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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
_____________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File No. 0-10248
_______________________
FONAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-2464137
(State of incorporation) (IRS Employer Iden-
tification Number)
110 Marcus Drive, Melville, New York 11747
(Address of principal executive offices) (Zip Code)
(516) 694-2929
(Registrant's telephone number, including area code)
_____________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
__________________________________________________________________
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 _______
As of September 15, 1995, 39,073,197.5 shares of Common Stock and
3,193,456 shares of Class B Common Stock of the registrant were
outstanding. The aggregate market value of the approximately
36,447,799 shares of Common Stock held by non-affiliates as of
such date (based on the bid price per share on September 15, 1995
as reported on the NASDAQ System) was approximately $116,177,359.30.
The Class B Common Stock does not have a readily determinable market
value.
Documents Incorporated by Reference
None
<PAGE>
Item 1. Business.
General
FONAR Corporation (the "Company" or "FONAR") is a Delaware
corporation which was incorporated on July 17, 1978. The
Company's address is 110 Marcus Drive, Melville, New York 11747
and its telephone number is (516) 694-2929.
FONAR is the originator of the iron-core
non-superconductive and permanent magnet technology and is engaged
in the business of designing, developing, manufacturing, marketing
and servicing magnetic resonance imaging ("MRI" or "MR") scanners
which utilize that technology for the detection and diagnosis of
human disease. FONAR's iron frame technology made FONAR the
originator of "open" MRI scanners. FONAR introduced the first
"open" MRI in 1980 and maintained its "open" design ever since.
The Company's principal products are its new "Quad" series
of MRI scanners. On October 5, 1993, the Company unveiled the
"Quad 12000TM" MR scanner, which utilizes a 6000 gauss iron core
electromagnet and is accessible from four sides. The Quad 12000
was the first "open" MR scanner above low field (above 600 gauss).
Shortly thereafter, on March 1, 1994, FONAR unveiled the "Quad
7000TM," which is similar in design to the Quad 12000 but utilizes
a smaller 3,500 gauss electromagnet.
FONAR received FDA approval to market the Quad 7000 in
April, 1995 and presently is awaiting FDA approval for the Quad
12000.
In 1990 the Company introduced the Ultimate 7000TM
scanner, which was its principal product prior to the introduction
of the Quad scanners. The QuadTM and Ultimate TM scanners are
revolutionary new MR scanning products representing the
culmination of years of total company wide effort to design and
construct the "Ultimate MR" scanner product line. These products
replaced the Company's traditional principal products, the Beta
3000TM scanner (which utilizes a permanent magnet) and the Beta
3000MTM scanner (which utilizes an iron core electromagnet). All
of the Company's scanners create cross-sectional images of the
human body.
Recent Developments and Overview.
The "Quad" scanners are unique MR scanners in that four
sides are open, thus allowing access to the scanning area from
four vantage points. Equipped with up to four beds, the user is
able to prep one or more "on deck" patients while another patient
is being scanned, thereby increasing throughput and reducing scan
prices. The starshaped open design of the Quad will also make
possible a host of new applications, particularly MRI mammography
and MRI directed surgery (Interventional MRI).
With the Quad's multi-bed patient handling system, many
more short scan procedures such as those used in breast imaging
can be done in a day, allowing the price of MRI mammography to
drop without reducing the scanner's revenue-generating capacity.
At the same time, there is not the painful compression of the
breast characteristic of X-ray mammography.
MRI directed surgery (laproscopic surgical procedures) is
made possible by the Quad's ability to supply images to a monitor
positioned next to the patient, enabling a surgeon to view in
process surgical procedure from an unlimited number of vantage
points.
The vertical patient space in the Quad has been increased
by nearly 50%, which is important not only for comfort, but
diagnostically, by permitting the utilization of the Company's
software for the taking of "moving scans." Those "moving scans"
or "CINE," enable the physician to observe the scanned body part
(e.g., knee, neck and elbow) in motion. The Quad enables a full
range of motion studies that cannot be completely performed in the
claustrophobic cylindrical tubes of today's superconductive
magnets.
The Quad 7000, utilizing a 3500 gauss iron core electro
magnet, is envisioned by the Company as an economical solution to
the rising cost of medicine. Priced at $650,000, the Company
expects the Quad 7000 to be a success in the market, not only with
first time buyers but with users who must now replace their
obsolete MRI equipment.
The Quad 12000 scanner will utilize a 6000 gauss (.6
Tesla field strength) iron core electromagnet. The greater field
strength of the 6000 gauss magnet, when enhanced by the
electronics already utilized by the Company's scanners, produces
images of a quality and clarity competitive with high field
superconductive magnets. The Quad 12000 scanner magnet is the
highest field "open MRI" in the industry.
As a result of these new products and other research and
development, the Company is positioning itself to dramatically in
crease sales and improve its competitive position in the
marketplace.
In tandem with new product and software developments, the
Company has been strengthening and continues to strengthen its
legal position for the purpose of protecting its proprietary
technology as well as other interests. The Company does not
intend to permit its competitors and would-be competitors to
capitalize, to the detriment of the Company, on its inventions and
exhaustive research and development efforts, as the Company
believes has happened in the past.
On September 2, 1992, the Company filed a patent
infringement suit against Hitachi Ltd., General Electric Company
and others in the United States District Court for the Eastern
District. In April, 1995, the Company reached a settlement with
Hitachi Ltd. and related defendants. In May, 1995, the jury
rendered a verdict in FONAR's favor against General Electric
Company. In October, 1995, the Court awarded FONAR judgment of
$62 million, plus interest and issued an injunction (stayed
pending appeal) enjoining General Electric from future violations
of Fonar's Multi-Angle Oblique (MAO)TM patent.
Following its favorable jury verdict against General
Electric Company, FONAR filed patent infringement suits against
Siemens Medical Systems, Inc., Siemens, AG, Philips Electronics,
NV, Philips Medical Systems, Inc. and Philips Electronics North
America Corporation. The patents sought to be enforced against
both defendants include the Multi-Angle Oblique improvement patent
(U.S. Patent No. 4,871,966 entitled "Apparatus and Method for
Multiple Angle Oblique Magnetic Resonance Imaging").
The Company is optimistic about sales of its new scanner
products. At September 1, 1995, the Company's backlog of unfilled
orders had increased to $4.0 million as compared to $1.5 million
at September 1, 1994. To further promote product recognition and
sales, FONAR will attend the RSNA (Radiological Society of North
America) trade show in November 1995 to exhibit its new products.
The RSNA is the leading trade show in the MRI industry.
Approximately 25,000 radiologists, who are among the principal
groups to whom the Company directs its marketing efforts, are
expected to attend to view MRI industry's most current product
developments.
The Company is actively seeking to promote foreign sales,
thus enhancing America's competitive position as well as its own.
Since commencing its current foreign sales program, the Company
has sold scanners in Korea, Mexico and Poland. Based on numerous
indications of interest, meetings, sales trips abroad and negotia
tions, the Company is cautiously optimistic that foreign sales
will produce significant revenues in fiscal 1996 and/or 1997,
depending on timing of orders and completion of projects.
The Company believes there are and will be significant
market opportunities abroad, particularly in Asia and Eastern
Europe.
Products Offered
Both the "Quad" and "Ultimate" scanners are entirely new
products. The Quad 12000 and Quad 7000 utilize 6000 gauss and
3500 gauss iron core electromagnets respectively, and the Ultimate
7000 utilizes a 3500 gauss electromagnet. In addition to the
patient comfort, increased throughput and new applications (such
as MRI directed surgery and MRI mammography) made possible by the
Quad scanners' open design, the Quad 7000 is designed to maximize
image quality through an optimal combination of signal-to-noise
(S/N) and contrast-to-noise (C/N) ratios. The technical
improvements realized in the Quad's design over its predecessors
also include increased image-processing speed and diagnostic
flexibility.
The principal difference between the Quad 7000 and other
open MRI scanners is in field strength. Other open MRIs operate
at significantly lower magnetic field strengths and, therefore,
are unable to produce the amount of MRI image-producing signal
necessary to make high-quality MRI images (measured by
signal-to-noise ratios, S/N). The Quad 7000 operates at 3500
gauss, over five times as powerful as some of the others.
Maximal S/N is achieved when the direction of the
magnetic field and the direction of the receiving coil axis are
perpendicular to one another, as is the case with the Quad
scanners. The orientation of the magnetic field is vertical and
when combined with any one of Fonar's array of solenoidal
(wrap-around) surface coils, the Quad 7000 produces as much S/N as
a supercon MRI at twice the field strength. So that prospective
buyers can make an accurate comparison, the number 7000 is used to
describe the S/N equivalency of the Quad 7000 to 7000-gauss
superconductive machines.
Several technological advances have been engineered into
the Quad 7000 for extra improvements in S/N, including: new
high-S/N Organ SpecificTM receiver coils; new ceramic magnet poles
that provide advanced eddy-current control; new advanced front-end
electronics featuring high-speed, wide-dynamic-range
analog-to-digital conversion and a miniaturized ultra-low-noise
pre-amplifier; high-speed automatic tuning, bandwidth-optimized
pulse sequences, multi-bandwidth sequences, and off-center FOV
imaging capability.
In addition to the signal-to-noise ratio, however, the
factor that must be considered when it comes to image quality is
contrast, the quality that enables reading physicians to clearly
distinguish adjacent, and sometimes minute, anatomical structures.
This quality is measured by contrast-to-noise ratios (C/N).
Unlike S/N, which increases with increasing field strength,
relaxometry studies have shown that C/N peaks in the mid-field
range and actually falls off precipitously at higher field
strengths. At 3500 gauss, the Quad 7000 operates squarely in the
mid-field range and, therefore, enjoys the winning combination of
abundant S/N and C/N, making its images second to none.
The Quad 7000's state-of-the-art electronics package
features five computer processors performing parallel processing.
Its incomparable speed is demonstrated by its ability to scan and
reconstruct images simultaneously and its ability to reconstruct a
256x256 image in 0.7 seconds, the fastest of any MRI scanner on
the market.
The Quad 7000 provides various features allowing for
versatile diagnostic capability. For example, SMARTTM scanning
allows for same-scan customization of up to 63 slices, each slice
with its own thickness, resolution, angle and position. This is
an extremely valuable feature for scanning parts of the body that
include small-structure sub-regions requiring finer slice
parameters. There's also Evolving ImagesTM, Multi-Angle Oblique
(MAO)TM imaging, and oblique imaging.
Because of the openness of the Quad 7000 and FONAR's coil
development and CINE, Quad 7000 users can plan on adding the
works-in-progress CINE-FLEXTM option to their scanners.
CINE-FLEXTM is a set of specialized coils and matching fixtures
that enable full-range CINEs of the knee, shoulder, C-spine,
L-spine and TMJ - an impossibility with supercon MRIs.
The Quad 7000 console includes a mouse-driven,
multi-window interface for easy operation and a 19-inch,
1280x1280-pixel, 20-up, high-resolution image monitor with
features such as electronic magnifying glass and real-time,
continuous zoom and pan.
The Quad MR scanner is a top-down new design in computer
architecture and high speed image processing that incorporate the
latest state-of-the-art chip technology. The time to construct an
image, for example, has been reduced from 12 seconds per image to
0.7 seconds.
The Beta 3000 initiated the Company's product line and
resulted in over 150 worldwide FONAR installations to date. The
effort to achieve the Quad and the Ultimate product line
represented a company-wide aspiration to seize the opportunity to
incorporate into the Company's product line all of the desirable
features FONAR had learned since it opened the industry in 1980.
The facility of these features have been achieved in FONAR's
"Quad" and "Ultimate" MR machines.
Markets and Marketing
The principal markets for the "Quad" and "Ultimate"
scanners are hospitals and private scanning centers, the same as
for the Beta 3000 and Beta 3000M. In particular, the Company
regards its existing customers as potential purchasers of its new
products. The Company has conducted its marketing in the United
States through its own sales network and internationally through
selected distributors. Direct domestic marketing is accomplished
through field solicitation of potential users by Company
personnel. The Company intends to make greater use of independent
sales representatives and distributors working on a commission
basis.
In addition, the Company plans to attend the trade show
held by the Radiological Society of North America ("RSNA") in
Chicago in November 1995, where it will exhibit its new products.
The RSNA trade show is held annually and is attended by most
manufacturers of MRI scanners. Attendance in 1995 is expected to
reach nearly 60,000, including 25,000 radiologists. Radiologists
are among the principal groups to whom the Company directs its
marketing.
The Company plans to direct its marketing efforts to
meeting the increasing demand for low price MRI. To date, the
increased pressure for lower scanning prices has come largely from
preferred provider organizations, health maintenance organizations
and other private sector group plans and stricter insurance
requirements, but government mandated health care reform is also
under consideration.
To meet this demand, the Company has set a base price of
$650,000 for the Quad 7000 scanner. In addition to reducing the
health care provider's equipment cost, the Quad 7000 scanner's
improved image processing speed and extra-bed(s) option (allowing
patients to be prepped while another patent is being scanned)
would enable the provider to increase patient volume and further
reduce per scan costs.
The reduced per scan costs will enable the Company to
promote the Quad 7000 for short scan procedures such as MRI
mammograms. MRI mammograms have the advantage over traditional
x-rays of involving no radiation, and an MRI breast scan can be
taken in most cases through ordinary street clothes without any
painful compression.
The Company also will also seek to introduce new MRI
applications for the Quad scanners such as MRI-directed surgery
and head-to-toe MRI preventive screening.
See "Note 9 to Notes to Consolidated Financial
Statements" for the percentage of foreign sales as in relation to
the Company's total revenues.
Service and Upgrades
The Company regards its customer base of over 100
scanners installed or in the process of being installed as a major
asset. It has been and will continue to be a significant source
of income, independent of direct sales.
Income is generated from the installed base in two
principal areas namely, service and upgrades. Service and
maintenance revenues from the Company's installed base were
approximately $7.7 million in fiscal 1994 and $6.6 million in
fiscal 1995. The decrease in fiscal 1995 is principally the
result of the retirement of old scanners.
Substantial upgrades income, which is new to the medical
instrument industry, originates in the exceptional versatility and
productivity of the MRI technology. New medical uses for the
technology are constantly being discovered. Dramatic new features
can often be added to the scanner by the implementation of little
more than versatile new software packages. Such enhancements are
attractive to the end users because they extend the useful life of
the equipment and enable the user to avoid obsolescence and the
expense of having to purchase new equipment.
MRI Scanning Centers
The Company's subsidiary, Advanced Medical Diagnostics
Corporation ("AMD") was formed to organize and supervise, as the
general partner, limited partnerships which have established
diagnostic centers to operate MRI scanners.
Since its inception, AMD has formed four limited
partnerships either as the managing general partner or as
co-general partner. The partnerships to date have not generated
significant distributions to AMD.
AMD's interests in these four limited partnerships were
sold to related parties during the 1994 fiscal year. (See Certain
Relationships and Related Transactions.) No new AMD sponsored
partnerships have been formed since 1986 and none are presently
contemplated. Earlier changes in the Internal Revenue Code and
recent regulations concerning self-referrals (see "Government
Regulations") have worked against the utilization of syndicated
limited partnerships as a vehicle for financing and operating MRI
centers.
Research and Development
During the fiscal year ended June 30, 1995, the Company
incurred expenditures of $3,508,101 ($151,981 of which was
capitalized) on research and development, as compared to
$3,604,785
($687,551 of which was capitalized) and $3,119,898 ($938,926 of
which was capitalized) incurred during the fiscal years ended June
30, 1994 and June 30, 1993, respectively.
Research and development activities have focused, in
large part, on the development and enhancement of the Company's
"Quad" MR scanners and on the continued enhancement of the
Ultimate and Beta 3000 and Beta 3000M products. The "Quad" and
"Ultimate" scanners involved significant software and hardware
development as the new products represented entirely new hardware
design and architecture requiring a complete new operating
software system. Most recently, the Company's research activity
has centered on developing a multitude of new features for the
Quad series scanners made possible by the Quad's high speed
processing power.
Backlog
The Company's backlog of unfilled orders at September 1,
1995 increased to approximately $ 4.0 million, as compared to $1.5
million at September 1, 1994. Of these amounts, approximately
$2.4 million and $925,000 had been paid to the Company as customer
advances as at September 1, 1995 and September 1, 1994,
respectively. It is expected that the existing backlog of orders
will be filled within the current fiscal year. The Company's
contracts generally provide that if a customer cancels an order,
the customer's initial down payment for the MRI scanner is
nonrefundable.
Patents and Licenses
There are currently numerous foreign and domestic patents
in effect which relate to the technology and components of the MRI
scanners, some of which are registered in the name of the Company
and others which are registered in the name of Dr. Raymond V.
Damadian, the President and principal stockholder of the Company.
The Company believes that these patents, which expire at various
times from 1999 to 2009, and the know-how it developed, are
material to its business.
Dr. Damadian has granted an exclusive world-wide license
to the Company to make, use and sell apparatus covered by certain
domestic and foreign patents relating to his MRI technology. The
license
continues until the expiration of the last patent included within
the licensed patent rights, but is terminable earlier, at the
option of Dr. Damadian, if he is removed from his position as
Chairman of the Board or President of the Company without his
consent, or if any stockholder or group of stockholders acting in
concert becomes the beneficial owner of Company securities having
voting power equal to or greater than the voting power of the
securities held directly by him, his executors, administrators,
successors or heirs. The agreement can also be terminated by Dr.
Damadian upon the commission of an act of bankruptcy by the
Company. If Dr. Damadian is unable to serve the Company by reason
of his death or disability, the license agreement will remain in
effect.
One of the patents, issued in the name of Dr. Damadian
and covered by said license, is United States patent No.
3,789,832, Apparatus and Method for Detecting Cancer in Tissue
(the "1974 Patent"). The development of the Beta 3000 was based
upon the 1974 Patent, and Management believes that the 1974 Patent
was the first of its kind to utilize MR to scan the human body and
to detect cancer. The 1974 Patent was extended beyond its
original 17-year term and expired in February, 1992.
The Company has significantly enhanced its patent
position within the industry and now possesses a substantial
patent portfolio which provides the Company, under the aegis of
United States patent law, "the exclusive right to make, use and
sell" many of the scanner features which FONAR pioneered and which
are now incorporated in most MRI scanners sold by the industry.
The patents further enhance Dr. Damadian's pioneer patent (the
1974 Patent), that initiated the MRI industry and provided the
original invention of MRI scanning.
The Company has entered into a cross- licensing agreement
(utilizing other than FONAR's MRI technology) with another entity
to use prior art developed for nuclear magnetic resonance
technology and has entered into a license to utilize the MRI
technology covered by the existing patent portfolio of a patent
holding company.
Enforcement Litigation
On September 2, 1992, the Company commenced legal action
to enforce its patent rights, filing suit against Hitachi Ltd.,
General Electric Company and others in the United States District
Court for the Eastern District of New York. Prior to trial in
April 1995, FONAR settled with Hitachi. On May 26, 1995 the jury
rendered a verdict against General Electric Company awarding FONAR
$110,575,000 for infringement of its multi-angle oblique patent
(Apparatus and Method for Multiple Angle Oblique MRI, 10/3/89,
U.S. Patent No. 4,871,966) and Dr. Damadian's pioneer cancer
detection patent (Apparatus and Method for Detecting Cancer in
Tissue, 2/5/74, U.S. Patent No. 3,789,832). On October 6, 1995,
the Court announced its decisions on the parties' respective
post-trial motions, awarding FONAR $62 million and an injunction
(stayed pending appeal) on the multi-angle oblique patent (U.S.
Patent No. 4,871,966). Although finding that the cancer detection
patent was valid (U.S. Patent No. 3,789,832), the Court overturned
the jury's determination that General Electric Company's MRI
scanners infringed the patent. Both the Company and General
Electric Company plan to appeal. The Company is represented by
Robins, Kaplan, Miller and Ciresi, the Minneapolis based national
law firm that represented Honeywell in its lawsuit against Minolta
for infringement of Honeywell's autofocus patents.
Following the rendering of the jury's verdict in favor of
FONAR against General Electric Company, the Company, represented
by Robins, Kaplan, Miller and Ciresi, filed suits against Siemens
Medical Systems, Inc., Philips Electronics North America
Corporation and related parties for infringement of FONAR's
multi-angle oblique patent, Dr. Damadian's pioneer cancer
detection patent and, in the case of Siemens Medical Systems,
Inc., two additional MRI improvement patents.
The Company believes that it has achieved a significant
milestone in protecting and enforcing its proprietary rights in
its lawsuit against General Electric Company, and having pioneered
the establishment and development of the medical MRI scanning
industry, the Company intends to take the steps necessary to
enforce its rights and protect its proprietary technology against
other infringers as well. (See "Litigation.")
Competition
MRI Scanners
A majority of the MRI scanners in use in hospitals and
outpatient facilities and at mobile sites in the United States are
based on superconductive magnet technology while the balance are
based on non-superconductive magnet technology. FONAR's
non-superconductive MRI scanners are competing principally with
superconductive scanners.
FONAR believes that its MRI scanners have significant
advantages as compared to the superconductive scanners. These
advantages include:
1. There is no fringe magnetic field. Super conductive
scanners require a more expensive shielded room than is required
for the non-superconductive scanners. The shielded room required
for the non-superconductive scanners is intended to prevent
interference from external radio frequencies.
2. Do not require costly coolants (liquid nitrogen and
liquid helium) or highly complex technology to handle them.
3. Are more open, quiet and in the case of the Quad
scanners allow for faster throughput of patients.
4. Require smaller space to install.
5. Annual operating costs are lower.
6. The set-up and disconnect time for a Mobile
Scanner is shorter than for a mobile superconductive
scanner.
7. Can scan the trauma victim, the cardiac arrest
patient, the respirator-supported patient, and premature and
newborn babies. This is not possible with superconductive scanners
because their magnetic field interferes with conventional
life-support equipment.
FONAR faces competition within the MRI industry from such
firms as General Electric Company; Picker International, which is
a Division of General Electric Company PLC, of England; Elscint
Ltd; Philips N.V.; Toshiba Corporation, Hitachi Corporation,
Shimadzu Corporation and Siemens A.G. Most competitors have
marketing and financial resources more substantial than those
available to the Company and have in the past, and may in the
future, heavily discount the sales price of their scanners.
Other Imaging Modalities
FONAR's MRI scanners also compete with other diagnostic
imaging systems, all of which are based upon the ability of energy
waves to penetrate human tissue and to be detected by either
photographic film or electronic devices for presentation of an
image on a television monitor. Three different kinds of energy
waves - x-ray, gamma and sound - are used in medical imaging
techniques which compete with MRI medical scanning, the first two
of which involve exposing the patient to potentially harmful
radiation.
X-rays are the most common energy source used in imaging
the body and are employed in three imaging modalities:
1. Conventional x-ray systems, the oldest method of
imaging, are typically used to image bones and teeth. The image
resolution of adjacent structures that have high contrast, such as
bone adjacent to soft tissue, is excellent, while the
discrimination between soft tissue organs is poor because of the
nearly equivalent penetration of x-rays.
2. Computerized Tomography ("CT") systems couple
computers to x-ray instruments to produce cross-sectional images
of particular large organs or areas of the body. The CT scanner
addresses the need for images, not available by conventional
radiography, that display anatomic relationships spatially.
However, CT images are generally limited to the transverse plane
and cannot readily be obtained in the two other planes (sagittal
and coronal). Improved picture resolution is available at the
expense of increased exposure to x-rays from multiple projections.
Furthermore, the pictures obtained by this method are computer
reconstructions of a series of projections and, once diseased
tissue has been detected, CT scanning cannot be focused for more
detailed pictorial analysis or obtain a chemical analysis.
3. Digital radiography systems add computer image
processing capability to conventional x-ray systems. Digital
radiography can be used in a number of diagnostic procedures which
provide continuous imaging of a particular area with enhanced
image quality and reduced patient exposure to radiation.
Nuclear medicine systems, which are based upon the
detection of gamma radiation generated by radioactive
pharmaceuticals introduced into the body, are used to provide
information concerning soft tissue and internal body organs and
particularly to examine organ function over time.
Ultrasound systems emit, detect and process high
frequency sound waves reflected from organ boundaries and tissue
interfaces to generate images of soft tissue and internal body
organs. These systems have comprised one of the most rapidly
growing modalities during recent years due to an increasing number
of procedures for established applications, as well as the
expansion of ultrasound into new applications. Although the
images are substantially less detailed than those obtainable with
x-ray methods, ultrasound is generally considered harmless and
therefore has found particular use in imaging the pregnant uterus.
X-ray machines, ultrasound machines, digital radiography
systems and nuclear medicine compete with the MRI scanners by
offering significantly lower price and space requirements.
However, FONAR believes that the quality of the images produced by
its MRI scanners is generally superior to the quality of the
images produced by those other methodologies.
FONAR believes that the introduction of its Quad 7000
scanner will enable MRI users to compete on the basis of cost, as
well as quality, with those methodologies, thereby expending the
range of economically feasible MRI applications and demand for
FONAR's products. In addition, only MRI scanners and ultrasound
systems do not produce harmful ionizing radiation.
Government Regulation
Under the Medical Device Amendments of 1976 to the
Federal Food, Drug and Cosmetic Act, all medical devices are
classified by the Food and Drug Administration (the "FDA") into
one of three classes. A Class I device is subject only to certain
controls, such as labeling requirements and manufacturing
practices; a Class II device must comply with certain performance
standards established by the FDA; and a Class III device must
obtain pre-market approval from the FDA prior to commercial
marketing. The Company received approval to market its Beta 3000
and Beta 3000M scanners as Class III devices on September 26,
1984. On July 28, 1988, the Magnetic Resonance Diagnostic Device
which includes MR Imaging and MR Spectroscopy was reclassified by
the FDA to Class II status. On June 25, 1992, the Company
received FDA approval to market the Ultimate Magnetic Resonance
Imaging Scanner as a Class II device, and on April 10, 1995, the
Company received FDA approval to market its latest product, the
Quad 7000, as a Class II device. The Company presently is
awaiting FDA approval to market the Quad 12000.
The FDA has authority to conduct detailed inspections of
manufacturing plants, to establish "good manufacturing practices"
which must be followed in the manufacture of medical devices, to
require periodic reporting of product defects and to prohibit the
exportation of medical devices that do not comply with the law.
Effective November 22, 1985, the Department of Health and
Human Services authorized reimbursement of MRI scans under the
Federal Medicare program. In addition, most private insurance companies
have authorized reimbursement for MRI scans.
Proposed and enacted legislation at the State and Federal
levels has restricted referrals by physicians to medical and
diagnostic centers in which they or their family members have an
interest. In addition, regulations have been adopted by the
Secretary of Health and Human Services which provide limited "safe
harbors" under the Medicare Anti-Kickback Statute. These safe
harbors describe payments and transactions which are permitted
between an entity receiving reimbursement under the Medicare
program and those having an interest in or dealings with the
entity. Although the Company cannot predict the overall effect of
the adoption of these regulations on the medical equipment
industry, the use and continuation of limited partnerships (where
investors may be referring physicians) to own and operate MRI
scanners could be greatly diminished.
Employees
As of September 1, 1995, the Company employed 165 persons
on a full-time basis. Of such employees, 10 were engaged in
marketing and sales, 26 in research and development, 47 in
manufacturing, 47 in customer support services, and 35 in
administration.
<PAGE>
Item 2. Properties
The Company leases approximately 93,240 square feet of
office and plant space at its principal office in Melville, New
York and at one other location in Farmingdale, New York at a
current aggregate rental rate of approximately $671,000, excluding
utilities, taxes and other related expenses. The terms of the
various leases extend through 1997. Management believes that
these premises are adequate for its current needs.
Item 3. Legal Proceedings
On September 2, 1992, the Company filed an action against
General Electric Company, ("General Electric"), Hitachi Ltd.
("Hitachi") and other defendants for patent infringement in the
United States District Court for the Eastern District of New York
seeking injunctive relief and damages. (FONAR Corporation and Dr.
Raymond V. Damadian v. Hitachi Ltd. et. al. Civil Action No.
92-4196). The defendants contested the Company's claims, and
Hitachi counterclaimed, alleging infringement by the Company of
two of its patents. In April, 1995, prior to the commencement of
trial FONAR and Hitachi settled. On May 26, 1995, the jury
rendered a verdict against General Electric Company awarding FONAR
$110,575,000 for infringement of two of its patents: United
States Patent Number 3,789,832 entitled "Apparatus and Method for
Detecting Cancer in Tissue" and United States Patent Number
4,871,966 entitled "Apparatus and Method for Multiple Angle
Oblique Magnetic Resonance Imaging." Subsequent to the verdict
General Electric made motions to the Court to enter judgment as a
matter of law in its favor and against FONAR with respect to both
patents notwithstanding the jury's verdict. FONAR made a motion
to the Court for an injunction restraining General Electric
Company from using the multi-angle oblique imaging technology
covered by U.S. Patent No. 4,871,966. On October 6, 1995 the
Court announced its decision. In its decision, the Court awarded
FONAR $62 million in damages against General Electric for direct
infringement of U.S. Patent No. 4,871,966 (Multiple Angle Oblique
Magnetic Resonance Imaging) and granted an injunction against
General Electric prohibiting future violations of the patent. The
injunction was stayed pending appeal, however, subject to the
posting of a bond. With respect to U.S. Patent No. 3,789,832
(Cancer Detection Patent), the judge agreed with the jury's
finding that the patent was valid, but disagreed with the jury
finding of infringement and determined that General Electric's MRI
scanners did not infringe the patent. The Court also rejected the
jury's finding that General Electric had induced others to
infringe U.S. Patent No. 4,871,966. General Electric is expected
to appeal the portion of the judgment upholding the jury's award
of damages to FONAR for direct infringement of U.S. Patent No.
4,871,966 and the issuance of the injunction. FONAR intends to
appeal the portion of the judgment overturning the jury's findings
of infringement on U.S. Patent No. 3,789,832 and contributory
infringement in respect of U.S. Patent No. 4,871,966.
On June 16, 1995, the Company filed an action against
Siemens Medical Systems, Inc., Phillip Electronics North America
Corporation, Philips Electronics, N.V. and other defendants for
patent infringement in the United States District Court for the
Eastern District of New York. FONAR is seeking injunctive relief
and damages (FONAR Corporation and Dr. Raymond V. Damadian V.
Siemens Medical Systems, Inc. et al. Civil Action No. CV 95-2469
(LJW). In its suit, FONAR has alleged that four of its patents
were infringed, including U.S. Patent Nos. 3,789,832 (Apparatus
and Method for Detecting Cancer in Tissue) and 4,871,966
(Apparatus and Method for Multiple Angle Oblique Magnetic
Resonance Imaging).
Previously, in May 1995, Siemens Medical Systems, Inc.
had filed a complaint against FONAR in the United States District
Court for the District of Delaware seeking a declaratory judgment
that the four patents were invalid and unenforceable, as well as
an adjudication that Siemens was not infringing the four patents.
On June 14, 1995, Siemens Medical Systems, Inc. amended the
Complaint to add Siemens AG as a plaintiff, to add Raymond V.
Damadian, M.D. MR Scanning Centers Management Company as a
defendant and to include a claim against FONAR for infringement of
one of Siemens' MRI patents (Siemens Medical Systems, Inc. and
Siemens AG, v. FONAR Corporation and Raymond V. Damadian, M.D. MR
Scanning Centers Management Company, Civil Action No. 95-261.
Thereafter, on June 30, 1995, Philips Electronics North
America Corporation and Philips Electronics, N.V. filed a
complaint against FONAR in the United States District Court for
the District of Delaware seeking a declaratory judgment that
FONAR's U.S. Patents Nos. 3,789,832 and 4,871,966 are invalid,
unenforceable and not infringed (Philips Electronics North America
Corporation and Philips Electronics, N.V. v. FONAR Corporation,
Case No. 95-431).
Motions have been made by the Siemens affiliates and
Philips affiliates to transfer the action commenced by FONAR in
District Court for the Eastern District of New York to the
Delaware District Court and FONAR has moved to transfer the
actions commenced against it in the Delaware District Court to the
Eastern District of New York. The respective parties are expected
to vigorously contest the claims against them.
Separately, U.S. Philips Corporation, an affiliate of
Philips Electronics North America Corporation and Philips
Electronics, N.V., commenced an action in the United States Court
for the District of Delaware alleging infringement by FONAR of two
of its patents. FONAR has answered the complaint denying plaintiff's
claims of infringement and will vigorously contest the case. The
case is in discovery.
On March 4, 1987, Philip B. Kivitz, M.D. and Rad-Sonic
Diagnostic Medical Clinics, Inc., filed a complaint against AMD,
FONAR, Raymond V. Damadian and others in the San Francisco County
Superior Court (Case Action No. 870407) seeking $10,000,000 in
compensatory damages and $10,000,000 in punitive damages. In
January 1993, the case went to trial and the jury returned a
verdict of $880,000 against AMD and $120,000 against FONAR. On
June 17, 1993, the Court granted FONAR's and AMD's motion for
judgment notwithstanding the verdict, thereby vacating the entire
award against both FONAR and AMD. The plaintiffs appealed the
Court's granting of judgment notwithstanding the verdict. On
February 27, 1995, the appellate court affirmed the lower court's
judgment notwithstanding the verdict as to FONAR, but reversed the
judgment as to AMD. As a result, the trial court's determination
that the plaintiffs could not recover against FONAR was upheld,
but the jury verdict against AMD was reinstated. AMD filed a
petition for review with the California Supreme Court. AMD's
petition was denied on May 17, 1995.
On April 3, 1990, Summit, Rovins and Feldesman commenced
an action in the Supreme Court of the State of New York, County of
New York against the Company and its President, Raymond V.
Damadian. The complaint alleges unpaid fees for legal services
and disbursements in the amount of $664,371.65. The Company is
contesting the plaintiff's claims as excessive and improper
charges for legal services, and has asserted various defenses and
a counterclaim of $100,000 for a refund of fees. The plaintiff
made a motion for summary judgment which was granted as to the
existence of liability but denied as to the amount. Dr.
Damadian's cross-motion to dismiss the action against him per
sonally was granted. Both parties appealed the court's decisions.
On March 9, 1995, the appellate court reversed the granting of
summary judgment against FONAR. The appellate court also upheld
the dismissal of the action against Dr. Damadian personally. The
case is in discovery.
On June 18, 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. The
complaint alleged that one of the Company's former lenders
borrowed monies from the plaintiff for the express purpose of
financing the construction of one of the Company's scanning
systems, and that the defendants, with the Company's lender,
conspired to divert the application of the loan proceeds to other
projects. The complaint sought compensatory damages of $1,758,000
and punitive damages of $10,000,000. The defendants had had no
dealings with the plaintiff and had no knowledge of any of the
alleged arrangements between the plaintiff and the lender.
Consequently, the defendants regarded the claim as meritless and
contested the claim vigorously. Finding that even the plaintiff's
evidence did not make a valid case against the defendants, the
Court dismissed the complaint following plaintiff's presentation
of its case and entered judgment in the Company's favor dismissing
the complaint.
In January, 1991, Myheal Technologies and a former
employee commenced an action against the Company in the United
States District Court for the Eastern District of New York (Index
No. 91 CIV 0204). The amount claimed was $5,000,000 in
compensatory damages and $5,000,000 in punitive damages. The
claim arose out of an alleged breach of an agreement between the
Company and a former research and development employee of the
Company. A jury verdict rendered in December, 1993 against the
Company for $1,150,000 was set aside, and a second trial was
ordered and held. On March 24, 1995 the jury rendered a verdict
in favor of Myheal Technologies in the amount of $250,000. On
April 21, 1995, the Company made a motion requesting judgment as a
matter of law dismissing the plaintiffs' claim or in the
alternative a new trial or reduction of damages. The Company's
motion was denied and judgment was entered against the Company in
August, 1995. The Company is appealing the District Court's
decision.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held on
April 3, 1995. At the meeting, the stockholders reelected the
sitting Board of Directors, Raymond V. Damadian, Claudette Chan,
Robert Janoff and Herbert Maisel. The stockholders also approved
a recapitalization proposal, the creation of a new class of
preferred stock to be issued to holders of the Company's Common
Stock as a stock dividend, a stock bonus plan and two stock option
plans, and the selection of Tabb, Conigliaro & McGann, P.C. as the
Company's auditors for fiscal 1995.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The Company's Common Stock is traded in the
over-the-counter market under the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") symbol
FONR. The following table sets forth the high and low bid and
asked prices reported in NASDAQ System for the periods shown. The
prices represent quotations between dealers and do not include
certain mark-ups, mark-downs or commissions, and do not
necessarily represent actual transactions.
Fiscal Quarter
Bid Ask
High Low High Low
July - September 1993 3.28 1.13 3.38 1.16
October - December 1993 3.53 1.81 3.59 1.84
January - March 1994 2.63 1.59 2.66 1.66
April - June 1994 1.72 1.22 2.00 1.25
July - September 1994 1.91 1.22 2.00 1.25
October - December 1994 2.50 1.28 2.53 1.31
January - March 1995 2.50 1.53 2.53 1.63
April - June 1995 4.50 2.38 4.56 2.41
July - September 1995 3.84 2.56 4.00 2.63
On September 15, 1995, the Company had approximately
4,828 and 19 stockholders of record of the Company's Common Stock
and Class B Common Stock, respectively.
The Company has paid no dividends to date. The Company
anticipates, however, based on the results of its lawsuit against
General Electric Company and Hitachi Ltd., paying dividends on
monies it receives from the enforcement of its patents in that
case. Except for these dividends, it is expected that the Company
will continue to retain earnings to finance the development and
expansion of its business.
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been extracted
from the Company's consolidated financial statements for the five years ended
June 30, 1995. This consolidated selected financial data should be read in
conjunction with the consolidated financial statements of the Company and
the related notes included in Item 8 of this form. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
a discussion of the Company's business plan.
<CAPTION>
As of, or For the Period Ended June 30,
STATEMENT OF OPERATIONS 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $14,090,000 $15,387,000 $ 16,802,000 $19,697,000 $20,475,000
Cost of $ 9,003,000 $ 7,814,000 $ 9,608,000 $10,620,000 $ 9,333,000
revenues
Research & $ 3,356,000 $ 2,803,000 $ 2,181,000 $ 2,135,000 $ 1,953,000
Development Expenses
Net Income (loss) $(1,763,000) $ (335,000) $ 238,000 $ 635,000 $ 3,501,000
Net income / (0.04) (0.01) 0.01 0.02 0.13
common sh
Weight Avg * 45,055,000 36,774,000 30,870,000 27,888,000 26,449,000
# outstand sh
BALANCE SHEET DATA
Working cap. $(5,077,000) $(7,749,000) $(12,239,000) $(7,231,000) $(3,519,000)
(deficit)
Total $54,944,000 $48,418,000 $ 42,811,000 $40,410,000 $40,278,000
assets
LTdebt & Cap. $ 3,780,000 $ 5,884,000 $ 9,483,000 $11,789,000 $13,724,000
lease oblig.
Stockholders $39,388,000 $28,333,000 $ 18,022,000 $12,797,000 $ 9,896,000
Equity
* Adjusted for stock dividend of Class A Non-voting Preferred Stock declared in October, 1995.
<PAGE>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations.
Results of Operations.
Fiscal 1995 Compared to Fiscal 1994
In fiscal 1995 the Company experienced a loss of
$1,762,971 on gross revenues of $14.1 million, while in fiscal
1994 a loss of $334,574 was reported on gross revenues of $15.4
million.
Contributing to the Company's net loss of $1,762,971 were
the recognition in the fourth quarter of unfavorable judgments in
excess of $1.5 million in the aggregate. The most significant of
these actions were the $880,000 judgment against Fonar's
subsidiary AMD in the Kivitz et ano v. AMD et al. action
(approximately $1.1 million with accrued interest) and,
notwithstanding that Fonar is appealing the court's decision, the
$250,000 judgment rendered against the Company in Myheal
Technologies et ano. v. Fonar (approximately $369,000 with accrued
interest). (See "Litigation"). Also significantly contributing
to the Company's net loss for the year were the continuing losses
of its Israeli subsidiary, Medical SNI (formerly Vonar Ltd.).
These losses were in the amount of $867,100 for fiscal 1995 and
$558,892 for fiscal 1994 (after giving effect to the minority
interest).
The Company continues to benefit as a result of programs
that the Company set in motion in fiscal 1989; namely strict cost
containment initiatives and the redirecting of corporate business
into other profitable enterprises within the MRI industry. As a
result of these programs, the percentage of the Company's revenue
derived from sources other than scanner sales (customer service
and upgrades) was approximately 48% for fiscal 1995 as compared to
33% for fiscal 1990. The Company believes, however, that this
trend may have peaked in fiscal 1991 and 1992 when the percentage
was approximately 61%. The trend has reversed in part because of
the retirement of old scanners. Management expects that this
trend may be reversed further as a result of the introduction into
the market of its new Quad scanner products following the
Company's receipt of FDA approval for the Quad 7000 in the fourth
quarter of fiscal 1995. Customer service and upgrades, however,
are and will continue to be priorities for the Company.
Lower revenues experienced in fiscal 1995, as in fiscal
1994, were the principal reason for the operating losses
experienced in both fiscal years ($6.4 million in fiscal 1995 and
$2.5 in fiscal 1994). Lower revenues reflected strong competition
and a continued weak domestic demand for MRI scanners in a
marketplace eager to see new products that would address both the
heightened cost pressures on MRI and the patient demand for
non-claustrophobic scanners.
Having received FDA approval for its Quad 7000 scanner in
April 1995 and anticipating FDA approval for its Quad 12000
scanner in the near future, the Company believes it is in a
position to aggressively seek new sales. At .6 Tesla field
strength, FONAR's Quad 12000 magnet is the highest field "open
MRI" in the industry, offering non-claustrophobic MRI together
with high-field image quality for the first time. The Quad 12000
magnet has three times the field strength of General Electric
Company's recently introduced "open MRI" scanner which has a field
strength of .2 Tesla.
FONAR is uniquely positioned to take advantage of the
rapidly expanding "open MRI" market which FONAR pioneered and
which a host of multi-national corporations acknowledged when all
introduced "open MRI" products at the industry's annual trade
show, RSNA (Radiological Society of North America), in November
1994. Consequently, the Company will be attending the RSNA show
in November 1995, where it will exhibit its new products. The
RSNA is one of the largest medical meetings in the world with
total attendance expected to reach 60,000, including 25,000
radiologists, who are among the principal groups to whom the
Company will direct its marketing efforts.
As at September 1, 1995, the Company's backlog of
unfilled orders was approximately $4.0 million, as compared to
$1.5 million at September 1, 1994.
The Company also believes that efforts to reduce
infringement of its intellectual property rights by competitors
have begun to produce material benefits, as reflected in the $62
million judgment rendered in its favor against General Electric
Company. During the 1995 fiscal year the Company commenced
similar patent infringement suits against other major competitors
(See "Litigation").
Lower service and repair fees in fiscal 1995, as in
fiscal 1994 (approximately $6.6 million in fiscal 1995 as compared
to approximately $7.7 million in fiscal 1994) indirectly resulted
from reduced sales, as well as from competition, as older scanners
were retired without offsetting new scanners to maintain or
increase the Company's customer base.
Overall, expenses increased from approximately $10.0
million in fiscal 1994 to $11.5 million in fiscal 1995. General
and administrative expenses decreased from approximately $5.8
million in fiscal 1994 to approximately $5.3 million in fiscal
1995, but research and development expenses increased from
approximately $2.8 million in fiscal 1994 to $3.4 million in
fiscal 1995 (exclusive of the portion of such expenses
capitalized), and selling and marketing expenses increased from
approximately $1.3 million in fiscal 1994 to $1.5 million in
fiscal 1995. The greatest part of the overall increase in
expenses resulted from an increase in the compensatory element of
stock issuances from $193,527 in fiscal 1994 to $1,363,194 in
fiscal 1995. This increase resulted mostly from non-recurring
bonuses granted to a large number of employees. The Company notes
that maintaining or increasing expenses are necessary for the
Company to realize its objective to develop and market new scanner
products.
In fiscal 1992 the Company began laying the ground work
for increased scanner sales, in foreign countries as well as
domestically. The Company has continued these efforts through
fiscal 1995, and based on sales to date, further indications of
interest, meetings, sales trips abroad and negotiations, the
Company is cautiously optimistic that foreign sales will produce
significant revenues in fiscal 1996 and/or 1997 depending on the
timing of orders and completion of projects. Having received FDA
approval for its Quad 7000 Scanner, the Company also anticipates
increased demand for its new Quad MR scanner products.
The Company maintains an installed base of over 100
scanners which generates revenue in two principal areas: namely
on-going service and equipment upgrades.
The exceptional versatility and productivity of MRI tech
nology 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.
As a result of its upgrade program, the Company derived
approximately $1.7 million in upgrades income in fiscal 1992, $1.3
million in 1993, $61,000 in 1994 and $338,000 in 1995.
Significant research and development of new programs have been
undertaken, which emphasize the development of new features for
the Company's scanner upgrade program. More specifically,
products derived from the Company's new scanners are expected to
generate substantial upgrade revenue in fiscal 1996 as customers
upgrade their existing scanners to take advantage of the improved
image quality and high speed image processing capabilities.
The Company is optimistic that its new Quad 12000 and
Quad 7000 scanners will significantly improve the Company's
competitive position. The Quad scanners are highly competitive
and totally new high field non-claustrophobic scanners not
previously available in the MRI market. The Company expects
vigorous sales from these new products.
Continuing its tradition as the originator of MRI the
Company remained committed to maintaining its position as the
leading innovator of the industry through aggressive investing in
research and development. In fiscal 1995 the Company continued
its investment in the development of its new MRI scanners together
with software and upgrades, with an investment of $3,508,101 in
R&D ($151,981 of which was capitalized) as compared to $3,604,785
in R&D ($687,551 of which was capitalized in fiscal 1994. The R&D
expenditure was approximately 25% of revenues in 1995 and 23%
of revenues in 1994.
Fiscal 1994 Compared to Fiscal 1993
In fiscal 1994 a loss of $334,574 was experienced on
gross revenues of $15.4 million, while in fiscal 1993 earnings of
$238,283 were reported on gross revenues of $16.8 million.
The percentage of the Company's revenue derived from
sources other than scanner sales (customer service,
fee-for-service, upgrades and scanning center management) was
approximately 51% for fiscal 1994, 60% for fiscal 1993, 61% for
fiscal 1992 and 1991 and 33% for fiscal 1990.
Significantly, the net loss of $699,568 ($558,892 after
giving effect to the minority interest) suffered by the Company's
Israeli subsidiary, Medical SNI (formerly Vonar Ltd.), in fiscal
1994, as compared to Medical SNI's net income of $45,212 in fiscal
1993, contributed to the consolidated net loss in fiscal 1994 for
the Company and its subsidiaries. The expenses incurred by
Medical SNI in fiscal 1994 included a non-recurring $188,655 in
connection with a public offering which was canceled.
Lower revenues experienced in fiscal 1994, as in fiscal
1993, were the principal reason for the operating losses
experienced in both fiscal years ($2.5 million in fiscal 1994 and
$2.0 in fiscal 1993). Lower revenues reflected strong competition
and a continued weak domestic demand for MRI scanners. The
Company strongly believes, however, that some of its competitors
are unfairly competing by infringing the Company's patents,
copyrights and other intellectual property rights. Consequently,
the Company commenced legal action against its most significant
competitors (see "Litigation).
Lower service and repair fees in fiscal 1994
(approximately $7.7 million in fiscal 1994 as compared to
approximately $8.3 million in fiscal 1993) indirectly resulted
from reduced sales, as well as from competition, as older scanners
were retired without offsetting new scanners to maintain or
increase the Company's customer base.
Overall, expenses increased from approximately $9.2
million in fiscal 1993 to $10 million in fiscal 1994. Small
decreases from fiscal 1993 to fiscal 1994 in selling and marketing
expenses ($1,325,393 to $1,282,328) and increases in research and
development expenses ($2,180,892 to $2,803,221, exclusive of the
portion of such expenses capitalized) were not indicative of any
trends but were within the scope of normal variation.
Notwithstanding the Company's cost containment policies, general
and administrative expenses increased from $5,409,965 in fiscal
1993 to $5,765,598 in fiscal 1994 (approximately 6.5%). The
Company does not believe the increases in general and
administrative expenses from fiscal 1993 to fiscal 1994 were
indicative of any material trend but were the result of the
specific circumstances encountered by the Company in the fiscal
periods. The Company notes that maintaining or increasing
expenses are necessary for the Company to realize its objective to
develop and market new scanner products.
Offsetting reduced revenues from operations, the Company
recognized a significant nonrecurring gain of approximately $1.27
million on the sale to related parties of its interests in four
limited partnerships (see Item 13, Certain Relationships and
Related Transactions and Note 3 to Financial Statements).
Nevertheless, the smaller amount of gain recognized from this
transaction as compared to the nonrecurring gain recognized in
fiscal 1993 ($3.3 million) on the sale of certain joint venture
and limited partnership interests to related parties, was
insufficient to offset the Company's operating loss and resulted
in a loss for fiscal 1994.
Continuing its tradition as the originator of MRI, in
fiscal 1994 the Company continued its investment in the
development of its new MRI scanners together with software and
upgrades, with an investment of $3,604,785 in R&D ($687,551 of
which was capitalized) as compared to $3,119,898 ($938,926 of
which was capitalized) in fiscal 1993. The R&D expenditure in
1994 was 23% of revenues and in 1993 was 18.6% of revenues.
Liquidity and Capital Resources
At June 30, 1995, the Company's liquidity and capital
resources position had changed from June 30, 1994 as follows:
___________ June 30 _____________
1995 1994 Change
Working Capital
(deficiency) (5,077,477) (7,748,904) 2,671,427
The improvement in the Company's working capital position
resulted primarily from a decrease in current liabilities (from
$17.8 million in fiscal 1994 to $14.6 million in fiscal 1995).
The decrease in current liabilities as well as the decrease in the
Company's long-term debt and capital lease obligations ($1.46
million in fiscal 1994 as compared to $528,543 million in fiscal
1995) is attributable to the Company continuing to pay down its
debt obligations and in part to the assumption of a portion of the
Company's obligations to a secured lender by a related party in
connection with the exercise of a purchase option under a scanner
lease covering the encumbered scanner. (See Certain Relationship
and Related Transactions.)
The Company offers its products for sale or lease to cus
tomers. Cash flows from leasing transactions are derived under
the terms of the underlying agreements. Over the long term, the
Company expects enhanced cash flows and increased revenues from
such transactions while in the short term, such transactions
impair cash flow. In order to mitigate the short term effect on
cash flow, the Company previously had borrowed money secured by
the leases and the underlying equipment. Such debt comprises
substantially all of the remaining long-term debt in the
accompanying financial statements.
During the fiscal years from 1990 through 1995 the
Company restructured various long-term loans and notes. The
significant changes included extended maturity dates, and the
addition of unpaid interest to the note and loan balances.
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 to June 30, 1991 interest bearing debt was reduced by
$3.3 million to $15.2 million. Through June 30, 1992 interest
bearing debt was reduced by an additional $3.1 million to $12.1
million and through June 30, 1993 interest bearing debt was
further reduced by $2.3 million to $9.8 million. Through June 30,
1994 interest bearing debt was reduced by an additional $3.8
million to approximately $6.0 million and through June 30, 1995
interest bearing debt was reduced by an additional $2.1 million to
$3.9 million.
As of June 30, 1995, the Company had no unused credit
facilities with banks or financial institutions.
Capital expenditures for 1995 and 1994 approximate $1.8
million and $1.9 million, respectively, and substantially
consisted of capitalized computer software costs in connection
with the development of scanner products, patent costs and
copyright costs and production equipment.
The Company's business plan, initiated during September
1989, addressed its financial objectives. The plan is based to a
substantial extent, on the successful implementation of several
new programs designed to position the Company for long-term growth
and expansion. The plan has, as its objective, the enhancement
and stabilization of revenue streams through the generation of
additional income from its installed base of over 100 scanners and
leasing programs. In addition, the Company instituted strict cost
containment programs. While continuing to focus on new sources of
income, the Company, with its new "Quad" scanners, expects to
re-emphasize MRI scanner sales.
Such cost containment programs primarily focused on the
restructuring of employee staffing levels and manufacturing
facilities to bring them into line with current requirements.
These programs have resulted in significant reductions in expenses
since fiscal 1989. The cost containment programs will be
continued.
The Company's plan calls for a continuing emphasis on
providing its customers with enhanced equipment service and
maintenance capabilities and delivering state-of-the-art,
innovative and high quality equipment upgrades at competitive
prices. Fees for on-going service and maintenance from the
Company's installed base of scanners were $8.3 million for the
year ended June 30, 1993, $7.7 for the year ended June 30, 1994
and $6.6 for the year ended June 30, 1995. The Company will
continue to aggressively develop and market upgrades and
enhancements for previously installed scanners.
The Company's working capital deficiency as of June 30,
1995 approximates $5.1 million, down from $7.7 million as of June
30, 1994. The Company expects to reduce this deficiency further
by June 30, 1996. This is to be accomplished by internally
generated cash from operating profits and the refinancing and/or
restructuring of maturity terms of certain loans now classified as
short term obligations. The Company also will pursue equity
financing alternatives.
The Company believes that the above mentioned financing
arrangements and programs will provide the cash flows needed to
achieve the sales, service and production levels necessary to
support its operations. In addition, the Company is exploring
other more permanent financing alternatives which may become
available during fiscal 1996 as the success of the previously
described programs accelerates.
<PAGE>
<PAGE>
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FONAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page No.
------------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS F-3 to F-6
At June 30, 1995 AND 1994
CONSOLIDATED STATEMENTS OF OPERATIONS F-7; F-8
For the Three Years Ended June 30, 1995, 1994 and 1993
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-9 to F-23
For the Three Years Ended June 30, 1995, 1994 and 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS F-24 to F-26
For the Three Years Ended June 30, 1995, 1994 and 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-27 to F-83
SUPPLEMENTARY SCHEDULES:
INDEPENDENT AUDITORS' REPORT ON SCHEDULES S-1
SCHEDULE II - Amounts Receivable from Related
Parties and Underwriters,
Promoters and Employees Other
than Related Parties S-2
For the Years Ended June 30,
1995, 1994 and 1993
SCHEDULE VIII - Valuation and Qualifying Accounts
For the Three Years Ended S-3
June 30, 1995, 1994 and 1993
SELECTED FINANCIAL DATA (*)
For the Five Years Ended June 30, 1995
(*) Included in Part II, Item 6 of the Form.
Information required by other schedules called for under Regulation
S-X is either not applicable or is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
FONAR Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of FONAR
Corporation and Subsidiaries as at June 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended
June 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of FONAR Corporation and Subsidiaries at June 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the
years in the three-year period ended June 30, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company suffered a loss from
operations, has a working capital deficiency, is in arrears with
certain debts, accounts payable and various taxes. These factors and
others, discussed in Note 1, raised substantial doubt about the
Company's ability to continue as a going concern. Realization of a
major portion of the assets in the accompanying balance sheet is
dependent upon continuing operations of the Company. Management's
plans in regard to these matters are described in Note 1 and include,
among other things, the exploitation of a new product line of MRI
scanners. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As more fully described in Note 15, the Company is a defendant in
various lawsuits alleging breach of contract. It is not possible to
predict at this time whether the ultimate awards or settlements will
exceed the amount currently provided by the Company.
During each of the years in the three-year period ended June 30, 1995,
a significant portion of the Company's revenues was from a related
party (see Note 3).
By: /s/ Tabb, Conigliaro & McGann, P.C.
---------------------------------------
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
November 3, 1995
F-2
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30,
---------------------------
1995 1994
----------- -----------
CURRENT ASSETS
Cash $ 3,266,728 $ 576,707
Accounts receivable, net of
allowance for doubtful accounts of
$603,719 and $1,692,269 at June
30, 1995 and 1994, respectively 1,796,929 3,045,258
Notes receivable from related
parties (Note 3) 400,000 400,000
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Notes 2 and 4) 323,918 401,166
Inventories (Notes 2 and 5) 2,295,327 2,775,930
Net investment in sales-type leases
with related parties (Notes 2, 3,
6, and 11) 1,368,988 1,569,427
Prepaid expenses and other current
assets (Note 8) 113,955 1,276,989
----------- -----------
TOTAL CURRENT ASSETS 9,565,845 10,045,477
ASSETS HELD FOR RESALE (Note 2) 598,062 608,062
PROPERTY AND EQUIPMENT - Net
(Notes 2, 7 and 13) 2,786,402 3,800,594
INVESTMENTS, ADVANCES AND NOTES TO
AFFILIATES AND RELATED PARTIES,
Net of discounts and allowance for
doubtful accounts of $1,250,000 at
June 30, 1995 and 1994 (Notes 2, 3,
4 and 6) 23,940,345 19,054,256
LONG-TERM ACCOUNTS RECEIVABLE, Net of
allowance for doubtful accounts of
$1,837,348 and $632,284 at June 30,
1995 and 1994, respectively 1,039,079 1,074,882
NOTES RECEIVABLE, Net of allowance for
doubtful accounts of $708,411 at
June 30, 1995 and 1994 179,337 179,337
CAPITALIZED SOFTWARE DEVELOPMENT
COSTS,
Net of accumulated amortization of
$5,858,578 and $4,603,566 at June
30, 1995 and 1994, respectively
(Notes 2 and 8) 1,763,549 2,737,509
F-3
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (continued)
------
June 30,
---------------------------
1995 1994
----------- -----------
OTHER INTANGIBLE ASSETS, Net (Notes 8
and 15) 3,320,053 2,131,056
NET INVESTMENT IN SALES-TYPE LEASES
WITH RELATED PARTIES, Net of
allowance for possible losses of
$115,000 in 1995 and 1994 (Notes 2,
3, 6 and 11) 4,961,979 5,815,929
COSTS AND ESTIMATED EARNINGS IN EXCESS
OF BILLINGS ON UNCOMPLETED CONTRACTS
WITH RELATED PARTIES (Notes 2, 3 and
4) 6,681,296 2,854,681
OTHER ASSETS 107,630 115,770
----------- -----------
TOTAL ASSETS $54,943,577 $48,417,553
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30,
-----------------------------
1995 1994
----------- -----------
CURRENT LIABILITIES
Notes payable (Note 11) $ 100,000 $ 100,000
Current maturities of long-term debt
and capital lease obligations
(Notes 11 and 15) 3,251,863 4,427,061
Accounts payable 1,595,452 3,018,147
Other current liabilities (Note 14) 9,248,727 9,574,536
Customer advances (Notes 2 and 4) 293,487 664,637
Billings in excess of costs and
estimated earnings on uncompleted
contracts (Notes 2 and 4) 11,102 -
Income taxes payable (Note 12) 142,691 10,000
----------- -----------
TOTAL CURRENT LIABILITIES 14,643,322 17,794,381
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, Less current maturities
(Notes 2, 11 and 15) 528,543 1,456,543
OTHER LIABILITIES 99,021 201,278
----------- -----------
627,564 1,657,821
----------- -----------
MINORITY INTEREST 285,131 632,458
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes
3, 9, 11 and 15)
STOCKHOLDERS' EQUITY (Notes 2 and 10)
Common stock - $.0001 par value;
issued - 38,229,448 and 31,235,773
shares at June 30, 1995 and 1994,
respectively 3,822 3,123
Class B common stock (10 votes per
share) - $.0001 par value;
issued and outstanding - 3,193,456
and 3,194,556 shares at June 30,
1995 and 1994, respectively 319 320
Class C common stock (25 votes per
share) - $.0001 par value; issued
and outstanding - none - -
Class A non-voting preferred stock -
$.0001 par value; issued and
outstanding - 7,624,117 shares at
June 30, 1995 762 -
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (continued)
------------------------------------
June 30,
-----------------------------
1995 1994
----------- -----------
Preferred stock - $.001 par value;
issued and outstanding - none - -
Paid-in capital in excess of par
value 63,779,202 49,817,538
Accumulated deficit (22,104,053) (20,341,082)
Notes receivable from stockholders (1,897,047) (751,561)
Treasury stock - 108,864 shares of
common stock at June 30, 1995 and
1994 (395,445) (395,445)
----------- -----------
39,387,560 28,332,893
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $54,943,577 $48,417,553
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30,
------------------------------------------
1995 1994 1993
----------- ----------- -----------
REVENUES (Notes 1, 2, 3, 4,
6 and 9)
Product sales - net $ 2,383,309 $ 3,236,330 $ 4,238,897
Service and repair fees
- net 4,444,913 6,028,417 7,394,415
Scanning and management
fees - net 88,740 32,172 1,564,877
Related parties -
product sales - net 4,866,548 4,274,547 2,544,201
Related parties -
service and repair
fees - net 2,174,076 1,690,500 926,627
Related parties -
scanning and
management fees - net 133,374 124,649 133,370
----------- ----------- -----------
TOTAL REVENUES - Net 14,090,960 15,386,615 16,802,387
----------- ----------- -----------
COST OF REVENUES
Product sales 2,283,665 2,065,548 2,974,390
Service and repair fees 2,254,251 2,578,952 3,093,305
Scanning and management
fees 1,785 1,196 1,538,658
Related parties - product
sales 3,345,482 2,410,756 1,482,444
Related parties - service
and repair fees 1,102,589 723,194 387,636
Related parties -
scanning and management
fees - net 15,338 34,192 131,135
----------- ----------- -----------
TOTAL COST OF REVENUES 9,003,110 7,813,838 9,607,568
----------- ----------- -----------
GROSS PROFIT 5,087,850 7,572,777 7,194,819
----------- ----------- -----------
EXPENSES
Research and development
expenses 3,356,120 2,803,221 2,180,892
Selling and marketing
expenses 1,497,825 1,282,328 1,325,393
General and
administrative expenses 5,304,102 5,765,598 5,409,965
Compensatory element of
stock issuances (Note
10) 1,363,194 193,527 313,123
----------- ----------- -----------
11,521,241 10,044,674 9,229,373
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Years Ended June 30,
------------------------------------------
1995 1994 1993
----------- ----------- -----------
(LOSS) INCOME FROM
OPERATIONS (6,433,391) (2,471,897) (2,034,554)
INTEREST EXPENSE (1,122,159) (1,235,523) (2,199,024)
INTEREST INCOME - RELATED
PARTIES 1,969,204 1,865,963 1,023,362
GAIN ON SALE OF INVESTMENTS
AND SUBSIDIARY TO RELATED
PARTIES (Note 3) - 1,273,629 3,313,398
OTHER INCOME (Note 16) 3,621,607 140,483 208,968
----------- ----------- -----------
(LOSS) INCOME BEFORE
PROVISION FOR TAXES AND
MINORITY INTEREST (1,964,739) (427,345) 312,150
PROVISION FOR INCOME TAXES
(Notes 2 and 12) 145,558 47,905 66,166
----------- ----------- -----------
(LOSS) INCOME BEFORE
MINORITY INTEREST (2,110,297) (475,250) 245,984
MINORITY INTEREST IN NET
LOSS (INCOME) OF
SUBSIDIARY AND
PARTNERSHIP (Note 2) 347,326 140,676 (7,701)
----------- ----------- -----------
NET (LOSS) INCOME $(1,762,971) $ (334,574) $ 238,283
=========== =========== ===========
NET (LOSS) INCOME PER SHARE
(Note 2) $(.04) $(.01) $ .01
===== ===== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (Note
2) 45,055,334 36,773,623 30,870,060
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1995
Class A
Common Stock
Per Share ----------------------
Amount Shares Amount
--------- ---------- ----------
Balance - June 30, 1994 $ - 31,235,773 $ 3,123
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) 2.89 480,650 48
Under incentive stock option plan 2.43 413,375 41
Shares issued under non-statutory plans 1.42 1,752,695 175
Issuance of stock in settlement of
liabilities 2.00 1,398,550 138
Issuance of stock 2.13 2,947,305 296
Net change in notes receivable from
stockholders - - -
Conversion from Class B to Class A - 1,100 1
Stock dividend - Class A non-voting
preferred - -
NET LOSS - -
----------- ---------
Balance - JUNE 30, 1995 38,229,448 $ 3,822
=========== =========
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1995
(Continued)
Class B
Common Stock
----------------------
Shares Amount
---------- ----------
Balance - June 30, 1994 3,194,556 $ 320
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) - -
Under incentive stock option plan - -
Shares issued under non-statutory plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Conversion from Class B to Class A (1,100) (1)
Stock dividend - Class A non-voting
preferred - -
NET LOSS - -
--------- --------
Balance - JUNE 30, 1995 3,193,456 $ 319
========= ========
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1995
(Continued)
Class A
Non-Voting Paid-in
Preferred Stock Capital in
----------------------- Excess of
Shares Amount Par Value
---------- ---------- -----------
Balance - June 30, 1994 - $ - $49,817,538
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - - 1,387,052
Under incentive stock option plan - - 1,004,224
Shares issued under non-statutory
plans - - 2,490,667
Issuance of stock in settlement of
liabilities - - 2,794,953
Issuance of stock - - 6,285,530
Net change in notes receivable from
stockholders - - -
Conversion from Class B to Class A - - -
Stock dividend - Class A non-voting
preferred 7,624,117 762 (762)
NET LOSS - - -
---------- ---------- -----------
Balance - JUNE 30, 1995 7,624,117 $ 762 $63,779,202
========== ========== ===========
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1995
(Continued)
Treasury Stock
-----------------------
Shares Amount
---------- ----------
Balance - June 30, 1994 108,864 $ (395,445)
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - -
Under incentive stock option plan - -
Shares issued under non-statutory
plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Conversion from Class B to Class A - -
Stock dividend - Class A non-voting preferred - -
NET LOSS - -
---------- ----------
Balance - JUNE 30, 1995 108,864 $ (395,445)
========== ==========
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1995
(Continued)
Notes
Receivable
from Accumulated
Stockholders Deficit
------------ ------------
Balance - June 30, 1994 $ (751,561) $(20,341,082)
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - -
Under incentive stock option plan (994,469) -
Shares issued under non-statutory plans
Issuance of stock in settlement of - -
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders (151,017) -
Conversion from Class B to Class A - -
Stock dividend - Class A non-voting
preferred - -
NET LOSS - (1,762,971)
----------- ------------
Balance - JUNE 30, 1995 $(1,897,047) $(22,104,053)
=========== ============
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
Class A
Common Stock
Per Share ----------------------
Amount Shares Amount
--------- ---------- ----------
Balance - June 30, 1993 $ - 25,165,219 $ 2,516
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) 1.79 116,796 12
Under incentive stock option plan 1.01 40,125 4
Shares issued under non-statutory plans 1.78 4,771,291 477
Issuance of stock in settlement of
liabilities 1.80 1,011,000 101
Issuance of stock 1.52 123,709 13
Net change in notes receivable from
stockholders - - -
Conversion from Class B to Class A - 7,633 -
Stock dividend - Class A non-voting - -
preferred ---------- --------
NET LOSS 31,235,773 $ 3,123
Balance - JUNE 30, 1994 ========== ========
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
(Continued)
Class B
Common Stock
----------------------
Shares Amount
---------- ----------
Balance - June 30, 1993 3,202,189 $ 320
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) - -
Under incentive stock option plan - -
Shares issued under non-statutory plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Conversion from Class B to Class A (7,633) -
Stock dividend - Class A non-voting
preferred - -
NET LOSS - -
--------- --------
Balance - JUNE 30, 1994 3,194,556 $ 320
========= ========
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
(Continued)
Class A
Non-Voting Paid-in
Preferred Stock Capital in
----------------------- Excess of
Shares Amount Par Value
---------- ---------- -----------
Balance - June 30, 1993 - $ - $39,083,508
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - - 209,140
Under incentive stock option plan - - 40,718
Shares issued under non-statutory
plans - - 8,474,532
Issuance of stock in settlement of
liabilities - - 1,821,919
Issuance of stock - - 187,721
Net change in notes receivable from
stockholders - - -
Conversion from Class B to Class A - - -
Stock dividend - Class A non-voting
preferred - - -
NET LOSS - - -
---------- ---------- -----------
Balance - JUNE 30, 1994 - $ - $49,817,538
========== ========== ===========
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
(Continued)
Treasury Stock
------------------------
Shares Amount
---------- ----------
Balance - June 30, 1993 108,864 $ (395,445)
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - -
Under incentive stock option plan - -
Shares issued under non-statutory
plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Conversion from Class B to Class A - -
Stock dividend - Class A non-voting preferred - -
NET LOSS - -
---------- ----------
Balance - JUNE 30, 1994 108,864 $ (395,445)
========== ==========
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1994
(Continued)
Notes
Receivable
from Accumulated
Stockholders Deficit
------------ ------------
Balance - June 30, 1993 $ (662,011) $(20,006,508)
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - -
Under incentive stock option plan - -
Shares issued under non-statutory
plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of stock - -
Net change in notes receivable from
stockholders (89,550) -
Conversion from Class B to Class A - -
Stock dividend - Class A non-voting
preferred - -
NET LOSS - (334,574)
---------- ------------
Balance - JUNE 30, 1994 $ (751,561) $(20,341,082)
========== ============
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1993
Class A
Common Stock
Per Share ----------------------
Amount Shares Amount
--------- ---------- ---------
Balance - June 30, 1992 $ - 21,732,644 $ 2,173
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) 1.27 120,700 12
Under incentive stock option plan 1.10 175,375 17
Stock awards to consultants 2.00 5,000 1
Shares issued under non-statutory plans 1.21 1,370,000 137
Issuance of stock in settlement of
liabilities 1.40 1,361,500 136
Issuance of common stock in connection
with acquisition of minority interest
in subsidiary .48 40,000 4
Issuance of stock 1.61 360,000 36
Net change in notes receivable from
stockholders - - -
Compensation expense under non
-statutory plans - - -
NET INCOME - -
---------- --------
Balance - JUNE 30, 1993 25,165,219 $ 2,516
========== ========
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1993
(Continued)
Class B
Common Stock
----------------------
Shares Amount
---------- ---------
Balance - June 30, 1992 3,202,189 $ 320
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) - -
Under incentive stock option plan - -
Stock awards to consultants - -
Shares issued under non-statutory plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of common stock in connection
with acquisition of minority interest
in subsidiary - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Compensation expense under non
-statutory plans - -
NET INCOME - -
---------- --------
Balance - JUNE 30, 1993 3,202,189 $ 320
========== ========
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1993
(Continued)
Class A
Non-Voting Paid-in
Preferred Stock Capital in
----------------------- Excess of
Shares Amount Par Value
---------- ---------- -----------
Balance - June 30, 1992 - $ - $34,250,934
Shares issued as follows:
Stock bonus to employees (measured
at the average quoted market
price on the award dates) - - 153,461
Under incentive stock option plan - - 192,373
Stock awards to consultants - - 9,999
Shares issued under non-statutory
plans - - 1,655,540
Issuance of stock in settlement of
liabilities - - 1,910,776
Issuance of common stock in
connection with acquisition of
minority interest in subsidiary - - 19,202
Issuance of stock - - 578,100
Net change in notes receivable from
stockholders - - -
Compensation expense under non
-statutory plans - - 313,123
NET INCOME - - -
---------- ---------- -----------
Balance - JUNE 30, 1993 - $ - $39,083,508
========== ========== ===========
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1993
(Continued)
Treasury Stock
------------------------
Shares Amount
---------- ----------
Balance - June 30, 1992 108,864 $ (395,445)
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) - -
Under incentive stock option plan - -
Stock awards to consultants - -
Shares issued under non-statutory plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of common stock in connection
with acquisition of minority interest
in subsidiary - -
Issuance of stock - -
Net change in notes receivable from
stockholders - -
Compensation expense under non
-statutory plans - -
NET INCOME - -
---------- ----------
Balance - JUNE 30, 1993 108,864 $ (395,445)
========== ==========
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1993
(Continued)
Notes
Receivable
from Accumulated
Stockholders Deficit
------------ ------------
Balance - June 30, 1992 $ (816,224) $(20,244,791)
Shares issued as follows:
Stock bonus to employees (measured at
the average quoted market price on
the award dates) - -
Under incentive stock option plan - -
Stock awards to consultants - -
Shares issued under non-statutory plans - -
Issuance of stock in settlement of
liabilities - -
Issuance of common stock in connection
with acquisition of minority interest
in subsidiary - -
Issuance of stock - -
Net change in notes receivable from
stockholders 154,213 -
Compensation expense under non
-statutory plans - -
NET INCOME - 238,283
---------- ------------
Balance - JUNE 30, 1993 $ (662,011) $(20,006,508)
========== ============
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) income $(1,762,971) $ (334,574) $ 238,283
Adjustments to reconcile
net (loss) income to net
cash (used in) provided
by operating activities:
Minority interest in
net income (loss) of
subsidiary and
partnership (347,327) (140,676) 7,701
Depreciation and
amortization 2,426,982 2,558,189 2,448,822
Provision for losses on
accounts and notes
receivable and
accounts receivable
from affiliates 116,514 395,721 403,500
Compensatory element of
stock issuances 1,363,194 193,527 313,123
Stock issued in
settlement of current
liabilities 2,424,587 1,822,021 1,879,315
Loss (gain) on
settlement of various
legal disputes and
other claims 15,724 (104,061) (15,611)
Gain on sale of
investments and
subsidiary to related
parties - (1,273,629) (3,313,398)
Loss on disposal of
fixed assets 6,383 - -
Loss on sale of
machinery previously
held under sales-type
lease 178,500 - -
(Increase) decrease in
operating assets,
net:
Accounts and notes
receivable 1,167,618 (520,699) 1,233,627
Costs and estimated
earnings in
excess of
billings on
uncompleted
contracts (3,749,367) 124,603 41,409
Inventories 731,342 145,898 298,813
Sales-type lease
receivables - (922,338) (503,503)
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
Collection of
principal on
sales-type leases 92,204 480,968 548,080
Assets held for
resale 10,000 (10,000) -
Prepaid expenses
and other current
assets 1,163,034 160,751 (214,185)
Other assets 199 11,299 2,909
Receivables and
advances to
affiliates and
related parties (4,642,270) (5,022,066) (1,698,845)
Increase (decrease) in
operating
liabilities, net:
Accounts payable
and income taxes (1,305,728) 970,128 188,960
Other current
liabilities (164,736) (2,263,388) (141,525)
Customer advances (371,150) 14,368 (89,463)
Billings in excess
of costs and
estimated
earnings on
uncompleted
contracts 11,102 (51,294) 51,294
Other liabilities (102,257) 910 (223,841)
----------- ----------- -----------
NET CASH (USED IN)
PROVIDED BY
OPERATING
ACTIVITIES (2,738,423) (3,764,342) 1,455,465
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and
equipment, net of capital
lease obligations of
$-0-, $340,895 and $-0-
for the years ended June
30, 1995, 1994 and 1993,
respectively $ (80,870) $ (998,308) $ (340,504)
Cost of capitalized
software development (281,052) (373,256) (938,926)
Cost of patents and
copyright (1,365,273) (1,799,126) (474,848)
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (1,727,195) (3,170,690) (1,754,278)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings,
net of capital lease
obligations 282,346 - 223,630
Repayment of borrowings and
capital lease obligations (1,762,145) (2,074,771) (2,887,827)
Issuance of common stock 9,797 117,602 177,932
Repayments of notes
receivable in connection
with shares issued under
stock option and bonus
plans 8,625,641 8,469,820 2,565,957
Proceeds from issuance of
partnership units to
minority interests - 773,134 -
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 7,155,639 7,285,785 79,692
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 2,690,021 350,753 (219,121)
CASH - BEGINNING OF YEAR 576,707 225,954 445,075
----------- ----------- -----------
CASH - END OF YEAR $ 3,266,728 $ 576,707 $ 225,954
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - BUSINESS, RISKS AND CONTINUED OPERATIONS
Since its incorporation in 1978, FONAR Corporation and
Subsidiaries ("the Company") has engaged in the
research, development, production and marketing of
medical scanning equipment which uses principles of
Magnetic Resonance Imaging ("MRI") for the detection
and diagnosis of human diseases. In addition to
deriving revenues from the direct sale of MRI
equipment, revenue is also generated from its
installed base of customers through its service and
upgrade programs.
The patented technology underlying the Company's
principal and planned products is either owned by the
Company or has been exclusively licensed to the
Company by its Chairman of the Board, President and
principal stockholder. The license provides for
termination at the option of the grantor, upon
occurrence of certain events. Such events include,
among other things, the removal of the grantor from
his position as Chairman of the Board or President of
the Company; and/or a dilution of the grantor's voting
control such that another stockholder or group of
stockholders acquire voting rights equal to or greater
than that of the grantor.
The Company operates in a high technology marketplace,
in competition with other manufacturers and service
providers having far greater financial resources than
its own. The past success of the Company related
substantially to the early development and
exploitation of the MRI machine. FONAR's sales
advantage over its larger and financially stronger
competitors, is aided substantially by the various
proprietary patents and copyrights covering such
products and technologies. Since inception FONAR has
vigorously litigated any suspected infringements of
its patents and copyright. During the year ended June
30, 1994, FONAR settled one such action and received
in the aggregate $1.1 million. On September 2, 1992,
the Company filed a patent infringement suit against
two of its largest competitors, General Electric and
Hitachi. During April 1995, the Company reached a
settlement with Hitachi. In October 1995, the court
awarded FONAR a judgement of $62 million, plus
interest, and issued an injunction (stayed pending
appeal) prohibiting General Electric from future
violations. Recently, FONAR has commenced additional
lawsuits against other competitors claiming
infringement on various patents related to the MRI
machine and upgrades. (see note 15 for a more detailed
discussion of these lawsuits).
F-27
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - BUSINESS, RISKS AND CONTINUED OPERATIONS
(Continued)
As discussed below, during October 1993 and March
1994, the Company developed the "Quad 12000" and the
"Quad 7000", respectively. FONAR received FDA
approval to market the Quad 7000 in April 1995 and is
awaiting approval for the Quad 12000. These new
products have numerous patents filed by FONAR covering
various features and designs. The Company strongly
believes that these new products will substantially
increase its revenue.
The accompanying financial statements have been
prepared in conformity with generally accepted
accounting principles, which contemplate continuation
of the Company as a going concern. However, the
Company has sustained operating losses of $6,433,391
and $2,471,897 for the years ended June 30, 1995 and
1994, respectively, and has a working capital
deficiency of $5,351,227 at June 30, 1995. The
working capital deficiency at June 30, 1995 includes
the reclassification of long-term debt and capital
lease obligations of approximately $408,000 to current
maturities. Notwithstanding that the Company has
continued to make regular payments on these
obligations, that reclassification considers the fact
that the Company was in arrears on those obligations.
Further, much of the Company's accounts payable is
overdue and the Company was in arrears on various
taxes.
The success of the Company's future operations is
dependent, therefore, on the Company's ability to
overcome the financial difficulties that exist,
restructure and/or maintain its existing credit
privileges and, if necessary, obtain additional
financing when needed.
In view of these matters, realization of a major
portion of the assets in the accompanying balance
sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's
ability to meet its financing requirements, and the
success of its future operations. Management believes
that actions presently being taken, as discussed
below, to revise the Company's operating and financial
requirements provide the opportunity for the Company
to continue as a going concern.
F-28
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - BUSINESS, RISKS AND CONTINUED OPERATIONS
(Continued)
The Company's business plan addresses its financial
difficulties. The plan is based to a substantial
extent, on the successful implementation of several
new programs designed to position the Company for
long-term growth and expansion. The plan has, as its
objective, the enhancement and stabilization of
revenue streams through the generation of additional
income from its installed base of over 100 scanners
and the expansion of its leasing programs.
In addition, the Company instituted strict cost-
containment programs, while continuing to maintain an
aggressive investment in research and development.
Recently, the Company has developed new scanner
products and various software enhancements, including
the "Quad 12000" and the "Quad 7000" MRI scanners.
These products will enhance the quality of the image
at greater efficiency, while reducing the cost of scan
prices.
In April of 1995, FONAR received FDA approval to
market its Quad 7000 MRI scanner in the United States.
FONAR will formally introduce this new MRI at the
annual meeting of the Radiological Society of North
America ("RSNA") this November in Chicago, Illinois.
The RSNA show is noted to be the largest medical
meeting in the world.
The Company's sales and marketing activities for the
Quad 7000 commenced in June of 1995, and to date,
FONAR has received four confirmed orders. Sales and
marketing activities are expected to substantially
increase commencing with the RSNA show in November of
1995.
Because of the Quad's non-claustrophobic patient
environment, its high quality of diagnostic pictures,
its low price, and its suitability for meeting the
continuing demands for low cost medical care, the
Company expects vigorous sales activities in fiscal
1996.
As a result of these new products and other research
and development, the Company is positioning itself to
increase sales and improve its competitive position in
the industry.
F-29
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - BUSINESS, RISKS AND CONTINUED OPERATIONS
(Continued)
The Company will continue to aggressively develop and
market upgrades and enhancements to its previously
installed base of more than 100 scanners. The Company
expects to realize the benefits of its research and
development activities as the new products are
released and marketed to existing and potential new
customers.
Also, the Company's plan calls for a continuing
emphasis on providing its customers with enhanced
equipment service and maintenance capabilities and
delivering state-of-the-art, innovative and high
quality equipment upgrades at competitive prices.
The Company expects to reduce its working capital
deficiency during fiscal 1996. This is to be
accomplished by internally generated cash from
operating profit and the refinancing and/or
restructuring of maturity terms of certain loans now
classified as short-term obligations. The Company is
currently negotiating with several lending
institutions to refinance and/or restructure these
obligations. In addition, the Company plans to pursue
equity financing alternatives.
The Company believes that the above mentioned
financing arrangements and increased revenue from its
new products and its sizable installed base will
provide the cash flows needed to achieve the sales,
service and production levels necessary to support its
operations. In addition, the Company is exploring
other more permanent financing alternatives which may
become available during fiscal 1996 as the anticipated
success of the previously described programs become
evident.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the
accounts of FONAR Corporation, its majority and
wholly-owned subsidiaries/ partnership and its
proportionate share in the accounts of all joint
ventures. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-30
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Inventories
-----------
Inventories consist of purchased parts, components and
supplies, as well as work-in-process, and are stated
at the lower of cost (materials, labor and overhead
determined on the first-in, first-out method) or
market.
Reclassifications
-----------------
Certain reclassifications were made to prior year
balances to conform to current year presentation.
Property and Equipment/Assets Held for Resale
---------------------------------------------
Property and equipment are stated at cost.
Depreciation of property and equipment is calculated
on a straight-line basis using the estimated useful
lives of the assets.
Years
-----
Offsite research scanner 7
Research, development
and demonstration equipment 2-7
Machinery and equipment 5-8
Furniture and fixtures 5-10
Property under lease 5-7
Property held for lease 7
Maintenance and repairs are charged to expense as
incurred; renewals or betterments are capitalized.
The Company leases a portion of its property and
equipment under leases, pursuant to which the Company
retains all the benefits and risks inherent in
ownership of the related property. Such leases are
accounted for as capital leases. The related assets
and liabilities are recorded at amounts equal to the
lesser of the present value of the minimum lease
payments, or the fair market value of the leased
equipment, at the inception of the lease. Such assets
are amortized using the straight-line method over
their economic useful lives, generally 5 to 7 years.
Interest expense relating to the lease liability is
recorded to effect constant rates of interest over the
terms of the leases.
Assets held for resale as of June 30, 1995 and 1994
represent one and two MRI scanners, respectively.
F-31
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Intangible Assets
-----------------
1) Capitalized Software Development Costs
Certain software development costs incurred
subsequent to the establishment of the software's
technological feasibility and completion of the
research and development on the product hardware,
in which it is to be used, are required to be
capitalized. Capitalization ceases when the
product is available for general release to
customers, at which time amortization of
capitalized costs begins. The amortization period
ranges from 3 to 5 years using the straight-line
method.
2) Other Intangible Assets
Amortization is calculated on the straight-line
basis over periods ranging from 5 to 17 years.
Revenue Recognition
-------------------
Revenue on sales contracts for scanners is
recognized under the percentage-of-completion
method. The Company manufactures its scanners
under specific contracts that provide for progress
payments. Production and installation take
approximately six months. The percentage of
completion is determined by the ratio of costs
incurred to date on completed sub-assemblies to the
total estimated cost for each scanner.
Contract costs include material, direct labor and
overhead. Provisions for estimated losses on
uncompleted contracts, if any, are made in the
period in which such losses are determined. The
asset, "Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts", represents
revenues recognized in excess of amounts billed.
The liability, "Billings in Excess of Costs and
Estimated Earnings on Uncompleted Contracts",
represents billings in excess of revenues
recognized.
Revenue on service and management contracts are
recognized on the straight-line method over the
related contract period.
Revenue from sales of other items are recognized
upon shipment.
F-32
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Research and Development Costs
------------------------------
Research and development costs are charged to expense
as incurred. The costs of materials and equipment
that are acquired or constructed for research and
development activities, and have alternative future
uses (either in research and development, marketing or
production), are classified as property and equipment
and depreciated over their estimated useful lives.
Certain software development costs are capitalized.
See property and equipment and intangible assets
(capitalized software development costs) sections of
this note.
Income Taxes
------------
The Company has adopted the Financial Accounting
Standards Board Statement No. 109, "Accounting for
Income Taxes" (SFAS 109) effective July 1, 1993. SFAS
109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of
events that have been recognized in the financial
statements or tax returns. Under this method,
deferred tax liabilities and assets are determined
based on the difference between the financial
statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the
years in which the differences are expected to
reverse. Adoption of the statement did not have a
material effect on the accompanying financial
statements.
Product Warranty
----------------
The Company provides currently for the estimated cost
to repair or replace products under warranty
provisions in effect at the time of installation
(generally for one year).
Customer Advances
-----------------
Cash advances and progress payments received on sales
orders are reflected as customer advances until such
time as revenue recognition begins.
F-33
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Per Share Data
--------------
Net (loss) income per common and common equivalent
share has been computed based on the weighted average
number of common shares and common stock equivalents
outstanding during the year. No effect has been given
to options outstanding under the Company's Stock
Option Plans as no material dilutive effect would
result from the exercise of these items. During 1995,
a stock dividend of Class A non-voting preferred stock
was declared (Note 10). Earnings per share and
weighted average shares have been restated to reflect
the stock dividend.
Cash and Cash Equivalents
-------------------------
The Company considers all short-term highly liquid
investments with a maturity of three months or less
when purchased to be cash or cash equivalents.
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the
Company to concentrations of credit risk, are
primarily cash, trade accounts receivable, notes
receivable, investment in sales-type leases and
investments, advances and notes to affiliates and
related parties. Ongoing credit evaluations of
customers' financial condition are performed. The
Company generally retains title to the MRI scanners
that it sells until the scanners have been paid in
full. The Company's customers are concentrated in the
industry of providing MRI scanning services.
Various related parties (Note 3), accounted for
approximately 51%, 39%, and 21% of revenues for the
years ended June 30, 1995, 1994 and 1993,
respectively, and 68% and 61% of total assets at June
30, 1995 and 1994, respectively.
At June 30, 1995, the Company had cash deposits
totalling $3,028,000 in excess of federally insured
limits.
F-34
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES
Limited Partnerships
--------------------
The Company's majority-owned subsidiary, Advanced
Medical Diagnostics Corporation (AMD) was a general
partner in four limited partnerships. During the year
ended June 30, 1994, AMD's partnership interests in
these partnerships were sold to certain related
parties as discussed below. For acting as the
Managing General Partner, AMD was entitled to receive
a fee for providing management and administrative
services to the partnerships. AMD's investment in the
limited partnerships was accounted for under the
equity method.
Allocation of partnership profits and losses to the
general partners is based on 1% of partnership net
income with potential increases to as high as 50%,
depending on partnership operating results reaching
certain levels as defined in the partnership
agreements.
FONAR was entitled to receive annual consulting fees
from one of the limited partnerships of $75,000, plus
annual escalations (which totalled $58,374, $49,649
and $41,494 for fiscal years 1995, 1994 and 1993,
respectively), and pursuant to a service and
maintenance contract for the partnership's scanner
unit, an annual service fee of $105,000. FONAR also
has service and maintenance contracts on each unit
owned by the three other partnerships and is entitled
to receive service fees thereunder (which approximated
$259,000, $263,000 and $235,000 for fiscal years 1995,
1994 and 1993, respectively). Income from upgrades,
repairs and maintenance, supplies and other services
approximated $22,000, $-0- and $648,000 for fiscal
years 1995, 1994, and 1993 respectively. Operating
results for fiscal 1995, 1994 and 1993 include
$390,000, $493,000 and $1,108,000, respectively, of
such fees.
Additionally, AMD has advanced funds from time to time
to the partnerships for their respective working
capital requirements.
F-35
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
During the year ended June 30, 1994, AMD sold its
interests in a partnership operating an MRI scanning
center in Southfield Michigan to Raymond V. Damadian,
M.D. MRI Scanning Centers Management Co., Inc.
("RVDC"), a Delaware Corporation of which Dr. Raymond
V. Damadian, Chairman and President of the Company, is
sole shareholder, Director and Officer for $600,000.
The purchase price is payable with interest at 10% per
annum, over a period of 48 months commencing October
1, 1993 as follows: $2,000 per month for the first
year, $8,333 per month for the second year, $16,666
per month for the third year and $20,909 for the
fourth and fifth years.
During the year ended June 30, 1994, AMD sold its
interests in a partnership operating an MRI scanning
center in Melbourne, Florida to Melbourne Magnetic
Resonance Imaging, P.A. (the "Melbourne Center"), for
a purchase price of $150,000. The purchase price is
payable, with interest at 10% per annum, over a period
of 15 months commencing September 1, 1995 as follows:
$13,500 per month for the first fourteen months and
$1,185 for the fifteenth month. The Melbourne Center
is a Florida professional corporation of which Raymond
V. Damadian is the sole stockholder, Director and
President.
During the year ending June 30, 1994, AMD sold to Dade
County MRI, P.A. (the "Dade County Center") its
interests in a partnership which had formerly operated
an MRI scanning center in Miami, Florida, but is now
inactive. The purchase price of $100,000 is payable,
with interest at 10% per annum, at the rate of $2,124
per month over a period of 60 months commencing 90
days after the scanner is placed in service. The Dade
County Center is a Florida professional association of
which Raymond V. Damadian is the sole stockholder,
Director and President.
During the year ended June 30, 1994, AMD sold its
interests in a partnership operating an MRI scanning
center in San Francisco to RVDC. The purchase price
of $265,000 is payable, with interest at 10% per
annum, at the rate of $9,405 per month over a period
of 36 months commencing January 1, 1995.
As of June 30, 1995 and 1994 the Company was due
$1,900,819 and $1,873,511 respectively, from the
Limited Partnerships for service contracts, upgrades,
fees and expenses.
F-36
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Joint Ventures
--------------
Pursuant to an agreement dated April 6, 1993, a
professional association, of which Dr. Raymond V.
Damadian, Chairman and President of the Company, is
sole shareholder, Director and Officer, agreed to
purchase the Company's partnership/joint venture
interest in two MRI scanning centers for a purchase
price of $3,200,000. The agreement provides for the
payment of the purchase price as follows: $200,000 no
later than June 30, 1993 and the balance in 36 equal
monthly installments of principal and interest (8% per
annum) in the amount of $46,759 and one final
installment of principal in the amount of $1,915,324.
During the year ended June 30, 1994, AMD sold its
interest in a joint venture operating an MRI scanning
center in Philadelphia, Pennsylvania to Liberty MRI,
P.C. (the"Liberty Center"). The purchase price of
$400,000 is payable, with interest at 10% per annum,
at a rate of $9,349 per month over a period of 60
months commencing July 1, 1995. The Liberty Center is
a Pennsylvania professional corporation of which
Raymond V. Damadian is the sole stockholder, Director
and President.
Revenues and income from operations recorded by FONAR
related to these joint ventures for the years ended
June 30, 1995, 1994 and 1993 were as follows:
1995 1994 1993
-------- -------- --------
Revenues - $179,302 $905,736
======== ======== ========
Income from operations $ - $ 17,304 $382,000
======== ======== ========
F-37
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Advances to and Notes Due from Related Parties
----------------------------------------------
On April 7, 1989, Donna Damadian, the spouse of Dr.
Raymond V. Damadian, Chairman and President
of the Company, purchased from the Company a
scanner for a purchase price of $1,508,000,
representing an arms-length transaction
consistent with what unrelated third parties
have paid for similar equipment. Of such
purchase price, $1.2 million was paid in
cash and the balance was evidenced by a
promissory note of even date. At June 30,
1991, the note, including accrued interest
thereon, was paid in full. Donna Damadian
leased such scanner to the Macon MRI, P.C.
("Macon Center"), a corporation wholly owned by
and of which Dr. Damadian is the President.
Since May 1990, RVDC has been party to a standard
service agreement with the Company for the servicing
of the scanner at the Macon Center. The annual price
is $120,000, which is the standard price charged to
the Company's other customers for like equipment.
During the year ended June 30, 1990, RVDC assumed from
the original lessees the obligations under two
separate lease agreements for MRI scanners with the
Company. Each lease was originally classified by the
Company and continues to qualify as a sales-type
lease. Effective June 30, 1991, the lease agreements
were restructured to provide for new five-year terms,
commencing June 30, 1991, and the aggregate monthly
payments were fixed at $73,760 eliminating the
previous per scan fee. RVDC can purchase the
machines at their then outstanding lease value at any
time, without penalty. In addition, since service and
maintenance for the scanner is not included under the
new leases, RVDC has been a party to two standard
service agreements since June 30, 1991. The annual
price is currently $120,000 per contract and the term
of the current one-year service contracts runs from
June 30, 1994 to June 29, 1995.
F-38
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
During the year ended June 30, 1990, RVDC agreed to
assume the financial and other obligations of the
original lessee under a lease for mobile scanner
dated June 29, 1988, on the same terms and
conditions as the original lessee. The lease was
originally classified by the Company as a sales-
type lease. Effective June 30, 1991, the lease
arrangements were restructured to provide for a
five year term, commencing June 30, 1991 and the
monthly payment was fixed at $35,167, eliminating
the previous per scan fee (with a minimum monthly
payment of $40,000). Effective December 1, 1993,
RVDC assigned its purchase option under the lease
to Albany Magnetic Imaging Center, P.C., a Georgia
professional corporation of which Raymond V.
Damadian is the sole stockholder, Director and
President ("Albany Center") and the Albany Center
concurrently exercised the option and purchased the
scanner from the Company for a purchase price of
$1,128,844. Of the purchase price, $574,077 is to
be paid by the assumption and payment of the
Company's indebtedness to the lender secured by the
scanner. Such indebtedness to the lender is to be
retired pursuant to a new equipment finance lease
between the lender and the Albany Center,
guaranteed by the Company providing for 18 monthly
payments of $35,000 each. Following payment of the
lease, the remaining $554,767 of the purchase price
due to the Company will be paid pursuant to a
promissory note, with interest at 10% per annum,
over an 18 month term (17 payments of $35,000 each
and one final payment of $2,454).
By agreement dated June 27, 1990, Tallahassee
Magnetic Resonance Imaging, Inc., a Florida
corporation, of which Raymond V. Damadian is the
sole shareholder, Director and Officer ("TMRI"),
leased from the Company one mobile scanner for a
period of five years. The Company classified this
lease as a sales-type lease and, accordingly,
recorded revenue of $1,700,000 during the year
ended June 30, 1990. This transaction represents
an arms length transaction consistent with what
unrelated third parties have paid under similar
lease agreements.
F-39
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Effective June 30, 1991, the lease agreement was
restructured to provide for a new five-year term,
commencing June 30, 1991, and the monthly payment
was fixed at $43,217, eliminating the previous per
scan fee. TMRI can purchase the machine at its
then outstanding lease value at any time, without
penalty. In addition, since service and
maintenance for the scanner are not included under
the new lease, TMRI has been a party to a standard
service agreement for the scanner since June 30,
1991. The annual price is currently $120,000 and
the term of the current one-year service contract
runs from June 30, 1995 to June 29, 1996.
As of June 30, 1991, $1,996,100 of additional
indebtedness of RVDC due to FONAR was incorporated
into a note, payable over a five-year period with
interest at the rate of 10% per annum. During the
year ended June 30, 1992, the note was amended to
incorporate additional indebtedness incurred during
the year. The amended note is for $4,284,692 and
is payable over a five-year period with interest at
the rate of 10% per annum. The RVDC note is
collateralized by the assets of RVDC, and
guaranteed by the various RVDC scanning centers.
During the year ended June 30, 1991, the Company
sold upgrades to TMRI aggregating $69,000. As part
of the restructuring, the net investment in sales-
type lease was increased by $500,000, which
represents $69,000 in upgrades, and a refinancing
of past due lease payments of $431,000.
In addition to the above restructuring, $169,200 of
indebtedness of TMRI to FONAR was incorporated into
a note payable over a five-year period with
interest at the rate of 10% per annum. During the
year ended June 30, 1992, the note was amended to
incorporate additional indebtedness incurred during
the year. The amended note is for $803,272 and is
payable over a five-year period, with interest at
the rate of 10% per annum.
F-40
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
During the year ended June 30, 1992, RVDC agreed to
assume the financial and other obligations of the
original lessee under a lease for a mobile scanner
dated June 30, 1989 and restructured the terms to
provide for a monthly payment of $24,421 commencing
April 1, 1992 and extended the term of the lease
seven years from that date. The lease was
originally classified by the Company as a sales-
type lease. Effective December 1, 1993, RVDC
assigned its purchase option under the lease to
Daytona Beach Magnetic Resonance Imaging, P.A., a
Florida professional association of which Raymond
V. Damadian is the sole shareholder, Director and
President ("Daytona Beach Center") and the Daytona
Beach Center exercised the option and purchased the
scanner from the Company for a purchase price of
$1,416,717. Of the purchase price, $328,044 is to
be paid by the assumption and payment of the
Company's indebtedness to the lender secured by the
scanner. Such indebtedness to the lender is to be
retired pursuant to a new equipment finance lease
between the lender and the Daytona Beach Center,
guaranteed by the Company, providing for 18 monthly
payments of $20,000 each. The remaining $1,088,673
of the purchase price due to the Company will be
paid pursuant to a promissory note, with interest
at 10% per annum, over a 45 month term commencing
July 1, 1994 as follows: eleven installments of
$15,000 each, thirty-three installments of $35,000
each and one installment of $19,097.
During the year end June 30, 1992, RVDC agreed to
lease one of the Company's mobile scanners for a
term of five years at a monthly lease payment of
$36,119 commencing January 1, 1992. The lease was
originally classified by the Company as a sales-
type lease. Effective June 30, 1994, RVDC assigned
its purchase option under the lease to Melville
MRI, P.C., a New York professional corporation of
which Raymond V. Damadian is the sole shareholder,
Director and President ("Melville Center") and the
Melville Center concurrently exercised the option
and purchased the scanner from the Company for a
purchase price of $1,011,431. Of the purchase
price, $900,000 is to be paid by the assumption and
payment of the Company's indebtedness to the lender
secured by the scanner pursuant to a note bearing
interest at 14% per annum and providing for 60
monthly payment of $20,700 each. The remaining
$111,431 of the purchase price is to be paid
F-41
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
concurrently with the payments to the lender
pursuant to a note, with interest at 10% per annum,
providing for 60 monthly payments of $2,367 each.
During the year ended June 30, 1992, RVDC agreed to
lease one of the Company's scanners for a monthly
lease payment of $18,081 for a period of seven
years commencing April 1, 1992. The Company
classified this lease as a sales-type lease. RVDC
in turn provided the use of the scanner to Damadian
MRI at Astoria, P.C. (the "Astoria Center"), a New
York professional corporation of which Raymond V.
Damadian is the sole shareholder, Director and
President. Effective November 13, 1993, the lease
between the Company and RVDC was restructured with
the terms to provide for monthly payments of
$16,978 each commencing February 1, 1994.
During the year ended June 30, 1992, FONAR entered
into contracts to sell four MRI scanners to RVDC
for a purchase price of $1,000,000 per machine,
recognizing, on a percentage of completion basis,
revenue of $3,249,825 (see Note 4). RVDC will
utilize the scanners at sites located in Bayside,
Elmhurst, Islandia and Forest Hills, New York.
Each of the four sales agreements provide for a 10%
down payment within 30 days of signing, 10% within
30 days of delivery of the magnet and shielded room
and 80% pursuant to a promissory note to be given
upon acceptance of the scanner, said note providing
for 84 monthly payments of $12,469 each, including
interest at 8% per annum. Each note is secured by
the scanner to which it relates. During November
1993, one of the sales agreements with RVDC was
terminated and the Company then leased the scanner
to Damadian MRI at Islandia, P.C. ("Islandia") for
a period of seven years. The Company classified
this lease as a sales-type lease for $1,000,000.
This transaction represents an arm's length
transaction consistent with what unrelated third
parties have paid under similar lease agreements.
The lease provides for monthly payments aggregating
$15,586. During March 1995, $224,657 of the note
related to the Elmhurst scanner was reduced by the
assumption of the Company's indebtedness.
During the year ended June 30, 1993, RVDC leased
from the Company one scanner for a period of seven
years. The Company classified this lease as a
sales-type lease and, accordingly, recorded revenue
of $1,000,000. This transaction represents an
arm's length transaction consistent with what
F-42
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
unrelated third parties have paid under similar
lease agreements. The lease provides for monthly
payments aggregating $15,586.
In addition, since service and maintenance for the
scanner are not included under the new leases, RVDC
has been a party to an additional standard service
agreement. The annual price is currently $120,000
and the term is for one year.
Pursuant to an agreement dated March 31, 1993, RVDC
agreed to purchase the Company's general
partnership interest (approximately 92% of the
partnership) in a partnership owning and operating
an MRI scanning center in Bensonhurst (Brooklyn),
New York ("the Bensonhurst Center"). The purchase
price of $923,000 is payable in 84 equal monthly
installments of $14,386 each commencing May 1,
1993, which amount includes principal and interest
at the rate of 8% per annum amortized over the
term.
Pursuant to a sales agreement dated June 30, 1993,
RVDC agreed to purchase an MRI scanner from the
Company which RVDC is planning to utilize at a site
located in Coral Gables, Florida (the "Coral Gables
Center"). The sales agreement provides for a
purchase price of $1,000,000 payable in
installments as follows: (1) 10% down payment
within 30 days of execution; (2) 10% within 30 days
of delivery of the magnet and shielded room, and
(3) 80% in 84 monthly installments of $12,468 each
(inclusive of interest at 8% per annum) pursuant to
a promissory note to be executed by RVDC upon
acceptance of the scanner. The Scanner is expected
to be completed during fiscal 1996.
During the year ended June 30, 1994, the Company
entered into a contract to sell an MRI scanner to
RVDC which RVDC is planning to utilize at a site
located in Manhattan, New York, recognizing revenue
of $800,000. The sales agreement provides for a
purchase price of $800,000 payable in installments
as follows: (1) $100,000 down payment within 30
days of execution, (2) $700,000 in 84 monthly
installments of $11,347 (inclusive of interest at
8% per annum commencing January 1, 1995) pursuant
to a promissory note executed by RVDC upon
acceptance of the scanner.
F-43
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
During the year ended June 30, 1994, the Company
entered into a contract to sell an MRI scanner to
RVDC which RVDC is planning to utilize at a site
located in Israel, recognizing revenue of
$1,000,000. The sales agreement provides for a
purchase price of $1,000,000 payable in 84 monthly
installments of $16,210 each (inclusive of interest
at 8% per annum commencing January 1, 1995)
pursuant to a promissory note executed by RVDC upon
acceptance of the scanner.
During the year ending June 30, 1994 the Company
entered into an agreement to sell a MRI scanner to
RVDC which RVDC is planning to utilize at a site in
Cape Coral, Florida recognizing, on a percentage of
completion basis, revenue of $950,000. The
agreement provides for a purchase price of
$1,000,000 payable in installments as follows: (1)
$100,000 down payment within 30 days of execution,
and (2) $900,000 in 84 monthly installments of
$14,028 each (inclusive of interest at 8% per
annum) pursuant to a promissory note to be executed
by RVDC upon acceptance of the scanner.
During the year ended June 30, 1994 the Company
entered into an agreement to sell an MRI scanner to
RVDC which RVDC is planning to utilize at a site
located in Orlando, Florida recognizing on a
percentage of completion basis, revenue of
$950,000. The agreement provides for a purchase
price of $1,000,000 payable in installments as
follows: (1) $100,000 down payment within 30 days
of execution, and (2) $900,000 in 84 monthly
installments of $14,028 each (inclusive of interest
at 8% per annum) pursuant to a promissory note to
be executed by RVDC upon acceptance of the scanner.
Pursuant to an agreement dated March 31, 1994, the
Company sold an MRI scanner to Ellwood City MRI
Center Limited Partnership, a Pennsylvania limited
partnership of which RVDC is the general partner.
The sales agreement provided for a purchase price
of $400,000, of which the first $200,000 was paid
subsequent to the fiscal year end and the second
$200,000 will be paid by the transfer of RVDC's
distributions until the sum of $200,000 is reached.
The partnership is utilizing the scanner to set up
an MRI scanning center in Ellwood City,
Pennsylvania.
F-44
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Effective July 1994, RVDC assigned its purchase
option under the lease to Deerfield Magnetic
Resonance Imaging P.A., a Florida professional
association of which Raymond V. Damadian is the
sole shareholder, Director and President
("Deerfield Center") and the Deerfield Center
exercised the option and purchased the scanner from
the Company for a purchase price of $962,185. Of
the purchase price, $311,934 is to be paid by the
assumption and payment of the Company's
indebtedness to the lender secured by the scanner.
Such indebtedness is to be retired pursuant to a
new equipment finance lease between the lender and
the Deerfield Center, guaranteed by the Company,
providing for 17 monthly payments of $30,520 and a
final payment of the remaining principal balance
plus unpaid interest. The remaining $454,005 of
the purchase price due to the Company will be paid
pursuant to a promissory note with interest at 10%
per annum, over a 17-month term commencing January
1, 1996 as follows: sixteen installments of
$30,000 each and one installment of $7,275.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Fort Lauderdale, Florida recognizing on a
percentage of completion basis, revenue of
$549,032. The agreement provides for a purchase
price of $800,000 payable in installments as
follows: (1) $80,000 down payment within 90 days
of execution, and (2) $720,000 in 84 monthly
installments of $11,222 each (inclusive of interest
at 8% per annum) pursuant to a promissory note to
be executed by RVDC upon acceptance of the scanner.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Leeds, England recognizing on a percentage of
completion basis, revenue of $707,862. The
agreement provides for a purchase price of $800,000
payable in installments as follows: (1) $80,000
down payment within 90 days of execution, and (2)
$720,000 in 84 monthly installments of $11,222 each
(inclusive of interest at 8% per annum) pursuant to
a promissory note to be executed by RVDC upon
acceptance of the scanner.
F-45
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Birmingham, England recognizing on a percentage
of completion basis, revenue of $760,000. The
agreement provides for a purchase price of
$800,000 payable in installments as follows: (1)
$80,000 down payment within 90 days of execution,
and (2) $720,000 in 84 monthly installments of
$11,222 each (inclusive of interest at 8% per
annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Boca Raton, Florida recognizing on a percentage
of completion basis, revenue of $524,042. The
agreement provides for a purchase price of
$800,000 payable in installments as follows: (1)
$80,000 down payment within 90 days of execution
and (2) $720,000 in 84 monthly installments of
$11,222 each (inclusive of interest at 8% per
annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in St. Petersburg, Florida recognizing on a
percentage of completion basis, revenue of
$699,667. The agreement provides for a purchase
price of $800,000 payable in installments as
follows: (1) $80,000 down payment within 90 days
of execution and (2) $720,000 in 84 monthly
installments of $11,222 each (inclusive of
interest at 8% per annum) pursuant to a promissory
note to be executed by RVDC upon acceptance of the
scanner.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Sarasota, Florida recognizing on a percentage
of completion basis, revenue of $405,240. The
agreement provides for a purchase price of
$800,000 payable in installments as follows: (1)
$80,000 down payment within 90 days of execution
and (2) $720,000 in 84 monthly installments of
$11,222 each (inclusive of interest at 8% per
F-46
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
During the year ended June 30, 1995, the Company
entered into a contract to sell an MRI scanner to
RVDC, which RVDC is planning to utilize at a site
in Largo, Florida recognizing on a percentage of
completion basis, revenue of $707,860. The
agreement provides for a purchase price of
$800,000 payable in installments as follows: (1)
$80,000 down payment within 90 days of execution
and (2) $720,000 in 84 monthly installments of
$11,222 each (inclusive of interest at 8% per
annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
As of June 30, 1995 the Company had entered into
various service contracts with RVDC and other
related entities as described above. The service
contracts aggregating $2,015,781, are for one year
terms and expire at various dates.
During the years ended June 30, 1995, 1994 and
1993, the Company sold (at standard prices)
various upgrades to RVDC aggregating $338,000,
$126,000 and $299,000, respectively.
During the years ended June 30, 1995, 1994 and
1993, the Company received a fee and reimbursed
expenses for the use of its computer system and
personnel.
Pursuant to an agreement dated March 3, 1994,
Network MRI, Inc. ("Network") engaged the Company
to disassemble, transport and reinstall an MRI
scanner purchased by Network from a third party.
Luciano Bonanni, the Executive Vice President of
the Company, is the President, Director and
shareholder of Network. The agreement provides
for a price of $120,000 payable as follows: (1)
$5,000 upon the giving of notice by Network to
commence the deinstallation; (2) $15,000 upon the
completion of the installation of the magnet and
shielded room, and (3) $100,000 in 36 monthly
installments of $3,133 each (inclusive of interest
at 8% per annum) pursuant to a note executed upon
completion of the reinstallation.
F-47
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Pursuant to an agreement dated June 20, 1994, MRI
Enterprises, Inc. ("Enterprises"), a New York
corporation of which Luciano Bonanni is the
stockholder, Director and President, engaged the
Company to disassemble, transport and reinstall an
MRI scanner purchased by Enterprises from a third
party. The agreement provided for a price of
$120,000 payable as follows: (1) $5,000 upon the
giving of notice by Enterprises to commence the
deinstallation; (2) $15,000 upon the completion of
the installation of the magnet and shielded room,
and (3) $100,000 with interest at 8% per annum
pursuant to a note executed upon completion of the
reinstallation.
In addition, as of June 30, 1995, Enterprises
assumed the liability of a third party to FONAR
which had defaulted in its obligation to pay for
service for an MRI scanner being provided by
Enterprises to the third party. The liability, in
the amount of $50,604 was assumed by Enterprises
in exchange for FONAR assigning the accounts
receivable to Enterprises. The liability is
payable by Enterprises to FONAR amortized over a
period of thirty-six months with interest at 8%
per annum commencing on January 1, 1996.
Enterprises was indebted to the Company as at June
30, 1995, in the amount of $204,539 pursuant to a
promissory note due January 15, 1995 in the
original principal amount of $324,235 with
interest at the rate of 10% per annum. The
original principal amount of this note represents
the liability of a third party to the Company for
service and other items which was assumed by
Enterprises in connection with Enterprises'
acquisition of an MRI scanner and assumption of
said party's finance lease covering the scanner.
The aggregate indebtedness of Enterprises and
Network to the Company as at June 30, 1995 was
$432,339.
F-48
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - INVESTMENTS, ADVANCES AND NOTES TO AFFILIATES AND
RELATED PARTIES (Continued)
Pursuant to an agreement dated August 3, 1993, MRI
Specialties, Inc. ("Specialties") engaged the
Company to deinstall, transport and reinstall an
MRI scanner purchased from a third party. Timothy
Damadian, a Vice-President of the Company, is the
stockholder, Director and President of
Specialties. The agreement provides for a price
of $120,000 payable in 36 monthly installments of
$3,760 each (inclusive of interest at 8% per
annum) pursuant to a note executed and delivered
by Specialties upon the completion of the
reinstallation. The scanner is owned by Canarsie
MRI Associates ("Canarsie"), a joint venture
partnership of which Specialties is an owner, and
Canarsie is party to a service agreement for the
scanner with the Company at an annual fee of
$70,000 for the period September 1, 1994 through
August 31, 1995 and $73,500 for the period
September 1, 1995 through August 31, 1996. The
annual fee for the following two annual periods
will not exceed $77,000 and $80,500, respectively.
The aggregate indebtedness of Specialties and
Canarsie to the Company as at June 30, 1995 was
$142,925.
Income and expenses charged by the Company to
RVDC, and related entities are approximately as
follows:
1995 1994 1993
--------- -------- ---------
Revenues recognized from
product sales 4,866,000 4,400,000 2,499,000
Interest income 1,851,000 1,829,000 814,000
Service fees 2,174,000 1,323,000 798,000
Fees and reimbursable
expenses 3,284,000 2,197,000 943,097
As of June 30, 1995 and 1994 the Company was due
$4,742,459 and $3,306,462 respectively, from RVDC
and other related companies for service contracts,
upgrades, fees and expenses. As of June 30, 1995,
notes receivable as described above include
amounts in arrears aggregating $3,017,469.
F-49
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 4 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS AND CUSTOMER ADVANCES
1) Information relating to uncompleted contracts as
of June 30, 1995 and 1994 is as follows:
As of June 30,
--------------
1995 1994
------- -------
Costs incurred on uncompleted
contracts $4,373,423 $2,035,132
Estimated earnings 5,053,189 1,885,715
--------- ---------
9,426,612 3,920,847
Less: Billings to date 2,432,500 665,000
--------- ---------
$6,994,112 $3,255,847
========= =========
Included in the accompanying consolidated balance
sheets under the following captions:
As of June 30,
--------------
1995 1994
-------- --------
Costs and estimated earnings in
excess of billings on
uncompleted contracts -
short-term $323,918 $401,166
Costs and estimated earnings in
excess of billings on
uncompleted contracts -
long-term with related parties 6,681,296 2,854,681
Billings in excess of costs and
estimated earnings on
uncompleted contracts (11,102) -
--------- ---------
$6,994,112 $3,255,847
========= =========
2) Customer advances consist of the following:
As of June 30,
--------------
1995 1994
------ ------
Total advances from customers $2,725,987 $1,329,637
Less: Advances from customers on
contracts under construction
(includes $1,160,000 and
$600,000 for 1995 and
1994, respectively, with
related parties) 2,432,500 665,000
--------- ---------
$ 293,487 $ 664,637
========= =========
F-50
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 5 - INVENTORIES
Inventories included in the accompanying
consolidated balance sheets consist of:
June 30,
----------
1995 1994
--------- ---------
Purchased parts, components and
supplies $2,204,888 $2,705,954
Work-in-process 90,439 69,976
--------- ---------
$2,295,327 $2,775,930
========= =========
NOTE 6 - LEASING OPERATIONS
Net Investment in Sales-Type Leases with Related
------------------------------------------------
Parties
-------
The Company has entered into several lease
agreements for its MRI scanners which are
considered sales-type leases (see Note 3).
Revenues for fiscal 1995, 1994 and 1993 include
approximately $-0-, $1,000,000 and $1,000,000,
respectively, from these sales-type leases. The
Company's net investment in sales-type leases as
at June 30, 1995 and 1994 is as follows:
June 30,
---------
1995 1994
-------- ---------
Total minimum lease payments
receivable $7,063,068 $8,549,161
Less: Allowance for possible
losses 115,000 115,000
--------- ---------
Net minimum lease payments
receivable 6,948,068 8,434,161
Less: Unearned income 617,101 1,048,805
--------- ---------
Net investment in sales-type
leases $6,330,967 $7,385,356
========== ==========
Current portion $1,368,988 $1,569,427
Non-current portion 4,961,979 5,815,929
---------- ----------
$6,330,967 $7,385,356
========== ==========
F-51
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 6 - LEASING OPERATIONS (Continued)
At June 30, 1995 and 1994, net investment in sales-type
leases include amounts in arrears aggregating
$2,537,739 and $1,383,544, respectively.
a) During the year ended June 30, 1995, one purchase
option was exercised by a related party for
property and equipment under a sales-type lease
with a remaining lease value of $962,185. In
consideration for the property and equipment, the
related party assumed $311,934 of the Company's
debt.
b) During the year ended June 30, 1994, three
purchase options were exercised by related
parties for property and equipment under
three sales type leases with a remaining
lease value aggregating $3,566,991. In
consideration for the property and equipment,
related parties assumed $1,802,121 of the
Company's debt and signed promissory notes to
the Company aggregating $1,754,870 (Note 3).
Minimum lease payments to be received as at
June 30, 1995 for each of the next five years
and thereafter are as follows:
Years Ended
June 30,
-----------
1996 $3,038,398
1997 577,786
1998 577,786
1999 577,786
2000 851,860
2001 and
thereafter 1,439,452
----------
Total $7,063,068
==========
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, less accumulated
depreciation and amortization, at June 30, 1995 and
1994, is comprised of:
F-52
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 7 - PROPERTY AND EQUIPMENT (Continued)
June 30,
----------------
1995 1994
--------- ----------
Offsite research scanner (see
Note 13) $1,154,217 $1,154,217
Research, development and
demonstration equipment (Note 11) 6,177,043 5,378,820
Machinery and equipment 3,386,353 3,487,279
Furniture and fixtures 2,142,867 2,118,699
Property under lease 555,645 2,311,847
Property held for lease - 747,905
---------- ----------
13,416,125 15,198,767
Less: Accumulated depreciation
and amortization 10,629,723 11,398,173
---------- ----------
$2,786,402 $3,800,594
========== ==========
Depreciation and amortization of property and
equipment for the years ended June 30, 1995, 1994
and 1993 was $987,752, $1,019,815 and $1,268,241,
respectively.
The property under lease has a net book value of
$357,200 and $436,578 at June 30, 1995 and 1994,
respectively.
NOTE 8 - INTANGIBLE ASSETS
1) Capitalized Software Development Costs
The following is a summary of software development
costs capitalized and the amortization charged to
operations for the three years ended June 30,
1995:
For the Years
Ended June 30,
------------------
1995 1994 1993
------ ------ -------
Amount capitalized 281,052 373,256 938,926
--------- --------- ---------
Amortization 1,255,012 1,318,337 1,127,592
========= ========= =========
Capitalized computer software costs for the years
ended June 30, 1995, 1994 and 1993 primarily
relate to the costs of developing upgrades for the
Company's existing scanner product lines and a new
line of scanner products.
F-53
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 8 - INTANGIBLE ASSETS (Continued)
2) Other Intangible Assets
Other intangible assets, net of accumulated
amortization, at June 30, 1995 and 1994 are
comprised of:
June 30,
----------
1995 1994
------ ------
Cost of acquiring technology
and license $3,422,231 $3,422,231
Patents and copyrights 5,929,963 4,564,690
---------- ----------
9,352,194 7,986,921
Less: Accumulated
amortization 6,032,141 5,855,865
---------- ----------
$3,320,053 $2,131,056
========== ==========
In January 1987, the Company acquired the
technology for adapting trailers for use in its
mobile scanner units. The purchase price of
$422,231 was capitalized and was amortized over
five years. On May 7, 1987, the Company acquired
certain technology and, accordingly, capitalized
$3,000,000 of such purchase price, which was
amortized over five years. These assets are fully
amortized at June 30, 1994.
Patents, acquired at various dates are being
amortized over 17 years.
Patent and deferred legal costs related to various
patent and copyright infringement actions of
approximately $1,365,275 and $1,809,378 were
capitalized during the years ended June 30, 1995
and 1994, respectively. During August 1994 one
such action was settled with the Company receiving
a monetary award of $1,150,000 (see Note 15). As
of June 30, 1994, the net accumulated costs
associated with this case, which approximated the
monetary award were reclassified to prepaid
expenses and other current assets.
Approximately $1,365,000 and $1,046,000 of the
legal costs capitalized during fiscal 1995 and
1994, respectively, related to the separate suits,
whereby, the Company is suing General Electric and
Hitachi for infringement of various patents
related to the Company's MRI machines. During
F-54
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 8 - INTANGIBLE ASSETS (CONTINUED)
fiscal year 1995, the case against Hitachi was
settled and approximately $332,000 of legal costs
relating to this case were written-off (see Note
15 for a more detailed discussion of this lawsuit).
Amortization of other intangible assets for the
years ended June 30, 1995, 1994 and 1993 was
$176,276, $203,266 and $121,416, respectively.
NOTE 9 - SIGNIFICANT CUSTOMERS AND DISTRIBUTION AGREEMENTS
The Company's machine sale revenues for the three
years ended June 30, 1995 were derived as follows:
Percent of
Y e a r s Foreign
Ended Customers Revenues to
June 30, Domestic Foreign Total Total Revenue
-------- -------- --------- ----- -------------
1995 5 5 10 17%
1994 5 3 8 9%
1993 3 3 5 2%
During the years ended June 30, 1995, 1994 and
1993, revenues from related parties were 51%, 39%
and 21%, respectively, of total revenues. In
addition, interest income recognized from related
parties totalled $1,969,204, $1,865,963 and
$1,023,362, respectively, for the years ended June
30, 1995, 1994 and 1993. No one unrelated
customer accounted for more than 10% of total
revenues during fiscal years 1995, 1994 and 1993.
Distributorship Agreements
--------------------------
In order to facilitate the marketing of its
products, the Company has entered into agreements
granting exclusive and non-exclusive rights to
distribute the Company's existing and certain
future products in Europe, Asia and Latin America.
NOTE 10 - CAPITAL STOCK
The total number of shares of stock which the
Company is authorized to issue is 92,000,000
shares. The classes and the aggregate number of
shares of stock of each class are as follows:
1) 60,000,000 shares of common stock with a par
value of $.0001 per share. On April 3, 1995,
shareholders approved an increase in the
authorized common shares from 50,000,000 to
60,000,000.
F-55
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
2) 4,000,000 shares of Class B common stock,
having a par value of $.0001 per share.
3) 10,000,000 shares of Class C common stock,
having a par value of $.0001 per share (see
below).
4) 8,000,000 shares of Class A non-voting
preferred stock, having a par value of $.0001
per share (see below).
5) 10,000,000 shares of preferred stock, having
a par value of $.001 per share.
Common Stock
------------
Cash dividends payable on the common stock
shall, in all cases, be on a per share basis,
one hundred twenty percent (120%) of the cash
dividend payable on shares of Class B common
stock and three hundred sixty percent (360%)
of the cash dividend payable on a share of
Class C common stock. In addition, a special
cash dividend shall be payable in an amount
equal to three percent (3%) of the amount of
any cash awards or settlements received by
the Company in connection with the
enforcement by the Company of United States
Patent No. 3,789,832 (Apparatus and Method of
Detecting Cancer in Tissue).
Class B Common Stock
--------------------
Class B common stock is convertible into
shares of common stock on a one-for-one
basis. Class B common stock has 10 votes per
share.
Class C Common Stock
--------------------
On April 3, 1995, the shareholders ratified a
proposal creating a new Class C common stock
and authorized the exchange offering of three
shares of Class C common stock for each share
of the Company's outstanding Class B common
stock. The Class C common stock has 25 votes
per share, as compared to 10 votes per share
for the Class B common stock and one vote per
share for the common stock. The Class C
common stock was offered on a three-for-one
basis to the holders of the Class B common
F-56
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
stock. Although having greater voting power,
each share of Class C common stock has only
one-third of the rights of a share of Class B
common stock to dividends and distributions.
Class C common stock is convertible into
shares of common stock on a three-for-one
basis. The exchange offering commenced in
November of 1995 and is expected to conclude
in December of 1995.
Class A Non-Voting Preferred Stock
----------------------------------
On April 3, 1995, the shareholders ratified a
proposal consisting of the creation of a new
class of Class A non-voting preferred stock
with special dividend rights and the
declaration of a stock dividend on the
Company's common stock consisting of one
share of Class A non-voting preferred stock
for every five shares of common stock. The
stock dividend is payable to holders of
common stock on October 20, 1995. Class A
non-voting preferred stock issued pursuant to
such stock dividend approximates 7.8 million
shares.
The Class A non-voting preferred stock is
entitled to a special dividend equal to three
percent (3%) of the amount of any cash awards
or settlements received by the Company in
connection with the enforcement of five of
the Company's patents in its patent lawsuit,
discussed in Note 15, less the special
dividend payable on the common stock with
respect to one of the Company's patents.
The Class A non-voting preferred stock
participates on an equal per share basis with
the common stock in any dividends declared
and ranks equally with the common stock on
distribution rights, liquidation rights and
other rights and preferences (other than the
voting rights).
The above described features essentially
enable the holders of the Class A non-voting
preferred stock to share in the earnings
potential of the Company on substantially the
same basis as the common stock. Accordingly,
the Company has classified the Class A non-
voting preferred stock as a common stock
F-57
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
equivalent. Earnings per share and weighted
average shares outstanding have been restated
to reflect the Class A non-voting preferred
stock dividend.
As of June 30, 1995, the financial statements
reflect authorized Class A non-voting
preferred shares of 8,000,000 and deemed
issued and outstanding shares of 7,624,117.
Stock Options
-------------
The Company has granted options to purchase shares
of the Company's common stock to officers and key
employees as follows:
1) Incentive Stock Option Plans
The Board of Directors adopted Incentive Stock
Option Plans on March 26, 1993 and on January 17,
1986, under which 1,500,000 and 1,250,000 shares
of common stock were reserved for issuance,
respectively. Under the terms of the Plans,
options may be granted at prices not less than the
fair market value of the common stock at the date
of grant. The options must be exercised within
ten years from the date of grant and may be
granted no later than March 25, 2003 for the 1993
Plan and January 16, 1996 for the 1986 Plan.
During fiscal 1995 and 1994, 388,000 and -0-
options were exercised at prices averaging $2.56
per share. These shares were paid by issuing
notes payable to the Company aggregating $994,469.
The notes are payable over 5 years and carry
interest at a rate of 7% per annum. Included in
the options exercised in fiscal 1995 and 1994 are
options for 145,000 and -0- shares, respectively,
exercised by three officers of the Company at
prices ranging from $1.4375 to $3.00 per share.
These officers paid for such shares by issuing
notes payable to the Company aggregating
$263,125 and $-0-, respectively. The notes bear
interest at 7% per annum and are included in the
accompanying financial statements as a reduction
of stockholders' equity.
F-58
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
2) Nonstatutory Stock Option Plans
On April 1, 1995, December 1,1993, March 26, 1993
and January 17, 1986, the Board of Directors
approved Nonstatutory Stock Option Plans under
which 5,000,000, 5,000,000, 2,500,000 and
1,250,000 shares of common stock were reserved for
issuance, respectively. Under the terms of the
Plan, options expire no later than ten years from
the date of grant and may be granted under each Plan
no later than March 31, 2005 for the 1995 Plan,
November 30, 2003 for the 1994 Plan, March 25, 2003
for the 1993 Plan and January 16, 1996 for the 1986
Plan.
When options are exercised, the par value per
share is credited to common stock and the excess
of the proceeds over the par value is credited to
paid-in capital in excess of par value. Under the
Nonstatutory Stock Option Plan, compensation
expense is recorded on the date of grant and is
measured by the amount per share that the fair
market value of the underlying shares on the
date of grant exceeds the grant price. No
compensation expense was recognized for the years
ended June 30, 1995 and 1994 because the grant
price approximated the fair market value at the
grant date. Included in the options exercised in
fiscal 1995 and 1994 are options for 1,050,000 and
4,721,291 shares, respectively, exercised by two
companies owned by officers of the Company at
prices ranging from $1.13 to $3.50 per share.
These companies paid for such shares by issuing
notes payable to the Company aggregating
$1,529,600 in 1995 and $8,425,009 in 1994. The
balances due under such notes at June 30, 1995 and
1994, respectively, were $-0- and $379,604.
These notes bear interest at 10% per annum and are
included in the accompanying financial statements
as a reduction of stockholders' equity.
3) Shares Under Option
The following is a summary of activity and
information relating to shares (rounded to whole
shares) subject to option under the Incentives
Stock Option Plans and the Nonstatutory Stock
Option Plans for the two years ended June 30,
1995:
F-59
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
June 30,
------------
1995 1994
------- ---------
Beginning of Year:
1984 Plan ($5.00/share) 25,354 25,354
1986 Plan ($.375-
$4.25/share) 141,250 210,875
1993 Plan - -
Nonstatutory Plans
($5.00/share) 100,131 100,131
---------- ----------
266,735 336,360
Options Granted:
1984 Plan - -
1986 Plan ($1.34/share) - 20,000
1993 Plan ($1.4375-
$3.00/share) 388,000 -
Nonstatutory Plans
($1.00-$3.50/share) 1,752,695 4,771,291
---------- ----------
2,140,695 4,791,291
Options Exercised:
1984 Plan - -
1986 Plan ($.375-
$1.34/share) (25,375) (40,125)
1993 Plan ($1.4375-
$3.00/share) (388,000) -
Nonstatutory Plans
($1.00-$3.50/share) (1,752,695) (4,771,291)
----------- -----------
(2,166,070) (4,811,416)
Options Cancelled/Expired:
1984 Plan - -
1986 Plan ($.375-
$2.375/share) (18,000) (49,500)
1993 Plan - -
Nonstatutory Plans - -
-------- --------
(18,000) (49,500)
Balance - End of Year:
1984 Plan ($5.00/share) 25,354 25,354
1986 Plan ($.375-$4.25/share) 97,875 141,250
1993 Plan - -
Nonstatutory Plans
($5.00/share) 100,131 100,131
-------- --------
233,360 266,735
-------- --------
Total Value at Option Price $853,550 $872,441
======== ========
F-60
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
3) Shares Under Option (Continued)
June 30,
-------------
1995 1994
------- -------
Options Excercisable:
End of Year:
1984 Plan ($5.00/share) 25,354 25,354
1986 Plan ($.375-$4.25/share) 58,000 66,000
1993 Plan - -
Nonstatutory Plans
($5.00/share) 100,131 100,131
-------- --------
183,485 191,485
-------- --------
Total Value at Option Price $822,284 $809,784
======== ========
Shares available for future grant:
1984 Plan - 7,391
1986 Plan 157,302 139,302
1993 Plan 1,112,000 1,500,000
Nonstatutory Plans 5,000,000 1,752,695
---------- ---------
6,269,302 3,399,388
========= =========
4) Stock Bonus Plans
On April 1, 1995, December 1, 1993, March 26, 1993 and
January 17, 1986, the Board of Directors adopted Stock
Bonus Plans. Under the terms of the Plans, 5,000,000,
5,000,000, 2,500,000 and 1,250,000 shares,
respectively, of common stock were reserved for
issuance and stock bonuses may be awarded no later than
March 31, 2005 for the 1995 Plan, November 30, 2003 for
the 1994 Plan, March 25, 2003 for the 1993 Plan and
January 16, 1996 for the 1986 Plan. An amendment to the
1986 Plan was approved by the Board of Directors on
August 26, 1986, whereby an additional 1,250,000
shares were reserved for issuance. During fiscal 1995,
1994 and 1993, 4,826,505, 1,251,505 and 1,842,200
shares, respectively, were issued under the stock bonus
plans, of which 480,650, 116,796 and 120,700 shares,
respectively, were charged to operation as compensation
expense, 1,398,550, 1,011,000 and 1,361,500 shares,
respectively, were issued in settlement of liabilities
and 2,947,305, 123,709 and 360,000 shares, respectively
were issued in exchange for notes. The balance due, as
of June 30, 1995, under these notes aggregated $650,445
which was paid in July 1995. These notes bear interest
F-61
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 10 - CAPITAL STOCK (Continued)
at 10% per annum and are included in the accompanying
financial statements as a reduction of stockholders'
equity.
NOTE 11 - FINANCING ACTIVITIES
The following represents the Company's major financing
activities during fiscal 1995 and 1994, and data
related to outstanding indebtedness and encumbrances at
June 30, 1995 and 1994:
Notes Payable:
-------------- June 30,
---------------
1995 1994
--------- ----------
Short-term bank credit and
loans, with interest at
10.8%, secured by certain
assets of the Company. $ 100,000 $ 100,000
========== ==========
Long-term debt:
---------------
Term note converted on
November 20, 1992 from
demand notes payable
with interest at a prime
rate, plus 2%,
collateralized by
certain research
equipment in the
accompanying financial
statements. Repayment
terms were modified on
March 1, 1993 requiring
monthly payments of
$20,000 for 36 months
and a balloon payment of
$350,000 at the end of
the term. $ 490,000 $ 730,000
F-62
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
June 30,
-------------
1995 1994
-------- -------
Note payable dated February
1991 - $3,114,379, with
various payment amounts
ranging from $33,500 to
$105,000 through October
1, 1993, including
interest at 8.725%.
Repayment terms were
modified on November 18,
1992 requiring monthly
payment amounts ranging
from $57,750 to $124,750
through December 1993
including interest at
16.29%. This represented
consolidation of four
previously existing notes.
Effective December 1993,
$902,121 of this
obligation was assumed by
related parties in
connection with the
exercise of purchase
options under two of the
sales-type lease
agreements. Repayment
terms for the balance of
the obligations were
modified through two
notes in the amounts of
$208,468 and $258,064
requiring monthly payments
of $9,810 and $16,699,
respectively, through
November 1995 including
interest at 11.97%. Such
notes are secured by a
scanning machine which is
the subject of a sales-
type lease agreement (Note
6) and a scanning machine
included in assets held
for resale (Note 2). $ 10,000 $ 412,633
F-63
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
June 30,
-------------
1995 1994
-------- -------
Note payable dated December
1988 - $1,265,000, due
$30,800 per month,
including interest at
16.0%, through January
1994, secured by equipment
which is the subject of a
sales-type lease (Note 6).
Effective July 1994,
$176,445 of this
obligation was assumed by
a related party in
connection with the
exercise of purchase
options under a sales-type
lease. $ - $ 176,445
F-64
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
--------------
June 30,
------------------------
1995 1994
---------- ----------
Note payable dated December 1988
1988-$1,648,000, due $30,884
per month, including
interest at 11.1%, through
November 1993, secured by
equipment, which has been
classified as assets held
for lease (Note 7). Repay-
ment terms were modified
during October 1991
requiring payments of
$34,481, which includes
interest at 16.3%, payable
through October 1996. During
March 1995, $224,657 of the
obligation was assumed by a
related party in consid-
eration for the reduction of
a note receivable (Note 3). $ 774,293 $ 1,078,194
Note payable dated January 1989
$1,200,000 and $1,265,000
requiring monthly payments
of $29,000 and $30,800,
respectively, including
interest at 18.0% and
19.4%, respectively.
Repayment terms were
modified in August 1993
requiring monthly payments
of $20,000 for 47 months
and a balloon payment of
$104,752 at the end of the
term. This represents the
consolidation of two
previously existing notes.
Such note is secured by
scanning machines which
are the subject of sales-
type lease agreements
(Note 6). 501,564 664,650
F-65
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
--------------
June 30,
------------------------
1995 1994
---------- ----------
Note payable dated March 1989 -
$750,000, due $18,045 per
month, including interest
at 15.5%, through March
1994. Such note is secured
by service agreements of
the end users of the
equipment. Repayment terms
were restructured during
November 1993 requiring
monthly payment amounts
ranging from $8,002 to
$22,559 through March 1995,
including interest at 14%. $ - $ 163,999
Note payable dated June 1990 -
765,063, payable interest only
at 12%, through July 1991 when
the entire balance is due.
Repayment terms were modified
during November 1992 requiring
62 monthly payments of $16,601
with the balance due on
December 12, 1997. Payments
include interest at a rate of
12% and is secured by scanning
equipment. 578,470 641,462
Note payable dated December 1989
- $750,000, due 18,045 per
month, including interest at
15.5%, through December 1994.
Such note is secured by
equipment, which is the subject
of a sales-type lease (Note 6).
Repayment terms were restruct-
ured during November 1993
requiring monthly payment
amounts ranging from $13,432
to $37,863 through March 1995,
including interest at 14%. - 275,273
F-66
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
--------------
June 30,
------------------------
1995 1994
---------- ----------
Note payable dated March 1989 -
$750,000, due $18,045 per
month, commencing July
1989, including interest at
15.5%, through June 1994.
Such note is secured by
service agreements of the
end users of the equipment.
Repayment terms were
restructured during November
1993 requiring monthly pay-
ment amounts ranging from
$14,566 to $41,059 through
March 1995, including
interest at 14%. $ 55,974 $ 285,306
Note payable dated June 1990 -
$980,000, due $31,250 for
the first monthly payment,
$13,500 for the next three
months and $34,000 for the
next thirty-three months
through February 1994. Pay-
ments include interest at a
rate of 13.0% and are
secured by equipment, which
is the subject of a sales-
type lease (Note 6), and a
blanket security interest in
all accounts receivable.
Repayment terms were
restructured during August
1993 requiring monthly
payment amounts of $19,507
through November 1994,
including interest at 13%. - 94,443
Note payable dated March 1990 -
$865,639, due $19,674 per
month, plus interest, at the
prime rate plus 1.5%,
commencing July 1990 through
February 1994. Such note is
secured by equipment and
various contracts. Effective
F-67
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 11 - FINANCING ACTIVITIES (Continued)
Long-term Debt: (Continued)
--------------
June 30,
------------------------
1995 1994
---------- ----------
July 1994, $135,489 of this
obligation was assumed by a
related party in connection
with the exercise of
purchase options under a
sales-type lease (Note 6). - 135,489
Note payable dated March 1991 -
$300,000, with $25,000 due
upon signing and payments
of $6,975 per month,
including interest at 10%, $ - $ 66,654
through April 1995.
Other (including capital leases
for property and equipment) 1,370,105 1,159,056
---------- ----------
3,780,406 5,883,604
Less: Current maturities 3,251,863 4,427,061
---------- ----------
$ 528,543 $1,456,543
========== ==========
The maturities of long-term debt over the next five years
and thereafter are as follows:
Years Ended
June 30,
----------
1996 $3,251,863
1997 323,060
1998 201,289
1999 4,194
2000 -
2001 and thereafter -
----------
$3,780,406
==========
F-68
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 12 - INCOME TAXES
The provisions for income taxes for the years ended June
30, 1995, 1994 and 1993 consist of the following:
For the Year Ended June 30,
----------------------------
1995 1994 1993
Federal: --------- --------- ----------
Current $ 22,867 $ (10,000) $ 53,060
Deferred - - -
--------- --------- ----------
22,867 (10,000) 53,060
--------- --------- ----------
State:
Current 122,691 57,905 13,106
Deferred - - -
--------- --------- ----------
122,691 57,905 13,106
--------- --------- ----------
Total Provision for $ 145,558 $ 47,905 $ 66,166
Income Taxes ========= ========= ==========
The components of deferred tax assets and liabilities at
June 30, 1995 and 1994 are as follows:
1995 1994
Deferred Tax Assets: --------- ----------
Nondeductible accruals $ 105,085 $ 142,824
Additional costs capitalized
for inventory-tax 108,521 92,640
Allowance for doubtful
accounts 787,470 747,855
Net operating loss
carryforwards 7,011,093 7,333,120
Tax credit carryforwards 1,642,000 1,642,000
--------- ----------
Total Gross Deferred Tax 9,654,169 9,958,439
Assets
Less: Valuation allowance (8,321,364) (8,484,192)
--------- ----------
Net Deferred Tax Assets 1,332,805 1,474,247
--------- ----------
Deferred Tax Liabilities:
Accelerated tax depreciation (436,258) (417,790)
Amortization of capitalized
software and patents (896,547) (1,056,457)
Total Gross Deferred Tax --------- ----------
Liabilities (1,332,805) (1,474,247)
--------- ----------
Net $ - $ -
========= ==========
F-69
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 12 - INCOME TAXES (Continued)
The net change in the valuation allowance for deferred
tax assets was an decrease of $162,828.
At June 30, 1995, the Company has net operating loss
carryforwards of approximately $ 20,620,861 that will be
available to offset future taxable income, if any.
Additionally, at June 30, 1995, the Company has
investment and research and development ("R&D") tax
credit carryforwards of approximately $ 1,642,000
available to offset future taxes payable, if any.
These carryforwards expire in the following approximate
amounts:
Tax Carryforward
-----------------
Net Investment
Year of Operating and R&D Tax
Expiration Loss Credit
---------- --------- -----------
1996 $ - $ 97,000
1997 - 33,000
1998 - 12,000
1999 1,201,000 16,000
2000 7,978,000 48,000
2003 23,000 -
2004 11,418,000 -
2006 - 1,436,000
----------- -----------
$20,620,000 $ 1,642,000
=========== ===========
A reconciliation of income tax expense at the statutory
rate to income tax expense at the Company's effective
rate is as follows:
1995 1994 1993
---------- --------- ---------
Computed tax at the
statutory rate $ (549,920) $ (97,467) $ 103,513
Effect of net operating
loss carryforward - - (99,057)
State and local income
taxes, net of federal
income tax benefit 122,691 57,905 8,650
Unutilized net operating
loss 549,920 97,467 -
Other - (10,000) -
Alternative minimum tax 22,867 - 53,060
---------- --------- ---------
Income Tax Expense $ 145,558 $ 47,905 $ 66,166
========== ========= =========
F-70
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 13 - OFFSITE RESEARCH SCANNER
In connection with an agreement dated July 1983, the
Company agreed to lend a prominent U.S. medical school
an MRI scanner for research purposes, for a period of
two years commencing in June 1984, at no charge. Upon
expiration of the agreement, the unit was to have been
purchased by the user or returned to the Company.
During the fiscal year ended June 30, 1991, the Company
and the school mutually decided to cancel the agreement,
without purchase of the scanner by the school, and the
scanner was returned to the Company. Costs of
$1,154,217 have been incurred by the Company for
equipment and site preparation and are included in
property and equipment under the caption "Offsite
Research Scanner" in the accompanying consolidated
balance sheets (net of accumulated depreciation). As of
June 30, 1991, the asset was depreciated to a carrying
value of $319,217. The Company's management estimates
that the market value of the used system (less any costs
of refurbishment and selling and shipping expenses)
exceeds the carrying value of such asset at June 30,
1995.
NOTE 14 - OTHER CURRENT LIABILITIES
Included in other current liabilities are the following:
1995 1994
---------- ----------
Unearned revenue on
service contracts $2,263,918 $2,699,476
Accrued payroll taxes 1,079,040 1,605,539
Accrued interest 310,144 358,135
Accrued royalties 387,307 387,307
Warranty and costs 149,363 165,649
Accrued salaries and
commissions 259,176 391,774
Litigation judgement 1,169,375 -
Excise and sales taxes 1,492,609 2,433,240
Other 2,377,795 1,533,416
---------- ----------
$9,488,727 $9,574,536
========== ==========
As of June 30, 1995, the Company was in arrears on its
federal and state payroll taxes aggregating $192,000 and
$829,550, respectively. The Company reached a
settlement agreement with the Internal Revenue Service
permitting the Company to retire the balance in monthly
installments of $100,000. In February 1994, the Company
reached a settlement agreement with the New York State
Department of Taxation and Finance permitting the
Company to retire the balance in monthly installments.
F-71
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Leases
The Company rents its operating facilities under long-
term lease agreements expiring at various dates through
May 1998. These leases contain escalation clauses
relating to increases in real property taxes as well as
certain maintenance costs.
Future minimum payments for the noncancellable
facilities and capital leases (principally printing and
computer equipment) are as follows:
Year Ended
June 30, Facilities Capital
---------- ---------- ----------
1996 $ 733,174 $ 320,598
1997 714,465 112,368
1998 59,963 102,134
1999 - 4,229
2000 - -
---------- ----------
Total minimum obligations $1,507,602 539,329
==========
Less: Amount representing
interest 73,119
---------
Present value of net
minimum lease obligations $ 466,210
==========
Rent expense for operating leases totalled approximately
$618,000 $628,000 and $737,000 for the three years ended
June 30, 1995, 1994 and 1993, respectively. Rent
expense for the years ended June 30, 1995, 1994 and 1993
is as follows:
1995 1994 1993
---------- --------- ---------
Minimum rent $ 559,000 $ 573,000 $ 661,000
Contingent rent 59,000 55,000 76,000
---------- --------- ---------
Total $ 618,000 $ 628,000 $ 737,000
========== ========== =========
F-72
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
----------
On September 2, 1992, the Company filed an action
against General Electric Company ("General Electric"),
Hitachi Ltd. ("Hitachi") and other defendants for patent
infringement in the United States District Court for the
Eastern District of New York seeking injunctive relief
and damages. The defendants contested the Company's
claims, and Hitachi counterclaimed, alleging
infringement by the Company of two of its patents. In
April 1995, prior to the commencement of trial, FONAR
and Hitachi settled. On May 26, 1995, the jury rendered
a verdict against General Electric awarding FONAR
$110,575,000 for infringement of two of its patents.
Subsequent to the verdict, General Electric made motions
to the court to enter judgement as a matter of law in
its favor and against FONAR with respect to both patents
notwithstanding the jury's verdict. FONAR made a motion
to the court for an injunction restraining General
Electric from using the multi-angle oblique imaging
technology covered by one of its patents. On October 6,
1995, the court awarded FONAR $62 million in damages
against General Electric for direct infringement on one
of its patents and granted an injunction against General
Electric prohibiting future violations of the patent.
The injunction was stayed pending appeal, however,
subject to the posting of a bond. With respect to the
other patent, the judge agreed with the jury's finding
that the patent was valid, but disagreed with the jury's
finding of infringement and determined that General
Electric's MRI scanners did not infringe the patent.
General Electric is expected to appeal the portion of
the judgement upholding the jury's award to damages to
FONAR for direct infringement and the issuance of the
injunction. FONAR intends to appeal the portion of the
judgement overturning the jury's findings.
F-73
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
On June 16, 1995, the Company filed an action against
Siemens Medical Systems, Inc., Philips Electronics North
America Corporation, Philips Electronics, N.V. and other
defendants for patent infringement in the United States
District Court for the Eastern District of New York.
FONAR is seeking injunctive relief and damages. In its
suit, FONAR has alleged that four of its patents were
infringed. Previously, in May 1995, Siemens Medical
Systems, Inc. had filed a complaint against FONAR in the
United States District Court for the District of
Delaware seeking a declaratory judgement that the four
patents were invalid and unenforceable, as well as an
adjudication that Siemens was not infringing on the four
patents. On June 14, 1995, Siemens Medical Systems,
Inc. amended the complaint to add Siemens AG as a
plaintiff, to add Raymond V. Damadian, M.D. MR Scanning
Centers Management Company as a defendant and to include
a claim against FONAR for infringement of one of
Siemens' MRI patents.
Thereafter, on June 30, 1995, Philips Electronics North
America Corporation and Philips Electronics, N.V. filed
a complaint against FONAR in the United States District
Court for the District of Delaware seeking a declaratory
judgement that FONAR's U.S. Patents Nos. 3,789,832 and
4,871,966 are invalid, unenforceable and not infringed.
Motions have been made by the Siemens affiliates and
Philips affiliates to transfer the action commenced by
FONAR in District Court for the Eastern District of New
York to the Delaware District Court and FONAR has moved
to transfer the actions commenced against it in the
Delaware District Court to the Eastern District of New
York. The respective parties are expected to vigorously
contest the claims against them. Separately, U.S.
Philips Corporation, an affiliate of Philips Electronics
North America Corporation and Philips Electronics, N.V.,
commenced an action in the United States Court for the
District of Delaware alleging infringement by FONAR of
two of its patents. FONAR has answered the complaint
denying plaintiff's claims of infringement and will
vigorously contest the case. The case is in discovery.
F-74
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
In September of 1991, FONAR commenced an action against
Deccaid Services, Inc., Medical Funding of America,
Inc., EQUIMED Inc. and several individual defendants,
for copyright infringement and misappropriation of trade
secrets in connection with servicing of FONAR
manufactured MRI equipment. The case was settled in
July and August 1994, pursuant to agreements whereby the
sum of $1,150,000 was paid to FONAR on behalf of the
defendants, and all claims the parties had against each
other were released.
In or about October 1993, Magnetic Scans commenced an
action in the Circuit Court of Collier County, Florida
to dissolve the joint venture/partnership established by
the Company and Magnetic Scans to operate a magnetic
scanning center in Jacksonville, Florida. The case was
settled in July 1994 pursuant to an agreement which
provided for in substance among other things, (a) the
transfer of the center and 100% of the income of the
center to Magnetic Scans for a period of approximately
eight months, (b) the return of the center to FONAR's
assignee First Coast Imaging, P.A. (see Note 3) upon the
expiration of said eight-month period, (c) the transfer
by First Coast to Magnetic Scans of its 30% interest in
a jointly-owned scanning center in Fort Myers, Florida
and (d) the provision by FONAR to Magnetic Scans of
noncash items such as, and including service, upgrades,
deinstallation, transport and reinstallation of a
scanner. As of June 30, 1994 all costs were either
provided for or incurred by the Company.
On March 4, 1987, Philip B. Kivitz, M.D. and Rad-Sonic
Diagnostic Medical Clinics, Inc., filed a complaint
against AMD, FONAR, Raymond V. Damadian and others in
the San Francisco County Superior Court (Case Action No.
870407). In his complaint, Dr. Kivitz had claimed
$10,000,000 in compensatory damages and $10,000,000 in
punitive damages. In January 1993, the case went to
trial and the jury returned a verdict of $880,000
against AMD and $120,000 against FONAR. On June 17,
1993, the Court granted FONAR's and AMD's motion for
judgement notwithstanding the verdict, thereby vacating
the entire award against both FONAR and AMD, and
determining that Dr. Kivitz is entitled to no recovery
whatsoever. The case was appealed by the plaintiff and
on February 27, 1995, the Appellate Court affirmed the
F-75
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
lower court's judgement notwithstanding the verdict as
to FONAR, but reversed the judgement as to AMD.
Subsequently, AMD filed a petition for review with the
California Supreme Court and was denied on May 17, 1995.
As of June 30, 1995, the verdict of $880,000, plus
interest, was provided for.
On April 3, 1990, Summit, Rovins and Feldesman commenced
an action in the Supreme Court of the State of New York,
County of New York against the Company. The complaint
alleges unpaid fees for legal services and disbursements
to the amount of $664,371. The Company has answered the
complaint, asserting various defenses and a counter
claim of $100,000 for a refund of fees. The plaintiff
made a motion for summary judgement which was granted as
to the liability but denied as to the amount of damages.
The Company has appealed this motion and in March 1995,
the Appellate Court reversed the granting of summary
judgement against FONAR. The case is currently in
discovery.
On June 18, 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 for goods and services. The complaint
alleged that one of the Company's former lenders
borrowed monies from the plaintiff for the express
purpose of financing the construction of one of the
Company's scanning systems and that the defendants, with
the Company's lender, conspired to divert the
application of the loan proceeds to other projects. The
complaint sought compensatory damages of $1,758,000 and
punitive damages of $10,000,000, plus interest and
costs. Following the trial, the court entered a
judgement in the Company's favor dismissing the
complaint.
On June 8, 1993, Cooper, Fink & Zausmer, P.C. commenced
an action against AMD Southfield Michigan Limited
Partnership (the "Southfield Partnership"), a limited
partnership, in which the Company's subsidiary, Advanced
Medical Diagnostics Corporation ("AMD"), is one of the
two general partners, based on legal services allegedly
performed by the plaintiff for the Southfield
Partnership. The case was settled during 1994 for
$140,000 payable in installments of $20,000 which is
guaranteed by the general partners. The Southfield
Partnership is responsible for all payments. The
F-76
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
settlement has been paid in full and satisfied.
On October 4, 1993, the State of Texas and various
municipalities thereof commenced an action against the
Company in the District Court of Travis County, Texas to
collect $345,973 in sales and use taxes, penalties and
interest, together with attorneys fees of $25,000 and
additional accruals of interest and penalties. The
Company interposed an answer generally denying the
claim. An agreement was reached for $323,870 plus
interest, a rate of 10% per annum payable in
installments of $10,000 per month until the full
obligation has been satisfied.
In January 1991, Myheal Technologies and a former
employee commenced an action against the Company in the
United States District Court for the Eastern District of
New York (Index No. 91 CIV 0204). The amount claimed is
$5,000,000 in damages and $5,000,000 in punitive
damages. The claim arose out of an alleged breach of an
agreement between the Company and a former research and
development employee of the Company. In December 1993,
a jury verdict was returned in favor of the plaintiffs
for $1,150,000 in compensatory damages. The Company
made a motion for judgement notwithstanding the verdict,
or in the alternative, for a new trial. In July 1994,
the court set aside the jury's verdict and granted the
Company a new trial. On March 24, 1995, a jury rendered
a verdict in favor of the plaintiff in the amount of
$250,000. Subsequently, the Company made a motion
requesting judgement as a matter of law dismissing the
plaintiff's claims or in the alternative a new trial or
reduction of damages. The Company's motion was denied
and judgement was entered against the Company in August
1995. The Company is appealing the District Court's
decision.
In November 1991, LDI Corporation commenced a claim
against FONAR, Four-Fifty Sutter MRI (a purchaser of a
FONAR MRI scanner) and certain other parties based on a
breach by Four-Fifty Sutter of an equipment finance
lease. (LDI Corporation v. Four-Fifty Sutter MRI et.al.
Superior Court, San Francisco, California, Case No.
938070). The claim against FONAR was on a guarantee of
the customer's obligation in the amount of $959,000.
The Company cross-claimed against LDI for various
matters, including tortuous infliction of injury in
other matters and cross-claimed against Four-Fifty
F-77
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
Sutter and others for failure to repay a loan of
$400,000 and for breach of contract to transfer to FONAR
30% of the profits of the Four-Fifty Sutter business.
Four-Fifty Sutter cross-claimed against FONAR for
damages in excess of $2,000,000, claiming that the
equipment was faulty and that it was entitled to a
refund of monies paid and for damages. A settlement
among the parties was reached pursuant to which, in
pertinent part, the Company sold an upgrade to the MRI
scanner to LDI for $330,000, LDI received free
maintenance and repair service for the scanner until the
upgrade was completed and for a period of three months
thereafter, and LDI obtained a five year service
agreement from the Company at an annual fee of $87,500.
In addition FONAR's outstanding loan obligation to LDI
(which were not a subject of the action) were
restructured to a new promissory note in the principal
amount of $796,708 with interest at 13% per annum. All
claims between FONAR and the other defendant were
dismissed with prejudice.
During February 1994, a FONAR subsidiary, ("Medical SMI"
formerly "Vonar Limited") issued shares to Long
Investment, Ltd., an Israeli company, in consideration
for $700,000. Long Investment, Ltd. claims the
investment was made assuming Medical SMI would complete
a private offering. The private offering was
subsequently cancelled. Long Investment, Ltd. appealed
to the District Court to appoint an arbitrator to decide
if the Company should refund the investment. The case
is expected to go to arbitration during November 1995.
Based on its legal counselor's opinion, management is of
the opinion that the claim will be dismissed.
On June 28, 1995, Horace Rubenstein commenced an action
in the Delaware Court of Chancery against the four
directors of the Company and FONAR, as nominal
defendant, challenging the recapitalization plan
approved by the stockholders at the annual meeting on
April 3, 1995 (see Note 10).
The complaint alleges that the directors failed to act
in the best interests of the Company and its common
stockholders in adopting the plan, which permits Dr.
Raymond V. Damadian, the founder, President and
principal stockholder of the Company, and other holders
F-78
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
----------
of FONAR's Class B common stock, to exchange their
shares of Class B common stock for shares of a new Class
C common stock having greater voting power. The action
was brought as a class action on behalf of the holders
of the common stock and derivatively, for the benefit of
the Company, and seeks an unspecified amount of damages
and an order setting aside the recapitalization. The
defendants and the Company strongly believe that the
recapitalization, approved by the stockholders in tandem
with a proposal to distribute shares of a new class of
preferred stock to the holders of the common stock, is
both fair and in the best interests of the Company and
its stockholders. The parties are engaged in settlement
negotiations and the defendants' time to answer the
complaint has been extended.
The Company also is involved in a number of smaller
litigations which aggregate approximately $1,498,000.
The Company has interposed answers in all cases, except
where an answer is not yet due. The Company has
established provisions for most of the liabilities
represented by these smaller claims, and where
provisions have not been established, management
believes it will prevail on the merits and intends to
vigorously contest the claims. Based on its past
experience dealing with such claims, the Company
anticipates it will be able to settle most of these
smaller litigations with provisions to pay over periods
of time which are manageable for the Company.
An entity has impliedly asserted that FONAR's equipment
infringes on at least one of the entity's patents. The
entity had sought royalties in the range of 2% or 3% of
the net selling price of FONAR's equipment for licenses
under their assertedly infringed patents. At July 1,
1995, the Company entered into an agreement with the
entity, whereby the Company must pay 1.2% of the
Company's future sales of certain MRI apparatus.
License Agreement and Self-Insurance
------------------------------------
The Company entered into a license agreement during 1990
with an entity whereby the Company must pay a royalty of
1.35% on the Company's future sales of certain NMR
imaging apparatus through January 31, 1995 in the United
States and April 17, 1996 in Canada. Royalty expense
charged to operations for the years ended June 30, 1995,
1994 and 1993 approximated $147,000, $12,500 and
$45,000, respectively.
F-79
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
License Agreement and Self-Insurance (Continued)
------------------------------------
The Company is self-insured with respect to
substantially all insurable business risks except for
insurance on certain equipment pledged as collateral for
long-term debt. During the fiscal years ended June 30,
1995, 1994 and 1993, no material claims arose.
NOTE 16 - OTHER INCOME (EXPENSE) AND SUPPLEMENTARY PROFIT AND LOSS
DATA
Other income (expense) consists of:
For the Years Ended June 30,
------------------------------
1995 1994 1993
---------- ---------- ----------
Interest income $ 89,905 $ 158,539 $ 220,956
Other income
(expense) 561,346 (122,117) (27,599)
Gain on settlement
of various legal
disputes and
other claims 2,970,356 104,061 15,611
---------- ---------- ----------
$3,621,607 $ 140,483 $ 208,968
========== ========== ==========
Maintenance and repair expenses totalled approximately
$67,000, $133,000 and $172,000 for the years ended June
30, 1995, 1994 and 1993, respectively. Royalty expenses
approximated $147,000, $12,500 and $45,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
Amortization of intangible assets was approximately
$1,431,000, $1,372,000 and $1,314,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
F-80
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 16 - OTHER INCOME (EXPENSE) AND SUPPLEMENTARY PROFIT AND LOSS
DATA (Continued)
Results of operations for the fourth quarter of fiscal
years 1995, 1994 and 1993 include the following charges
or (credits) which are related primarily to prior
quarters:
1995 1994 1993
----------- ---------- ---------
Interest income -
related parties $ (428,758) $ (851,891) $ -
Re-evaluation of
allowance for
doubtful accounts - 221,791 361,688
Additional accruals - 228,950 702,816
Re-evaluation of
inventories 816,637 - 1,212,967
Capitalization of
patent and copyright
costs - (408,940) (234,913)
Capitalization of
software development
costs (Note 2) 76,511 - (704,195)
Capitalization of
prototype scanners - (636,943) -
Gain on sale of
investments to
related parties - 549,824 -
----------- ---------- ---------
$ 464,390 $ (897,209)$1,338,363
=========== ========== ==========
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended June 30, 1995, 1994 and 1993, the
Company paid $1,378,432, $1,185,453 and $1,434,502 for
interest, respectively. During the years ended June 30,
1995, 1994 and 1993, the Company paid $12,867, $31,573
and $78,274 for income taxes, respectively.
Non-Cash Transactions
---------------------
During the year ended June 30, 1995:
a) Common stock issued and options exercised in
exchange for notes receivable from stockholders
totalled $9,771,127.
b) The purchase option under a sales-type lease of
$962,185 was exercised in consideration of a note
receivable of $454,000 and the assumption of debt of
$311,934 and accrued interest and penalties of
$196,251.
F-81
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
c) Property and equipment with a book value of $100,926
was reclassified to inventory.
d) Notes payable and accrued interest totalling
$446,959 were repaid by the issuance of common
stock.
e) Inventory purchased for resale of $149,813 was
financed under a capital lease.
f) Long-term debt of $224,657 and accrued interest of
$125,343 were assumed by an affiliate.
During the year ended June 30, 1994:
a) Common stock issued and options exercised in
exchange for notes receivable from stockholders
totalled $8,585,862.
b) Net patent and deferred legal costs of $1,150,000
were reclassed to prepaid expenses and other current
assets.
c) Purchase options under three sales-type leases
aggregating $3,556,941 were exercised in
consideration of notes receivable aggregating
$1,754,870 and assumption of debt aggregating
$1,802,121.
d) Accrued interest payable of $100,705 was converted
to long-term debt.
e) Income taxes approximating $188,000 were
reclassified to "Other current liabilities". Such
taxes were aggregated under a deferred payment
agreement with certain payroll taxes that are in
arrears.
During the year ended June 30, 1993:
a) Property and equipment totalling $555,645 was
financed under a capital lease.
b) Property and equipment under a cancelled sales-type
lease with remaining lease value of $598,062 was
reclassified as assets held for resale.
c) Common stock valued at $19,206 was issued to
purchase additional shares in a subsidiary company.
F-82
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
d) An asset held for resale of $747,905 was
reclassified to property and equipment.
e) An asset held for resale of $496,497 was sold to a
related party under a sales-type lease.
f) Common stock issued and options exercised in
exchange for notes receivable from stockholders
totalled $2,411,744.
g) Accounts payable of $175,000 was converted to long-
term debt.
h) Notes payable totalling $31,597 were repaid by the
issuance of common stock.
i) A note receivable of $923,000 was recorded in
connection with the sale of a subsidiary company.
Assets and liabilities related to the sale were as
follows: accounts receivable - $65,615; fixed
assets - $215,201; due from affiliates - $55,507;
notes payable - $165,000; and minority interest -
$81,242.
j) Two notes receivable totalling $3,200,000 were
recorded in connection with the sale of two
investments. Assets related to the sale were
advances and investments under the equity method
aggregating $719,521.
F-83
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors serve from the date of their election until
the next annual meeting of stockholders and until their successors
are elected and qualify. Officers serve at the discretion of the
Board of Directors.
The officers and directors of the Company are set forth
below:
Raymond V. Damadian, M.D. 59 President, Chairman of
the Board and a
Director
Luciano B. Bonanni 40 Executive Vice President
Timothy R. Damadian 31 Vice President of
Operations
David B. Terry 48 Secretary and Treasurer
Claudette J.V. Chan 58 Director
Robert J. Janoff 68 Director
Herbert Maisel 51 Director
Raymond V. Damadian, M.D. has been the Chairman of the
Board and President of FONAR since its inception. Dr. Damadian
was employed the State University of New York, Downstate Medical
Center, New York, as an Associate Professor of Biophysics from
1967 until September 1979. Dr. Damadian received an M.D. degree
in 1960 from Albert Einstein College of Medicine, New York, and a
B.S. degree in mathematics from the University of Wisconsin in
1956. In addition, Dr. Damadian conducted post-graduate work at
Harvard University, where he studied extensively in the fields of
physics, mathematics and electronics. Dr. Damadian is the author
of numerous articles and books on the nuclear magnetic resonance
effect in human tissue, which is the theoretical basis for the
FONAR MRI scanners. Dr. Damadian is a 1988 recipient of the
National Medal of Technology and in 1989 was inducted into the
National Hall of Fame, for his contributions in conceiving and
developing the application of magnetic resonance technology to
medical applications including whole body scanning and diagnostic
imaging.
Luciano B. Bonanni has been a Vice President of FONAR
since 1981. Mr. Bonanni was an Electrical Engineer with the
Aviation Systems Group of Cardion Electronics (a subsidiary of
General Signal Corp.) for approximately two years before joining
FONAR in April 1979. He received his bachelor of science degree
in electrical engineering from Manhattan College in 1977.
Timothy R. Damadian has been a Vice President of FONAR
since July 1992. He has been employed by FONAR since 1981,
initially on a part-time basis. Mr. Damadian served as a field
service technician for FONAR, after graduating from Suburban
Technical School in 1982, where he studied digital computer
technology. Mr. Damadian became Director of Manufacturing in
October 1989 and was promoted to Vice President of Operations in
July 1992. Timothy Damadian is the son of Raymond V. Damadian and
nephew of David Terry and Claudette Chan.
David B. Terry is the Secretary and Treasurer of the
Company. Mr. Terry has been serving as Secretary and Treasurer
since May 1990, and previously served as Secretary from July
1978 through June 1987 and as Treasurer from August 1981 through
June 1987. From July 1978 through June 1987, he was also a
Director of the Company. Between July 1987 and January 1990, Mr.
Terry was a co-owner and actively engaged in the business of
Carman-Terry Realty, a real estate brokerage firm. In January
1990, Mr. Terry resumed his employment with the Company. Mr.
Terry is the brother-in-law of Raymond V. Damadian and uncle of
Timothy R. Damadian.
Claudette J.V. Chan has been a Director of FONAR since
October 1987. Mrs. Chan has been employed since 1992 by Raymond
V. Damadian, M.D. MR Scanning Centers Management Company as "site
inspector," in which capacity she is responsible for supervising
and implementing standard procedures and policies for MRI scanning
centers. From 1989 to 1994 Mrs. Chan was employed by St.
Matthew's and St. Timothy's Neighborhood Center, Inc., as the
director of volunteers in the "Meals on Wheels" program, a program
which cares for the elderly. In approximately 1983, Mrs. Chan
formed the Claudette Penot Collection, a retail mail-order
business specializing in women's apparel and gifts, of which she
was the President until she stopped operating the business in
approximately 1989. Mrs. Chan practiced and taught in the field
of nursing until 1973, when her son was born. She received a
bachelor of science degree in nursing from Cornell University in
1960. Mrs. Chan is the sister of Raymond V. Damadian and aunt of
Timothy R. Damadian.
Robert J. Janoff has been a Director of FONAR since
February, 1989. Mr. Janoff has been a self-employed New York
State licensed private investigator for more than thirty-five
years and has been a Senior Adjustor in Empire Insurance Group for
more than 10 years. Mr. Janoff also served, from June 1985 to
June 1991, as President of Action Data Management Strategies,
Ltd., a supplier of computer programs for use by insurance
companies.
Herbert Maisel has been a Director of FONAR since
February, 1989. Mr. Maisel has been the manager of Melville MRI,
P.C., an MRI scanning center located in Melville, New York, since
January, 1992, and of Damadian MRI in Garden City, P.C., an MRI
scanning center located in Garden City, New York since April,
1995. Mr. Maisel was also manager of Damadian MRI in Islandia,
P.C. from December, 1993 to March, 1995. Prior to that time Mr.
Maisel had been the President and owner of Bagel World, Inc., a
bagel bakery, from March 1984 to January 1992. Prior thereto, Mr.
Maisel served as a supervisor of a commercial printing plant.
<PAGE>
Item 11. Executive Compensation.
With the exception of the Chief Executive Officer, the
compensation of the Company's executive officers is based on a
combination of salary and bonuses based on performance. The Chief
Executive Officer's compensation consists only of a salary
which has remained constant for more than the past three fiscal
years. The Board of Directors does not have a compensation
committee. Dr. Raymond V. Damadian, President, Chief Executive
Officer and Chairman of the Board, is the only executive officer
who is a member of the Board of Directors. Dr. Damadian
participates in the determination of executive compensation for
the Company's officers.
There is set forth in the following Summary Compensation
Table the compensation provided by the Company during fiscal
1995 to its Chief Executive Officer and executive officer whose
salary and bonus were equal to at least $100,000, and there is set
forth in the following Option Grant Table and Option Exercise
Table the stock options granted and exercised by those individuals
during fiscal 1995.
<PAGE>
<TABLE>
I. SUMMARY COMPENSATION TABLE
<CAPTION>
| |
| Long Term Compensation |
--------------------------------------
Annual Compensation | Awards | Payouts |
- ---------------------------------------------------------------------------------------------
| | |
(a) (b) (c) (d) (e) | (f) (g) | (h) | (i)
Name Other | | |
and Annual | Restricted | | All Other
Principal Compen- | Stock Options | LTIP | Compen-
Position Salary Bonus sation | Award(s) SARs | Payouts | sation
2 Year ($) ($) ($) | ($) (#) | ($) | ($)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> | <C> <C> | <C> | <C>
Raymond V. 1995 $86,799.94 - - | - - | - | -
Damadian, 1994 $86,679.94 - - | - - | - | -
President & 1993 $86,799.96 - - | - - | - | -
CEO | | |
| | |
Luciano B. 1995 $139,259.48 - - | - 35,000 | - | -
Bonanni, 1994 $111,827.39 - - | - - | - | -
Executive 1993 $104,230.86 - - | - - | - | -
Vice President | | |
| | |
</TABLE>
<PAGE>
<TABLE>
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Alternative
Stock Price to (f) and
Appreciation for (g): Grant
Individual Grants Option Term Date Value
_____________________________________________________________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (f)
% of Total
Options/
SARs
Options/ Granted to
SARs Employees Excercise or Grant Date
Granted in Fiscal Base Price Expiration Present
Name (#) Year ($/Sh) Date 5% ($) 10% ($) Value $
_________ _________ _________ _________ _________ _________ _________ _________
<C> <C> <C> <C> <C> <C> <C> <C>
Raymond V.
Damadian, 0 - - - - - -
President &
CEO
Luciano B.
Bonanni, 35,000 9.02% $3.00 4/19/05 $52,500 $105,000 -
Executive
Vice President
</TABLE>
<PAGE>
<TABLE>
III. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year, amd FY-End Option/Sar Value
- -----------------------------------------------------------------------------------------------------
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of Unexercised
Name Shares Acquired Value Realized Unexercised In-the-Money
on Exercise (#) ($) Options/SARs Options/SARs at
at FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Raymond V. 0 - 0 -
Damadian,
President
and CEO
Luciano B. 41,250 $7,226.56 12,500 $0
Bonanni, (all exercisable)
Executive
Vice President
</TABLE>
<PAGE>
Employee Compensation Plans
The Company's 1984 Incentive Stock Option Plan, adopted
as of August 24, 1984, permitted the issuance of stock options
covering an aggregate of 312,500 shares of Common Stock to
employees of the Company. The options had an exercise price equal
to the fair market value of the underlying stock on the date the
option was granted, were nontransferrable, were exercisable for a
period not exceeding ten years and expired upon the voluntary
termination of employment. The 1984 Incentive Stock Option Plan
terminated on August 23, 1994. As of June 30, 1995 no options
were available for future grant under the plan.
The Company's 1986 Nonstatutory Stock Option Plan,
adopted on January 17, 1986, permitted the issuance of stock
options covering an aggregate of 1,250,000 shares of Common Stock.
The options may be issued at such price and upon such terms and
conditions as are determined by the Company. The 1986
Nonstatutory Stock Option plan will terminate on January 16, 1996.
As of June 30, 1995, no options were available for future grant
under the plan.
The Company's 1986 Incentive Stock Option Plan, adopted
on January 17, 1986, is intended to qualify as an incentive stock
option plan under Section 422A of the Internal Revenue Code of
1954, as amended. The 1986 Incentive Stock Option Plan permits
the issuance of stock options covering an aggregate of 1,250,000
shares of Common Stock. The options have an exercise price equal
to the fair market value of the underlying stock on the date the
option is granted, are nontransferrable, are exercisable for a
period not exceeding ten years and expire upon the voluntary
termination of employment. The 1986 Incentive Stock Option Plan
will terminate on January 16, 1996. As of June 30, 1995, options
to purchase 157,302 shares of Common Stock were available for
future grant under the plan.
The Company's 1993 Incentive Stock Option Plan, adopted
on March 26, 1993, is intended to qualify as an incentive stock
option plan under Section 422A of the Internal Revenue Code of
1954, as amended. The 1993 Incentive Stock Option Plan permits
the issuance of stock options covering an aggregate of 1,500,000
shares of Common Stock. The options have an exercise price equal
to the fair market value of the underlying stock on the date the
option is granted, are nontransferrable, are exercisable for a
period not exceeding ten years and expire upon the voluntary
termination of employment. The 1993 Stock Option Plan will
terminate on March 25, 2003. As of June 30, 1995, options to
purchase 1,112,000 shares of Common Stock were available for
future grant under the plan.
The 1994 Stock Bonus Plan, adopted on December 1, 1993,
permits the Company to issue an aggregate of 5,000,000 shares of
Common Stock as a bonus or compensation. The Company selects the
persons to whom bonus stock will be issued, the number of shares
awarded and such other terms and conditions as it deems advisable.
The 1994 Stock Bonus Plan will terminate on November 30, 2003. As
of June 30, 1995, 524,745 shares of Common Stock were available
for future grant.
The Company's 1995 Nonstatutory Stock Option Plan,
adopted on April 1, 1995, permits the issuance of stock options
covering a aggregate of 5,000,000 shares of Common Stock. The
options may be issued at such price and upon such terms and
conditions as are determined by the Company. The 1995
Nonstatutory Stock Option Plan will terminate on March 31, 2005.
As of June 30, 1995, options to purchase 5,000,000 shares of
Common Stock were available for future grant.
The Company's 1995 Stock Bonus Plan, adopted on April 1,
1995, permits the Company to issue an aggregate of 5,000,000
shares of Common Stock as a bonus or compensation. The Company
selects the persons to whom bonus stock will be issued, the number
of shares awarded and such other terms and conditions as it deems
advisable. The 1995 Stock Bonus Plan will terminate on March 31,
2005. As of June 30, 1995, 4,641,000 shares of Common Stock were
available for future grant.
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
The following table sets forth the number and percentage
of shares of the Company's securities held by each director, by
each person known by the Company to own in excess of five percent
of the Company's voting securities and by all officers and
directors as a group as of September 15, 1995.
Name and Address of Shares Percent
Beneficial Owner (1) Beneficially Owned of Class
Raymond V. Damadian, M.D.
c/o FONAR Corporation
Melville, New York
Director, President
CEO, 5% + Stockholder
Common Stock 2,366,637.5 6.06%
Class B Stock 3,187,058 99.80%
Claudette Chan
Director
Common Stock 4,000 *
Robert J. Janoff 25,000 *
Director
Common Stock (2)
*
Herbert Maisel 100
Director
Common Stock (3)
Luciano Bonanni 160,661 *
Executive Vice President
All Officers and Directors
as a Group (7 persons)
(2)(3)(4)
Common Stock 2,625,398.5 6.72%
Class B Stock 3,187,058 99.80%
___________________________
* Less than one percent
1. Address provided for each beneficial owner owning more than
five percent of the voting securities of the Company.
2. Includes presently exercisable options to purchase 15,000
shares of the Company's Common Stock.
3. Includes 50 shares of the Company's Common Stock which are
held in the name of Mr. Maisel as trustee for his minor daughter
and 50 shares of the Company's Common Stock which are held by Mr.
Maisel's wife.
4. Includes options to purchase 4,000 shares of the Company's
Common Stock held by an officer.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
On April 7, 1989, at a time when the Company lacked both
the financing and working capital to establish its own centers,
Donna Damadian, the wife of Raymond V. Damadian, M.D., Chairman of
the Company, purchased from FONAR a scanner for a purchase price
of $1,508,000 (the price paid by FONAR's customers for like
equipment). $1.2 million was paid in cash, providing a much needed
cash infusion for the Company, and the balance was paid over time
with interest pursuant to a promissory note of even date. The
scanner is being leased to Macon Magnetic Resonance Imaging, P.C.
("Macon Center"), a Georgia professional corporation wholly-owned
by, and of which Dr. Damadian is, the President.
Since May, 1990, Raymond V. Damadian M.D., MR Scanning
Centers Management Company, a Delaware corporation of which
Raymond V. Damadian is the sole shareholder, director and
President ("RVDC"), has been party to a standard service agreement
with the Company for the servicing of the scanner at the Macon
Center. The current annual price is $123,760, which is the
standard price charged to the Company's other customers for like
equipment. The term of the current one-year service agreement
runs from April, 1995 to April, 1996. The current annual price
was also in effect during the prior year from April, 1994 to
April, 1995.
By agreement dated June 27, 1990, Tallahassee Magnetic
Resonance Imaging, P.A., a Florida corporation of which Raymond V.
Damadian is the sole shareholder, director and President ("TMRI"),
agreed to support the Company's financial obligations to one of
its secured lenders by agreeing to be the lessee of one of its
mobile scanners for a period of five years, subject to the
superior rights of the Company's secured lender. Effective June
30, 1991, the lease arrangements were restructured to provide for
a five year term, commencing June 30, 1991, and the monthly
payment was fixed at $43,217, eliminating the previous per scan
fee (with a minimum monthly payment of $43,200). In addition,
since service and maintenance for the scanner is not included
under the new lease, TMRI has been party to a standard service
agreement with the Company for the scanner since June 30, 1991.
The annual price is currently $120,000, and the term of the
current one-year service agreement runs from June 30, 1995 to June
29, 1996. The current annual price was also in effect during the
prior year from June 30, 1994 to June 29, 1995.
In addition, in fiscal years 1990 and 1992, RVDC leased
four MRI scanners previously leased by the Company to unrelated
parties, where the original lessees had defaulted or were
unwilling to continue to perform. RVDC thereby preserved the
leases for the Company and rescued the Company from defaulting
with the lender. The following is a description of these
transactions.
By agreement dated April 1, 1990, RVDC agreed to assume
the financial and other obligations of the original lessee under a
lease for a mobile scanner dated June 29, 1988, on the same terms
and conditions as the original lessee. Effective June 30, 1991,
the lease arrangements were restructured to provide for a five
year term, commencing June 30, 1991 and the monthly payment was
fixed at $35,167, eliminating the previous per scan fee (with a
minimum monthly payment of $40,000). In addition, since service
and maintenance for the scanner was not included under the terms
of the new lease, RVDC obtained a standard service agreement with
the Company for the scanner, the price for which was $122,256 for
the period from June 30, 1993 to June 29, 1994. RVDC in turn
provided the use of the scanner to Albany Magnetic Imaging Center,
P.C., a Georgia professional corporation of which Raymond V.
Damadian is the sole stockholder, director and President ("Albany
Center"). Effective December 1, 1993, RVDC assigned its purchase
option under the lease to the Albany Center, and the Albany Center
concurrently exercised the option and purchased the scanner from
the Company for a purchase price of $1,128,844. Of the purchase
price, $574,077 was paid by the assumption and payment of the
Company's indebtedness to the lender secured by the scanner. Such
indebtedness to the lender was retired pursuant to a new equipment
finance lease between the lender and the Albany Center, guaranteed
by the Company, providing for 18 monthly payments of $35,000 each.
Following payment of the lease, the remaining $554,767 of the
purchase price due to the Company is required to be paid pursuant
to a promissory note, with interest at 10% per annum, over an 18
month term (17 payments of $35,000 each and one final payment of
$2,454.08). Effective December 1, 1993, the Albany Center also
assumed RVDC's service agreement for the scanner for the balance
of the contract year, and upon expiration of the agreement entered
into a new service agreement with the Company for the period from
June 30, 1994 to June 29, 1995 at a price of $122,256. The term
of the current one-year service contract runs from June 30, 1995
to June 29, 1996 at the same price.
Pursuant to an agreement dated March 7, 1990, RVDC agreed
to assume the financial and other obligations of the original
lessee under a lease for a mobile scanner dated December 13, 1988,
on the same terms and conditions as the original lessee.
Effective June 30, 1991, the lease arrangements were restructured
to provide for a five year term commencing June 30, 1991, and the
monthly payment was fixed at $42,387, eliminating the previous per
scan fee (with a minimum monthly payment of $52,000). In
addition, since service and maintenance for the scanner is not
included under the terms of the new lease, RVDC has been party to
a standard service agreement with the Company for the scanner
since June 30, 1991. The annual price is currently $105,000,
which was reduced from $120,000 in the previous year to bring the
price into line with the Company's standard pricing for like
equipment. The term of the current one-year service agreement
runs from June 30, 1995 to June 29, 1996. RVDC in turn has
provided the use of the scanner to Central Island MRI, P.C., a New
York professional corporation of which Raymond V. Damadian is the
sole shareholder, director and President ("Staten Island Center").
By agreement dated March 7, 1990, RVDC agreed to assume
the financial and other obligations of the original lessee under a
lease for a mobile scanner dated August 16, 1988, on the same
terms and conditions as the original lessee. Effective June 30,
1991, the lease arrangements were restructured to provide for a
five year term, commencing June 30, 1991 and the monthly payment
was fixed at $31,373, eliminating the previous per scan fee (with
a minimum monthly payment of $41,500.) In addition, since service
and maintenance for the scanner was not included under the terms
of the new lease, RVDC obtained a standard service agreement with
the Company for the scanner, the price for which was $120,000 for
the period from June 30, 1993 to June 29, 1994. RVDC in turn
provided the use of the scanner to Deerfield Magnetic Resonance
Imaging P.A., a Florida professional association, of which Raymond
V. Damadian is the sole shareholder, director and President
("Deerfield Center"). In July 1994, the lease between FONAR and
RVDC was terminated, and the Deerfield Center concurrently
purchased the scanner from the Company by assuming the Company's
indebtedness to the lender secured by the scanner in the amount of
$508,180.07. This amount is to be paid pursuant to a note,
guaranteed by the Company, with interest at 10% per annum,
providing for 17 monthly payments of $30,519.81 each and a final
payment of the remaining principal balance plus unpaid interest.
In connection with assuming the debt to the lender, the Deerfield
Center assumed the remaining outstanding lease obligation of RVDC
to the Company respecting the scanner in the amount of
$454,005.11. This amount is to be paid pursuant to a promissory
note, bearing interest at the rate of 10% per annum, in 17 monthly
installments (16 installments of $30,000 each and one installment
of $7,274.79) commencing January 1, 1996, following the final
scheduled payment by the Deerfield Center of the obligation to the
lender. The Deerfield Center also entered into a service
agreement with the Company for the period from June 30, 1994 to
June 29, 1995 at a price of $120,000. The term of the current
one-year service contract runs from June 30, 1995 to June 29, 1996
at the same price.
During fiscal 1992, RVDC agreed to assume the financial
and other obligations of the original lessee under a lease for a
mobile scanner dated June 30, 1989 and restructured the terms to
provide for a monthly payment of $24,421.44 commencing April 1,
1992 and extended the term of the lease seven years from that
date. In addition, RVDC entered into a standard service contract
with the Company for the Scanner, the price for which was
$105,105.60 for the period from May 6, 1993 to May 5, 1994. RVDC
in turn provided the use of the scanner to Daytona Beach Magnetic
Resonance Imaging, P.A., a Florida professional association of
which Raymond V. Damadian is the sole shareholder, director and
President ("Daytona Beach Center"). Effective December 1, 1993,
RVDC assigned its purchase option under the lease to the Daytona
Beach Center, and the Daytona Beach Center exercised the option
and purchased the scanner from the Company for a purchase price of
$1,416,717. Of the purchase price, $328,044 was paid by the
assumption and payment of the Company's indebtedness to the lender
secured by the scanner. Such indebtedness to the lender was
retired pursuant to a new equipment finance lease between the
lender and the Daytona Beach Center, guaranteed by the Company,
providing for 18 monthly payments of $20,000 each. The remaining
$1,088,673 of the purchase price due to the Company is required to
be paid pursuant to a promissory note, with interest at 10% per
annum, over a 45 month term commencing July 1, 1994 as follows:
eleven installments of $15,000 each, thirty-three installments of
$35,000 each and one installment of $19,097.26. Effective
December 1, 1993, the Daytona Beach Center also assumed RVDC's
service agreement with the Company for the scanner for the balance
of the contract year, and upon its expiration, entered into a new
service agreement with the Company for the period from May 6, 1994
to May 5, 1995 at a price of $105,105.60. The term of the current
one-year service agreement runs from May 6, 1995 to May 5, 1996 at
the same price.
RVDC supported the Company's business by leasing two and
agreeing to purchase four MRI scanners from the Company in fiscal
1992.
By agreement dated September 30, 1991, RVDC agreed to
lease one of the Company's mobile scanners for a term of five
years at a monthly lease payment of $36,119.98 commencing January
1, 1992. RVDC also maintained a service agreement with the
Company on the scanner, the price for which was $125,000 for the
period from December 15, 1992 to December 14, 1993. RVDC in turn
provided the use of the scanner to Melville MRI, P.C., a New York
professional corporation of which Raymond V. Damadian is the sole
shareholder, director and President ("Melville Center").
Effective June 30, 1994, RVDC assigned its purchase
option under the lease to the Melville Center, and the Melville
Center concurrently exercised the option and purchased the scanner
from the Company for a purchase price of $1,011,431.12. Of the
purchase price, $900,000 is to be paid by the assumption and
payment of the Company's indebtedness to the lender secured by the
scanner pursuant to a note bearing interest at 14% per annum and
providing for 60 monthly payments of $20,700 each. The remaining
$111,431.12 of the purchase price is to be paid concurrently with
the payments to the lender pursuant to a note, with interest at
10% per annum, providing for 60 monthly payment of $2,367.58 each.
In addition the Melville Center assumed RVDC's current service
contract with the Company for the scanner, the fee for which was
$125,000 for the period from December 15, 1993 to December 14,
1994. The term of the current one-year service agreement runs
form December 15, 1994 to December 14, 1995 at the same price.
Pursuant to an agreement dated December 31, 1991, RVDC
agreed to lease one of the Company's scanners for a monthly lease
payment of $18,081.92 for a period of seven years commencing April
1, 1992. RVDC in turn provided the use of the scanner to Damadian
MRI at Astoria, P.C. (the "Astoria Center"), a New York
professional corporation of which Raymond V. Damadian is the sole
shareholder, director and President. Effective November 13, 1993,
the lease between the Company and RVDC was terminated, and the
scanner was leased directly by the Company to the Astoria Center
pursuant to a new lease providing for 84 monthly payments of
$16,978.43 each commencing February 1, 1994. In addition, the
Astoria Center is party to a service agreement with the Company
for the scanner, the fee for which is $105,000 for the period from
October 27, 1995 to October 26, 1996.
RVDC agreed to purchase four MRI scanners from the
Company pursuant to sales agreements dated April 29, 1992, May 26,
1992, June 3, 1992 and June 18, 1992, for sites in Bayside (Queens
County), Islandia (Suffolk County), Elmhurst (Queens County) and
Forest Hills (Queens County), New York. Each of the four sales
agreements provided for a purchase price of $1,000,000 payable in
installments as follows: (1) 10% down payment within 30 days of
execution, (2) 10% within 30 days of delivery of the magnet and
shielded room and (3) 80% in 84 monthly installments of $12,468.97
each (inclusive of interest at 8% per annum) pursuant to a
promissory note to be executed by RVDC upon acceptance of the
scanner.
Effective November 13, 1993, the sales agreement for the
scanner to be utilized in Islandia, New York was terminated, and
the Company instead leased the scanner to Damadian MRI at
Islandia, P.C. (the "Islandia Center"), a New York professional
corporation of which Raymond V. Damadian is the sole shareholder,
director and President. The lease provides for monthly payments
of $15,586.21 for a term of 84 months commencing February 1, 1994.
In addition, the Islandia Center is party to a service agreement
with the Company for the scanner, the fee for which is $105,000
for the period from December 6, 1994 to December 5, 1995.
The scanner purchased by RVDC for Bayside (Queens
County), New York, is being provided to Bayside MRI, P.C. (the
"Bayside Center"), a New York professional corporation of which
Raymond V. Damadian is the sole stockholder, director and
President, and the scanner purchased by RVDC for Elmhurst (Queens
County), New York, is being provided to Elmhurst MRI, P.C. (the
"Elmhurst Center"), a New York professional corporation of which
Raymond V. Damadian is the sole stockholder, director and
President. RVDC is party to a service agreement with the Company
for the scanner being provided to the Bayside Center for the
period January 11, 1995 to January 10, 1996 at a price of
$105,000. The current annual price was also in effect during the
prior year from January 11, 1994 to January 10, 1995.
In fiscal 1993, RVDC and its affiliates supported the
Company and its objectives by leasing one MRI scanner, purchasing
one MRI scanner and purchasing the Company's interest in three MRI
scanning centers.
Pursuant to an agreement dated December 31, 1992, RVDC
agreed to lease from the Company a mobile scanner, which is in
turn being leased to a third party in Bethesda, Maryland. The
term of the lease is for 84 months and the monthly lease payment
of $15,586.21 (commencing January 1, 1993) is based on a principal
amount of $1,000,000 amortized over 84 months with an interest
rate of 8% per annum. The lease includes an option to RVDC to
purchase the scanner. RVDC is party to a standard service
agreement with the Company for the scanner, the annual rate for
which was $120,000 for the period from June 22, 1994 to June 21,
1995 and is $120,000 for the period from June 22, 1995 to June 21,
1996.
Pursuant to an agreement dated March 31, 1993, RVDC
agreed to purchase the Company's general partnership interest
(approximately 92% of the partnership) in a partnership owning and
operating an MRI scanning center in Bensonhurst (Brooklyn),
New York ("the "Bensonhurst Center"). The purchase price of
$923,000 is payable in 84 equal monthly installments of $14,386.07
each commencing May 1, 1993, which amount includes principal and
interest at the rate of 8% per annum amortized over the term. The
partnership is also party to a standard service agreement with the
Company. The current annual rate is $105,000 for the one year
service contract from May 18, 1995 to May 17, 1996. The current
annual price was also in effect during the prior year from May 18,
1994 to May 17, 1995.
Pursuant to a sales agreement dated June 30, 1993 RVDC
agreed to purchase an MRI scanner from the Company which RVDC is
planning to utilize at a site located in Coral Gables, Florida
(the "Coral Gables Center"). The sales agreement provides for a
purchase price of $1,000,000 payable in installments as follows:
(1) 10% down payment within 30 days of execution, (2) 10% within
30 days of delivery of the magnet and shielded room, and (3) 80%
in 84 monthly installments of $12,468.97 each (inclusive of
interest at 8% per annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the Scanner.
Pursuant to an agreement dated April 6, 1993, First Coast
Magnetic Resonance Imaging, P.A., ("First Coast") a professional
association of which Dr. Damadian is the stockholder, director and
President, purchased the Company's partnership/joint venture
interests in two MRI scanning centers in Florida (one in
Jacksonville and one in Fort Meyers) for a purchase price of
$3,200,000. The agreement provided for payment of the purchase
price as follows: $200,000 no later than June 30, 1993 and the
balance in (a) 36 equal monthly installments of principal and
interest (8% per annum) in the amount of $46,758.64 each and (b)
one final 37th installment of principal in the amount of
$1,915,323.60. The centers are parties to service agreements with
the Company with prices as follows: Jacksonville: $105,416 for
each of the periods from February 15, 1994 to February 14, 1995
and May 18, 1995 to May 17, 1996; Fort Myers $100,000 for the
period from August 10, 1994 to August 9, 1995 and $65,000 for each
of the periods from July 19, 1995 to July 18, 1996 and July 19,
1996 to July 18, 1997.
In fiscal 1994, RVDC and its affiliates supported the
Company and its objectives by purchasing five MRI scanners and
purchasing the interests of a subsidiary of the Company in four
limited partnerships.
Pursuant to a sales agreement dated February 3, 1994 and
amended April 1, 1994, RVDC agreed to purchase an MRI scanner from
the Company which RVDC is planning to utilize at a site located in
Manhattan, New York (the "West Side Center"). The sales agreement
provides for a purchase price of $800,000 payable in installments
as follows: (1) $100,000 down payment within 30 days of execution,
and (2) $700,000 in 84 monthly installments, commencing January 1,
1995, of $11,346.73 each (inclusive of interest at 8% per annum)
pursuant to a promissory note.
Pursuant to a sales agreement dated March 31, 1994, RVDC
agreed to purchase an MRI scanner from the Company which RVDC is
planning to utilize at a site located in Israel (the "Israel
Center"). The sales agreement provides for a purchase price of
$1,000,000 payable in 84 monthly installments, commencing January
1, 1995, of $16,209.66 each (inclusive of interest at 8% per
annum) pursuant to a promissory note.
Pursuant to a sales agreement dated April 1, 1994, RVDC
agreed to purchase an MRI scanner from the Company which RVDC is
planning to utilize at a site located in Cape Coral, Florida (the
"Cape Coral Center"). The sales agreement provides for a purchase
price of $1,000,000 payable in installments as follows: (1)
$100,000 down payment within 30 days of execution, and (2)
$900,000 in 84 monthly installments of $14,027.59 each (inclusive
of interest at 8% per annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
Pursuant to a sales agreement dated May 18, 1994, RVDC
agreed to purchase an MRI scanner from the Company which RVDC is
planning to utilize at a site located in Orlando, Florida (the
"Orlando Center"). The sales agreement provides for a purchase
price of $1,000,000 payable in installments as follows: (1)
$100,000 within 30 days of execution, and (2) $900,000 in 84
monthly installments of $14,027.59 each (inclusive of interest at
8% per annum) pursuant to a promissory note to be executed by RVDC
upon acceptance of the scanner.
Pursuant to an agreement dated March 31, 1994, the
Company sold an MRI scanner to Ellwood City MRI Center Limited
Partnership, a Pennsylvania limited partnership of which RVDC is
the general partner. The sales agreement provided for a purchase
price of $400,000, the first $200,000 of which was paid subsequent
to the fiscal year end and the second $200,000 of which will be
paid by the transfer of RVDC's distributions until the sum of
$200,000 is reached. The partnership is utilizing the scanner to
set up an MRI scanning center in Ellwood City, Pennsylvania.
Pursuant to an agreement dated September 30, 1993,
Advanced Medical Diagnostics Corporation ("AMD"), a subsidiary of
FONAR, sold its interests in a partnership operating an MRI
scanning center in Southfield Michigan to RVDC for $600,000. The
purchase price is payable with interest at 10% per annum, over a
period of 48 months commencing October 1, 1993 as follows: $2,000
per month for the first year, $8,333.33 per month for the second
year, $16,666.67 per month for the third year and $20,909.91 for
the fourth and fifth years. The partnership is party to a service
agreement for the scanner at a current annual fee of $144,000, for
the period January 29, 1995 to January 28, 1996. For the prior
year, from January 29, 1994 to January 28, 1995, the fee also was
$144,000.
Pursuant to an agreement dated September 30, 1993, AMD
sold its interests in a partnership operating an MRI scanning
center in Melbourne, Florida to Melbourne Magnetic Resonance
Imaging, P.A. (the "Melbourne Center"), for a purchase price of
$150,000. The purchase price is payable, with interest at 10% per
annum, over a period of fifteen months commencing September 1,
1995 as follows: $13,500 per month for the first fourteen months
and $1,185.60 for the fifteenth month. The Melbourne Center is a
Florida professional corporation of which Raymond V. Damadian is
the sole stockholder, director and President. The partnership has
been party to a service agreement for the scanner at an annual fee
of $108,200 for the periods from May 19, 1994 to May 18, 1995 and
May 19, 1995 to May 18, 1996.
Pursuant to an agreement dated September 30, 1993, AMD
sold to Dade County MRI, P.A. (the "Dade County Center") its
interests in a partnership which had formerly operated an MRI
scanning center in Miami, Florida, but is now inactive. The
purchase price of $100,000 is payable, with interest at 10% per
annum, in sixty (60) equal consecutive monthly installments of
principal and interest (including interest accrued from September
30, 1993), commencing 90 days after the scanner is placed in
service. The Dade County Center is a Florida professional
association of which Raymond V. Damadian is the sole stockholder,
director and President.
Pursuant to an agreement dated December 31, 1993, AMD
sold its interests in a partnership operating an MRI scanning
center in San Francisco to RVDC. The purchase price of $265,000
is payable, with interest at 10% per annum, at the rate of
$9,405.88 per month over a period of 36 months commencing January
1, 1995. The partnership has been party to a service agreement
with the Company for the scanner at an annual fee of $110,384 for
the periods from March 20, 1995 to March 19, 1996 and March 20,
1994 to March 19, 1995.
Pursuant to an agreement dated December 31, 1993, AMD
sold its interest in a joint venture operating an MRI scanning
center in Philadelphia, Pennsylvania to Liberty MRI, P.C. (the
"Liberty Center"). The purchase price of $400,000 is payable,
with interest at 10% per annum, at a rate of $9,348.70 per month
over a period of 60 months commencing January 1, 1995. The
Liberty Center is a Pennsylvania professional corporation of which
Raymond V. Damadian is the sole stockholder, director and
President. The Liberty Center has been party to a service
agreement with the Company for the scanner at an annual fee of
$102,700 for the period from November 2, 1994 to November 1, 1995
and from November 2, 1993 to November 1, 1994.
West Palm Beach MRI, P.A. (the "West Palm Beach Center"),
a Florida professional association of which Raymond V. Damadian is
the sole stockholder, director and President, has been party to a
service agreement with the Company for its scanner at an annual
fee of $105,000 for the periods from March 1, 1994 to February 28,
1995 and March 1, 1995 to February 28, 1996.
In fiscal 1995, RVDC supported the Company and its
objectives by purchasing seven MRI scanners.
Pursuant to a sales agreement dated July 12, 1994,
RVDC agreed to purchase an MRI scanner from the Company which RVDC
is planning to utilize at a site located in Ft. Lauderdale,
Florida (the "Ft. Lauderdale Center"). The sales agreement
provides for a purchase price of $800,000 payable in installments
as follows: (1) $80,000 down payment within 30 days of execution
and (2) $720,000 in 84 monthly installments of $11,222.07 each
(inclusive of interest at 8% per annum) pursuant to a promissory
note to be executed by RVDC upon acceptance of the scanner.
Pursuant to a sales agreement dated July 12, 1994,
RVDC agreed to purchase an MRI scanner from the Company which RVDC
is planning to utilize at a site located in Leeds, England (the
"Leeds Center"). The sales agreement provides for a purchase
price of $800,000 payable in installments as follows: (1) $80,000
down payment within 30 days of execution and (2) $720,000 in 84
monthly installments of $11,222.07 each (inclusive of interest at
8% per annum) pursuant to a promissory note to be executed by RVDC
upon acceptance of the scanner.
Pursuant to a sales agreement dated October 1, 1994,
RVDC agreed to purchase an MRI scanner from the Company which RVDC
is planning to utilize at a site located in St. Petersburg,
Florida (the "St. Petersburg Center"). The sales agreement
provides for a purchase price of $800,000 payable in installments
as follows: (1) $80,000 down payment within 30 days of execution
and (2) $720,000 in 84 monthly installments of $11,222.07 each
(inclusive of interest at 8% per annum) pursuant to a promissory
note to be executed by RVDC upon acceptance of the scanner.
Pursuant to a sales agreement dated October 4, 1994,
RVDC agreed to purchase an MRI scanner from the Company which RVDC
is planning to utilize at a site located in Boca Raton, Florida
(the "Boca Raton Center"). The sales agreement provides for a
purchase price of $800,000 payable in installments as follows:
(1) $80,000 down payment within 30 days of execution and (2)
$720,000 in 84 monthly installments of $11,222.07 each (inclusive
of interest at 8% per annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
Pursuant to a sales agreement dated November 25,
1994, RVDC agreed to purchase an MRI scanner from the Company
which RVDC is planning to utilize at a site located in Birmingham,
England (the "Birmingham Center"). The sales agreement provides
for a purchase price of $800,000 payable in installments as
follows: (1) $80,000 down payment within 30 days of execution and
(2) $720,000 in 84 monthly installments of $11,222.07 each
(inclusive of interest at 8% per annum) pursuant to a promissory
note to be executed by RVDC upon acceptance of the scanner.
Pursuant to a sales agreement dated January 4, 1995,
RVDC agreed to purchase an MRI scanner from the Company which RVDC
is planning to utilize at a site located in Sarasota, Florida (the
"Sarasota Center"). The sales agreement provides for a purchase
price of $800,000 payable in installments as follows: (1) $80,000
down payment within 30 days of execution and (2) $720,000 in 84
monthly installments of $11,222.07 each (inclusive of interest at
8% per annum) pursuant to a promissory note to be executed by RVDC
upon acceptance of the scanner.
Pursuant to a sales agreement dated January 16,
1995, RVDC agreed to purchase an MRI scanner from the Company
which RVDC is planning to utilize at a site located in Largo,
Florida (the "Largo II Center"). The sales agreement provides for
a purchase price of $800,000 payable in installments as follows:
(1) $80,000 down payment within 30 days of execution and (2)
$720,000 in 84 monthly installments of $11,222.07 each (inclusive
of interest at 8% per annum) pursuant to a promissory note to be
executed by RVDC upon acceptance of the scanner.
In addition, pursuant to an agreement dated April 1,
1995, RVDC assigned its right to purchase an MRI scanner from a
third party for $85,000 and FONAR assumed the obligations of RVDC
under the agreement. RVDC also sold FONAR an MRI machine for
$23,000 pursuant to an agreement dated April 1, 1995.
For the year ended June 30, 1995 total receipts by the
Company from RVDC and its affiliates were $4,013,100, as compared
to receipts of $4,913,968 in fiscal 1994 and receipts in fiscal
1993 of $2,665,000.
RVDC executed and delivered to the Company a promissory
note, dated June 30, 1992 in the principal amount of $4,284,692
with interest thereon at the rate of 10% per annum, payable in
quarterly installments of interest only during the first year and
thereafter, amortized over a five-year period. The note
represented the indebtedness of RVDC to the Company incurred
during fiscal 1992 for lease payments, service contract fees,
management fees and reimbursable expenses and incorporated and
superseded the outstanding balance of the note to the Company from
RVDC dated June 30, 1991 in the principal amount of $1,996,100
(which was amortized over five years with interest at 10%). The
note is guaranteed by the Macon Center, Albany Center, Staten
Island Center, Deerfield Center, Daytona Beach Center and Melville
Center and is secured by certain assets of RVDC and the
guarantors. These security interests are in certain cases
subordinate to the security interests of unrelated lenders.
TMRI executed and delivered to the Company a promissory
note dated June 30, 1992 in the principal amount of $803,272,
with interest thereon at the rate of 10% per annum,
payable in quarterly installments of interest only during the
first year and thereafter, amortized over a five year period. The
note represents the indebtedness of TMRI to the Company during
fiscal 1992 for lease payments, service contract fees and
reimbursable expenses and incorporates and supersedes the
outstanding balance of the note to the Company from TMRI dated
June 30, 1991 in the principal amount of $169,200 (which was
amortized over five years with interest at 10%).
Pursuant to an agreement dated March 3, 1994, Network
MRI, Inc. ("Network") engaged the Company to disassemble,
transport and reinstall an MRI scanner purchased by Network from a
third party. Luciano Bonanni, the Executive Vice President of the
Company, is the President, director and shareholder of Network.
The agreement provides for a price of $120,000 payable as follows:
(1) $5,000 upon the giving of notice by Network to commence the
deinstallation, (2) $15,000 upon the completion of the
installation of the magnet and shielded room and (3) $100,000 in
36 monthly installments of $3,133.64 each (inclusive of interest
at 8% per annum) pursuant to a note executed upon completion of
the reinstallation.
Pursuant to an agreement dated June 20, 1994, MRI
Enterprises, Inc. ("Enterprises"), a New York corporation of which
Luciano Bonanni is the stockholder, director and President,
engaged the Company to disassemble, transport and reinstall an MRI
scanner purchased by Enterprises from a third party. The
agreement provided for a price of $120,000 payable as follows:
(1) $5,000 upon the giving of notice by Enterprises to commence
the deinstallation, (2) $15,000 upon the completion of the
installation of the magnet and shielded room and (3) $100,000 with
interest at 8% per annum pursuant to a note executed upon
completion of the reinstallation.
In addition, as of June 30, 1995, Enterprises assumed the
liability of a third party to FONAR which had defaulted in its
obligation to pay for service for an MRI scanner being provided by
Enterprises to the third party. The liability, in the amount of
$50,604.00 was assumed by Enterprises in exchange for FONAR
assigning the account receivable to Enterprises. The liability is
payable by Enterprises to FONAR amortized over a period of
thirty-six months with interest at 8% per annum commencing on
January 1, 1996.
Enterprises was indebted to the Company as at June 30,
1995, in the amount of $204,539 pursuant to a promissory note due
January 15, 1995 in the original principal amount of $324,235 with
interest at the rate of 10% per annum. The original principal
amount of this note represents the liability of a third party to
the Company for service and other items which was assumed by
Enterprises in connection with Enterprises' acquisition of an MRI
scanner and assumption of said party's finance lease covering the
scanner.
The aggregate indebtedness of Enterprises and Network to
the Company as at June 30, 1995 was $432,339.00.
Pursuant to an agreement dated August 3, 1993 MRI
Specialties, Inc. ("Specialties") engaged the Company to
deinstall, transport and reinstall an MRI scanner purchased from a
third party. Timothy Damadian, a Vice President of the Company,
is the stockholder, director and President of Specialities. The
agreement provides for a price of $120,000 payable in 36 monthly
installments of $3,760.36 each (inclusive of interest at 8% per
annum) pursuant to a note executed and delivered by Specialties
upon the completion of the reinstallation. The scanner is owned
by Canarsie MRI Associates ("Canarsie"), a joint venture
partnership of which Specialties is an owner, and Canarsie is
party to a service agreement for the scanner with the Company at
an annual fee of $70,000 for the period September 1, 1994 through
August 31, 1995 and $73,500 for the period September 1, 1995
through August 31, 1996. The annual fee for the following two
annual periods will not exceed $77,000 and $80,500, respectively.
The aggregate indebtedness of Specialties and Canarsie to
the Company as at June 30, 1995 was $142,925.00.
(Remainder of page intentionally left blank)
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
a) Financial Statements and Schedules
The following consolidated financial statements are
included in Part II, Item 8.
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets as at June 30, 1995 and
1994.
Consolidated Statements of Operations for the Three
Years Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity
for the Three Years Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Three
Years Ended June 30, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
The following consolidated financial statement schedules
are included in Item 14 (d).
Supplementary Schedules
Report of Independent Certified Public Accountants on
Schedules.
Information required by other schedules called for under
Regulation S-X is either not applicable or is included in the
consolidated financial statements or notes thereto.
b) Reports on Form 8-K
None.
c) Exhibits
3.1 Certificate of Incorporation, as amended, of the Company
incorporated herein by reference to Exhibit 3.1 to the
Registrant's registration statement on Form S-1, Commission File
No. 33-13365.
3.2 Article Fourth of the Certificate of Incorporation, as
amended, of the Company incorporated by reference to Exhibit 4.1
to the Registrant's registration statement on Form S-8, Commission
File No. 33-62099.
3.3 By-Laws, as amended, of the Company incorporated herein
by reference to Exhibit 3.2 to the Registrant's registration
statement on Form S-1, Commission File No. 33-13365.
4.1 Specimen Common Stock Certificate incorporated herein by
reference to Exhibit 4.1 to the Registrant's registration
statement on Form S-1, Commission File No. 33-13365.
4.2 Specimen Class B Common Stock Certificate incorporated
herein by reference to Exhibit 4.2 to the Registrant's
registration statement on Form S-1, Commission File No. 33-13365.
10.1 License Agreement between FONAR and Raymond V. Damadian
incorporated herein by reference to Exhibit 10 (e) to Form 10-K
for the fiscal year ended June 30, 1983, Commission File No.
0-10248.
10.2 1983 Nonstatutory Stock Option Plan incorporated herein
by reference to Exhibit 10 (a) to Form 10-K for the fiscal year
ended June 30, 1983, Commission File No. 0-10248, and amendments
thereto dated as of March 7, 1984 and dated August 22, 1984,
incorporated herein by referenced to Exhibit 28 (a) to Form 10-K
for the year ended June 30, 1984, Commission File No. 0-10248.
10.3 1984 Incentive Stock Option Plan incorporated herein by
reference to Exhibit 28 (c) to Form 10-K for the year ended June
30, 1984, Commission File No. 0-10248.
10.4 1986 Nonstatutory Stock Option Plan incorporated herein
by reference to Exhibit 10.7 to Form 10-K for the fiscal year
ended June 30, 1986, Commission File No. 0-10248.
10.5 1986 Stock Bonus Plan incorporated herein by reference
to Exhibit 10.8 to Form 10-K for the fiscal year ended June 30,
1986, Commission File No. 0-10248.
10.6 1986 Incentive Stock Option Plan incorporated herein by
reference to Exhibit 10.9 to Form 10-K for the fiscal year ended
June 30, 1986, Commission File No. 0-10248.
10.7 Lease Agreement, dated as of August 18, 1987, between
FONAR and Reckson Associates incorporated herein by reference to
Exhibit 10.26 to Form 10-K for the fiscal year ended June 30,
1987, Commission File No. 0-10248.
10.8 1993 Incentive Stock Option Plan incorporated herein by
reference to Exhibit 28.1 to the Registrant's registration
statement on Form S-8, Commission File No. 33-60154.
10.9 1993 Non-Statutory Stock Option Plan incorporated herein
by reference to Exhibit 28.2 to the Registrant's registration
statement on Form S-8, Commission File No. 33-60154.
10.10 1993 Stock Bonus Plan incorporated herein by reference
to Exhibit 28.3 to the Registrant's registration statement on Form
S-8, Commission File No. 33-60154.
10.11 1994 Non-Statutory Stock Option Plan incorporated
herein by reference to Exhibit 28.1 to the Registrant's
registration statement on Form S-8, Commission File No. 33-81638.
10.12 1994 Stock Bonus Plan incorporated herein by reference
to Exhibit 28.2 to the Registrant's registration statement on Form
S-8, Commission File No. 33-81638.
10.13 1995 Non-Statutory Stock Option Plan incorporated
herein by reference to Exhibit 28.1 to the Registrant's
registration statement on Form S-8, Commission File No. 33-62099.
10.14 1995 Stock Bonus Plan incorporated herein by reference
to Exhibit 28.2 to the Registrant's registration statement on Form
S-8, Commission File No. 33-62099.
11. Statement Re Computation Of Per Share Earnings. See
Exhibits.
22.1 Subsidiaries of the Registrant. Incorporated herein by
reference to Exhibit 22.1 Form 10-K for the fiscal year ended June
30, 1989, Commission File No. 0-10248.
d) Financial Statement Schedules
[See pages S-1 through S-3]
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors
FONAR Corporation and Subsidiaries
In connection with our audit of the consolidated financial
statements of FONAR Corporation and Subsidiaries as at June
30, 1995 and 1994, and for the years in the three-year period
ended June 30, 1995, we have also audited the supplemental
schedules listed in the accompanying index to consolidated
financial statements and schedules. Our audit was made for
the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. These schedules are
presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations under the
Securities Exchange Act of 1934 and are not otherwise a
required part of the basic consolidated financial statements.
The supplemental schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth
therein in relation to the basic consolidated financial
statements taken as a whole.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
November 3, 1995
S-1
<PAGE>
<TABLE>
FONAR CORPORATION AND SUBSIDIARIES
SCHEDULE II - ACCOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS
FOR THE THREE YEARS ENDED JUNE 30, 1995
<CAPTION>
Deductions Balance
------------------------------- At End of Period
Balance At Amounts -------------------------------
Beginning Amounts Written Non-
Name of Debtor of Period Additions Collected Off Current Current
-------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended June 30, 1993:
Diagnostic Imaging Corp. $ 226,113 $1,096,686 (b) $1,168,155 $ - $ 154,644 $ -
MRI Enterprises, Inc. 112,032 1,132,091 (c) 1,222,484 - 21,639 -
L. Bonanni 44,525 120,468 44,525 - 120,468 (a) -
For the Year Ended June 30, 1994:
Diagnostic Imaging Corp. $ 154,644 $5,271,621 (d) $5,175,878 $ - $ 250,387 $ -
MRI Enterprises, Inc. 21,639 3,287,750 (e) 3,180,172 - 129,217 -
L. Bonanni 120,468 - 18,768 - 101,700 (a) -
For the Year Ended June 30, 1995:
Diagnostic Imaging Corp. $ 250,387 $ 389,050 $ 639,437 $ - $ - $ -
MRI Enterprises, Inc. 129,217 4,026,488 3,738,214 - 417,491 -
L. Bonanni 101,700 107,344 25,969 - 183,075 -
(a)Remaining balances on note receivable (with interest at 10%) for
exercise of options to purchase shares of common stock. These notes are
included in the accompanying consolidated balance sheets under the
caption "Notes receivable from stockholders".
(b)Note receivable, with interest at 12% (which was paid in full in
the first quarter of fiscal 1994) for exercise of options and
purchase of 850,000 shares of common stock by a company in which
an officer of the Company was a director. The note is included in the
accompanying consolidated balance sheets under the caption "Notes
receivable from stockholders".
(c)Note receivable, with interest at 12% (which was paid in full in the
first quarter of fiscal 1994) for exercise of options and purchase of
830,000 shares of common stock by a company owned by an officer of the
Company. The note is included in the accompanying consolidated balance
sheets under the caption "Notes receivable from stockholders".
(d)Note receivable with interest at 10% (which was paid in full in the first
quarter of fiscal 1995) for exercise of options and purchase of
2,975,000 shares of common stock by a company in which an officer of
the Company was a director. The note is included in the accompanying
consolidated balance sheets under the caption "Notes receivable from
stockholders".
(e)Note receivable with interest at 10% (which was paid in full in the
first quarter of fiscal 1995) for exercise of options and purchase of
1,850,000 shares of common stock by a company owned by an officer of
the Company. The note is included in the accompanying consolidated
balance sheets under the caption "Notes receivable from stockholders".
S-2
</TABLE>
<PAGE>
<TABLE>
FONAR CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1995
<CAPTION>
Balance At Balance At
Beginning Additions Other End of
Description of Period At Cost Deletions Add (Deduct) Period
----------- ---------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
For the Year Ended June 30, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts in accounts receivable $ 1,876,061 $ 360,297 $ - $ (122,095) (a) $ 2,114,263
Allowance for doubtful accounts in notes receivable - current 450,000 150,000 - - 600,000
Allowance for doubtful accounts in accounts receivable
and investments in affiliates 1,250,000 - - - 1,250,000
Allowance for possible losses - net investment in sales-type
leases 115,000 - - - 115,000
Accumulated amortization of other intangible assets 5,700,346 121,416 - - 5,821,762
Accumulated amortization of capitalized software
development costs 2,595,154 1,127,592 - - 3,722,746
--------- ---------- ----- ----------- -----------
11,986,561 $1,759,305 $ - $ (122,095) $13,623,771
---------- ---------- ----- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
FONAR CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1995
<CAPTION>
Balance At Balance At
Beginning Additions Other End of
Description of Period At Cost Deletions Add (Deduct) Period
----------- ----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
For the Year Ended June 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts in accounts receivable $ 2,114,263 $ 287,310 $(77,020) $- $ 2,324,553
Allowance for doubtful accounts in notes receivable - current 600,000 108,411 - - 708,411
Allowance for doubtful accounts in accounts receivable
and investments in affiliates 1,250,000 - - - 1,250,000
Allowance for possible losses - net investment in sales-type
leases 115,000 - - - 115,000
Accumulated amortization of other intangible assets 5,821,762 203,266 - - 6,025,028
Accumulated amortization of capitalized software
development costs 3,722,771 1,168,416 (287,596) - 4,603,566
----------- ---------- ---------- ------ -----------
$13,623,771 $1,767,403 $(364,616) - $15,026,558
---------- ---------- ---------- ------ -----------
</TABLE>
<PAGE>
<TABLE>
FONAR CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1995
<CAPTION>
Balance At Balance At
Beginning Additions Other End of
Description of Period At Cost Deletions Add (Deduct) Period
----------- ----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
For the Year Ended June 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts in accounts receivable $ 2,324,553 $ 116,514 $ - $- $ 2,441,067
Allowance for doubtful accounts in notes receivable - current 708,411 - - - 708,411
Allowance for doubtful accounts in accounts receivable
and investments in affiliates 1,250,000 - - - 1,250,000
Allowance for possible losses - net investment in sales-type
leases 115,000 - - - 115,000
Accumulated amortization of other intangible assets 6,025,028 176,276 (169,163) - 6,032,141
Accumulated amortization of capitalized software
development costs 4,603,566 1,255,012 - - 5,858,578
----------- ---------- ---------- ------- -----------
$15,026,558 $1,547,802 $(169,163) $- $16,405,197
----------- ---------- ---------- ------ -----------
(a) Uncollectible accounts writtten-off
S-3
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Dated: November 7, 1995
By: /s/ Raymond Damadian
Raymond V. Damadian,
President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Raymond Damadian Chairman of the November 7, 1995
Raymond V. Damadian Board of Directors,
President and a
Director (Principal
Executive Officer)
/s/ Claudette J.V. Chan Director November 7, 1995
Claudette J.V. Chan
/s/ Robert J. Janoff Director November 7, 1995
Robert J. Janoff
/s/ Herbert Maisel Director November 7, 1995
Herbert Maisel
<PAGE>
<TABLE>
FONAR CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON STOCK
EXHIBIT 11
<CAPTION> WEIGHTED AVERAGE NUMBER OF SHARES
NUMBER OF FOR THE YEARS ENDED
SHARES ALLOCATION ------------------------------------
ISSUED RATIO JUNE 30, JUNE 30, JUNE 30,
1995 1994 1993
-------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NUMBER OF SHARES OUTSTANDING 34,430,329 28,367,408 24,934,833
AT BEGINNING OF YEAR
JULY 1 - SEPTEMBER 30 2,035,500 322 / 365 1,793,114
1,366,500 313 / 365 1,172,270
572,500 315 / 365 494,540
OCTOBER 1 - DECEMBER 31 1,539,700 234 / 365 988,800
1,333,200 235 / 365 858,928
558,575 235 / 365 360,083
JANUARY 1 - MARCH 31 1,600,000 135 / 365 591,233
1,345,875 145 / 365 533,451
899,500 114 / 365 280,810
APRIL 1 - JUNE 30 1,817,375 55 / 365 275,062
2,017,346 44 / 365 245,055
1,402,000 49 / 365 188,482
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING @ JUNE 30
BEFORE STOCK DIVIDEND 38,078,538 31,177,112 26,258,748
LESS : CLASS B COMMON STOCK (3,194,556) (3,202,189) (3,202,189)
WEIGHTED AVERAGE NUMBER OF SHARES AVAILABLE FOR STOCK
DIVIDEND 34,883,982 27,974,923 23,056,559
STOCK DIVIDEND - CLASS A NON-VOTING PREFERRED STOCK
( 1 SHARE OF PREFERRED STOCK FOR 5 SHARES OF COMMON STOCK) 41,860,778 33,569,908 27,667,871
CLASS B COMMON STOCK 3,194,556 3,202,189 3,202,189
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING @ JUNE 30 45,055,334 36,772,097 30,870,060
NET (LOSS) INCOME (1,762,971) (334,574) 238,283
NET (LOSS) INCOME PER WEIGHTED AVERAGE SHARE OUTSTANDING (0.04) (0.01) 0.01
</TABLE>
