<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1994 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 Identification No.)
incorporation or organization)
110 Marcus Drive Melville, New York 11747
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at December 31, 1994
- ------------------------------ --------------------------------
Common Stock, par value $.0001 34,810,973
Class B Common Stock,
par value $.0001 3,194,556
Class C non-voting Common Stock,
par value $.001 -0-
<PAGE> - 2 -
FONAR CORPORATION AND SUBSIDIARIES
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31,
1994 and June 30, 1994 3
Condensed Consolidated Statements of Operations for
the Three Months Ended December 31, 1994 and
December 31, 1993 4
Condensed Consolidated Statements of Operations for
the Six Months Ended December 31, 1994 and
December 31, 1993 5
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1994 and
December 31, 1993 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION 11
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000's OMITTED)
ASSETS December 31, June 30,
1994 1994
<S> <C> <C>
(UNAUDITED)
Current Assets: ----------- ---------
Cash $ 479 $ 577
Accounts and notes receivable, net of allowance
for doubtful accounts of $ 1,692 2,046 3,045
Accounts receivable from affiliates 400 400
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note C) 1,374 401
Inventories (Note B) 2,452 2,776
Other current assets 1,661 2,846
Total current assets 8,412 10,045
------ ------
Assets held for resale 598 608
------ ------
Property and equipment, at cost 15,105 15,199
Less accumulated depreciation and amortization (11,863) (11,398)
3,242 3,801
------ ------
Investment, advances and notes to affiliates and
related parties, net of allowance of $ 1,250 20,910 19,054
Cost of acquired technology and license, patents
and software development costs, net 4,835 4,869
Net investment in sales-type leases 4,914 5,816
Costs and estimated earning in excess of billings
on uncompleted contracts (Note C) 6,029 2,855
Other assets 1,348 1,370
------ ------
$ 50,288 $ 48,418
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 100 $ 100
Current maturities of long-term debt and
capital lease obligations 3,484 4,427
Accounts payable 2,662 3,018
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note C) - -
Accrued expenses, customer advances and
other current liabilities 8,524 10,250
------ ------
Total current liabilities 14,770 17,795
------ ------
Long-term debt and capital lease obligations
less current maturities 1,211 1,457
Other liabilities 171 201
------ ------
1,382 1,658
------ ------
Minority interest 524 632
Stockholders' Equity (Note D) 33,612 28,333
------ ------
$ 50,288 $ 48,418
====== ======
See notes to condensed consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(000's OMITTED, except per share data)
FOR THE THREE MONTHS ENDED
DECEMBER 31,
---------------------
1994 1993
<S> <C> <C>
-------- --------
REVENUES $ 3,671 $ 3,629
-------- --------
COSTS AND EXPENSES:
Cost of revenues 1,528 1,931
Research and development 846 994
Selling, general and administrative 1,727 1,670
------- -------
Income (loss) from operations ( 430) ( 966)
Other income (expenses), net 355 1,059
------- -------
Income (loss) before provision for income taxes
and minority interest ( 75) 93
Provision for income taxes - -
------- -------
Income (loss) before minority interest ( 75) 93
Minority interest in net loss (income) of
subsidiary and partnership 24 -
------- ------
NET INCOME (LOSS) $( 51) $ 93
======== ======
Net income per common share:
Income (loss) before taxes & minority interest $ .00 $ .00
Minority interest .00 .00
------ ------
Net income per common share $ .00 $ .00
====== ======
Weighted average number of common shares outstanding 38,006 31,183
====== ======
See notes to condensed consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(000's OMITTED, except per share data)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
---------------------
1994 1993
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<S> <C> <C>
REVENUES $ 8,577 $ 6,804
-------- --------
COSTS AND EXPENSES:
Cost of revenues 3,802 3,654
Research and development 1,643 1,742
Selling, general and administrative 3,842 3,212
------- -------
Income (loss) from operations ( 710) ( 1,804)
Other income (expenses), net 479 1,944
------- -------
Income (loss) before provision for income taxes
and minority interest ( 231) 140
Provision for income taxes - -
------- -------
Income (loss) before minority interest ( 231) 140
Minority interest in net loss (income) of
subsidiary and partnership 108 -
------- ------
NET INCOME (LOSS) $( 123) $ 140
======== ======
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<TABLE>
<S> <C> <C>
Net income per common share:
Income (loss) before extraordinary credit $ .00 $ .00
Extraordinary credit .00 .00
------ ------
Net income per common share $ .00 $ .00
====== ======
Weighted average number of common shares outstanding 38,006 31,183
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(000'S OMITTED)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
-----------------
1994 1993
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<S> <C> <C>
Operating activities:
Net income (loss) $( 123) $ 140
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in net income (loss) ( 108) -
Depreciation and amortization 1,154 1,198
(Increase) decrease in operating assets, net:
accounts and notes receivable, inventories,
other current assets, costs and estimated
earnings in excess of billings on uncompleted
contracts and assets held for resale ( 1,788) 788
Increase (decrease) in operating liabilities,
net: accounts payable, accrued expenses and
other current liabilities, billings in excess
of costs and estimated earnings on uncompleted
contracts and other liabilities ( 2,112) ( 1,976)
------ ------
Net cash provided by (used in) operating activities ( 2,977) 150
------ ------
Investing activities:
Purchases of property and equipment,
net of capital lease obligations ( 9) ( 34)
Investment in and receivables from affiliates ( 1,856) ( 4,318)
Cost of acquired technology and license,
patents and software development costs, net ( 648) ( 610)
------ ------
Net cash used in investing activities ( 2,513) ( 4,962)
------ ------
Financing activities:
Proceeds from borrowings, net
of capital lease obligations - -
Repayment of borrowings and capital
lease obligations ( 1,189) ( 1,882)
(Increase) decrease in investment in
sales-type leases 962 1,546
Collection of principal on sales-type leases 203 797
Issuance of common stock and warrants and
collection of stockholder notes, net 5,401 4,597
Decrease (increase) in other assets 15 ( 32)
------ ------
Net cash provided by financing activities 5,392 5,026
------ ------
Increase (decrease) in cash ( 98) 214
Cash at beginning of period 577 226
------ ------
Cash at end of period $ 479 $ 440
====== ======
See notes to condensed consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE A - 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 10Q and
Article 10 of Regulation S-K. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The comparative figures for
fiscal 1994 have been adjusted to reflect year end adjustments.
In the opinion of management, all adjustments (consisting of normal
adjusting accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1995. For further information, refer to the
Company's consolidated report on Form 10-K for the fiscal year ended June
30, 1994.
NOTE B - INVENTORIES
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<CAPTION>
The components of inventory consist of: (000's OMITTED)
------------------
December 31, June 30,
1994 1994
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Purchased parts components and supplies $ 2,390 $ 2,706
Work in process 62 70
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$ 2,452 $ 2,776
======= =======
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NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION
Uncompleted contracts are comprised of: (000's OMITTED)
--------------------
December 31, June 30,
1994 1994
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<S> <C> <C>
Costs incurred on uncompleted contracts $ 4,119 $ 2,035
Estimated earnings 4,256 1,886
------- -------
8,375 3,921
Less: billings to date ( 972) ( 665)
------- -------
$ 7,403 $ 3,256
======= =======
Uncompleted contracts have been individually
netted and are reported as follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts-short term $ 1,374 $ 401
Costs and estimated earnings in excess of
billings on uncompleted contracts-long term 6,029 2,855
Billings in excess of costs and estimated
earnings on uncompleted contracts ( -) ( -)
------- -------
$ 7,403 $ 3,256
======= =======
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NOTE D - STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(000'S OMITTED)
Stockholders' Equity is comprised of: ---------------------------
December 31, June 30,
1994 1994
------------- -----------
<S> <C> <C>
Common Stock $.0001 par value; 50,000,000
shares authorized; 34,810,973 outstanding
at December 31 and 31,235,773 at June 30 $ 3 $ 3
Class B Common Stock $ .0001 par value;
4,000,000 shares authorized, 3,194,556
outstanding at December 31 and at June 30. - -
Class C non-voting Common Stock $.001
par value; 20,000,000 shares authorized. - -
Preferred Stock $ .001 par value 10,000,000
shares authorized. - -
Additional paid-in capital 55,287 49,818
Accumulated deficit (20,464) (20,341)
Unearned compensation - -
Notes receivable - stockholders ( 819) ( 752)
Treasury stock - 108,864 shares ( 395) ( 395)
------- -------
$ 33,612 $ 28,333
======= =======
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NOTE E - CHANGES IN CAPITALIZATION
The Company's debt to equity ratio changed from approximately 5:7
($19.5 million:$28.3 million) as at June 30, 1994 to approximately 1:2
($16.2 million:$22.8 million) as at December 31, 1994. This change in
the Company's capitalization resulted from a combination of an increase
in capital stock (approximately $5.4 million) and a decrease of
approximately $3.0 million in current liabilities.
<PAGE> - 9 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the first six months of fiscal 1995, the Company reported net loss
of $ 123,000 on revenues of $ 8.6 million as compared to net income of
$ 140,000 on revenues of $ 6.8 million for the corresponding period of the
prior fiscal year. The comparative figures for fiscal 1994 have been
adjusted to reflect year end adjustments.
For the second quarter of fiscal 1995, the Company reported net loss of
$ 51,000 on revenues of approximately $3.7 million, as compared to net
income of $ 93,000 on revenues of approximately $3.6 million for the
corresponding period for the prior fiscal year. The comparative figures for
fiscal 1994 have been adjusted to reflect year end adjustments.
The Company continues to benefit from the programs the Company set in
motion in fiscal 1989; namely strict cost containment initiative, the
redirecting of corporate business into more profitable enterprises within
the MRI industry and the paying down of interest bearing debt.
The Company is progressing toward the completion of its "Quad 12000" and
"Quad 7000" MRI scanners, which together with other research and development
projects is intended to significantly improve the Company's competitive
position. The Company expects to commence sales of its "Quad" scanners in
fiscal 1995. This scanner will be a highly competitive and totally new high
field non-claustrophobic scanner not available in today's MRI market. The
Company expects vigorous sales from this new product.
The exceptional versatility and productivity of MRI technology creates
the impetus for new uses. As a result, dramatic new features are developed
and sold to the Company's customer base thereby extending the useful life of
their equipment, avoiding obsolescence and minimizing capital expenditures.
Upgrades consist of hardware, software and pulse sequences designed to
maximize throughput while maintaining image quality and patient comfort.
This income resource is considered to be a major asset of the company.
Accordingly, during the current fiscal year, the Company has continued
the program for upgrading previously installed scanners. In conjunction
with this program, significant research and development programs have been
continued, which emphasize the development of new features for the Company's
scanner upgrade program. More specifically, products derived from the
Company's new "Quad" and "Ultimate" scanners are expected to generate
substantial upgrade revenue as customers upgrade their existing scanners to
take advantage of the improved image quality and high speed image processing
capabilities.
Products derived from the Company's "Ultimate MR" scanner product line
are expected to generate significant revenue in fiscal 1995. The Ultimate
MR scanner provides improved image quality and high speed imaging at costs
that are significantly less than the competition and more in keeping with
the medical cost reduction demands being made by our national leaders on
behalf of the public.
In fiscal 1992, the Company began laying the ground work for increased
scanner sales in foreign countries as well as domestically. Based on
numerous indications of interest, meetings, sales trips abroad and
negotiations, the Company is cautiously optimistic that foreign sales will
produce significant revenue.
<PAGE> - 10 -
Liquidities and Capital Resources
At December 31, 1994, the Company's liquidity and capital resources
positions changed from the June 30, 1994 position as follows:
December 31, June 30,
1994 1994 Change
------------- -------- --------
Working capital
(deficiency) ($ 6,358,000) ($ 7,750,000) $ 1,392,000
Total liabilities were reduced since June 30, 1994 by approximately
$3.3 million to approximately $16.2 million.
Although vendor and creditor payment obligations continue to run beyond
normal payment terms, the Company has been able to direct its resources to
maintain scanner system deliveries and to reduce its past due payment
obligations.
Since June 1989, a principal objective of the Company has been to reduce
and ultimately eliminate its debt. Since the inception of the plan,
interest bearing debt was reduced from $23.1 million in fiscal 1989 to $18.5
million in fiscal 1990. From June 30, 1990 through June 30, 1991, interest
bearing debt was reduced by an additional $3.3 million to $15.2 million and
from June 30, 1991 through June 30, 1992 interest bearing debt was reduced
by an additional $3.1 million to $12.1 million. From June 30, 1992 through
June 30, 1993, interest bearing debt was reduced by $2.3 million to $9.8
million, and from June 30, 1993 to June 30, 1994 by $ 3.8 million to $ 6.0
million. Continuing this program in the six months since June 30, 1994, the
Company has reduced its interest bearing debt an additional $1.2 million to
$ 4.8 million.
<PAGE> - 11 -
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
In June 1990, Medical Equipment Fund II, Limited Partnership commenced
an action against the Company and others in the Supreme Court of the State
of New York, New York County seeking compensatory damages of $1,758,000 and
punitive damages of $10,000,000. The trial was held in November 1994. At
trial, the Court dismissed the case against the defendants, finding that the
plaintiff had failed to make a prima facie case.
The plaintiff had alleged that the defendants had conspired with one of
the Company's former lenders to divert the proceeds of a loan made by the
plaintiff to the Company's lender from its original purpose to other
projects. The defendants vigorously defended the case, principally on the
grounds that they were under no contractual obligation to the plaintiff and
had no knowledge of any arrangements made between the plaintiff and the
Company's former lender.
There are no other material changes in litigation for the second
quarter of fiscal 1995 from that described in Form 10-K for the fiscal year
ended June 30, 1994.
Item 2 - Changes in Securities: None
Item 3 - Defaults Upon Senior Securities: None
Item 4 - Submission of Matters to a Vote of Security Holders: None
Item 5 - Other Information: None
Item 6 - Exhibits and Reports on Form 8-K: None
<PAGE> - 12 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FONAR CORPORATION
(Registrant)
Dated: March 3, 1995 By: /s/ Raymond V. Damadian
-------------------------
Raymond V. Damadian
President & Chairman
<TABLE> <S> <C>
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<NAME> FONAR CORPORATION
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<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 479
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<RECEIVABLES> 3,738
<ALLOWANCES> 1,692
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