-K reports were filed during the fiscal year, covering results of operations, director changes, and shareholder meeting results488 - A list of exhibits is provided, including corporate governance documents, material contracts, and required CEO/CFO certifications489501504