SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995 Commission File Number 0-10248
FONAR CORPORATION
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2464137
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 Marcus Drive Melville, New York 11747
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 694-2929
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at September 30, 1995
- -------------------------------- ---------------------------------------
Common Stock, par value $.0001 39,217,198
Class B Common Stock,
par value $.0001 3,193,456
page 1
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1995
and June 30, 1995 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 1995 and
September 30, 1994 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1995 and
September 30, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION 10
page 2
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED)
ASSETS September 30, June 30,
1995 1995
(UNAUDITED)
Current Assets: --------- -------
Cash $ 1,833 $ 3,267
Accounts receivable, net of allowance
for doubtful accounts of $ 604 1,755 1,797
Accounts receivable from affiliates 400 400
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note C) 305 324
Inventories (Note B) 2,541 2,295
Other current assets 1,222 1,483
------ ------
Total current assets 8,056 9,566
====== ======
Assets held for resale 598 598
------ ------
Property and equipment, at cost 12,706 13,416
Less accumulated depreciation and amortization (10,476) (10,630)
-------- --------
2,230 2,786
Investment, advances and notes to affiliates and
related parties, net of allowance of $ 1,250 27,532 23,940
Cost of acquired technology and license, patents
and software development costs, net 4,832 5,084
Net investment in sales-type leases 5,171 4,962
Costs and estimated earning in excess of billings
on uncompleted contracts (Note C) 5,996 6,681
Other assets 1,810 1,327
------ ------
$ 56,225 $ 54,944
LIABILITIES AND STOCKHOLDERS' EQUITY ====== ======
Current Liabilities:
Notes payable $ 100 $ 100
Current maturities of long-term debt and
capital lease obligations 3,058 3,252
Accounts payable 1,449 1,595
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note C) - 11
Accrued expenses, customer advances and
other current liabilities 8,995 9,685
------ ------
Total current liabilities 13,602 14,643
====== ======
Long-term debt and capital lease obligations
less current maturities 456 529
Other liabilities 89 99
------ ------
545 628
------ ------
Minority interest 243 285
------ ------
Stockholders' Equity (Note D) 41,835 39,388
------ ------
$ 56,225 $ 54,944
====== ======
See notes to condensed consolidated financial statements.
page 3
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(000's OMITTED, except per share data)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
REVENUES $ 4,343 $ 4,906
-------- --------
COSTS AND EXPENSES:
Cost of revenues 2,190 2,274
Research and development 847 797
Selling,general and administrative 1,999 2,115
-------- --------
Income (loss) from operations ( 693) ( 280)
Other income 281 124
------- -------
Loss before provision for taxes and
minority interest ( 412) ( 156)
Provision for income and franchise taxes - -
------- -------
Minority interest in net loss (income) of
subsidiary and partnership 42 84
------- -------
NET LOSS $( 370) $( 72)
======= =======
Net Income per common share:
Loss before taxes & minority interest $ .01 $ .00
Minority interest .00 .00
------ ------
Net Loss per common share $ .01 $ .00
====== ======
Weighted average number of common shares outstanding 42,411 36,466
====== ======
See notes to condensed consolidated financial statements.
page 4
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FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1994
------ ------
Operating activities:
Net (Loss) Income $( 370) $( 72)
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in net income (loss) ( 42) ( 84)
Depreciation and amortization 478 540
(Increase) decrease in operating assets, net:
accounts and notes receivable, inventories,
other current assets, costs and estimated
earnings in excess of billings on uncompleted
contracts and assets held for resale 535 ( 1,556)
Increase (decrease) in operating liabilities,
net: accounts payable, accrued expenses and
other current liabilities, billings in excess
of costs and estimated earnings on uncompleted
contracts, and other liabilities ( 857) ( 398)
------ ------
Net cash used in operating activities ( 256) ( 1,570)
------- ------
Investing activities:
Purchases of property and equipment,
net of capital lease obligations ( 38) ( 9)
Investment, advances and notes to
affiliates and related parties (3,181) ( 914)
Cost of acquired technology and license,
patents and software development costs, net ( 43) ( 526)
------ ------
Net cash used by investing activities (3,262) ( 1,449)
------ ------
Financing activities:
Proceeds from borrowings, net
of capital lease obligations 0 0
Repayment of borrowings and capital
lease obligations ( 267) ( 678)
Decrease in investment in sales-type leases - 962
Collection of principal on sales-type leases 17 160
Issuance of common stock and warrants and
collection of stockholder notes, net 2,817 2,529
Decrease (Increase) in other assets ( 483) 7
------ ------
Net cash provided by financing activities 2,084 2,980
------ ------
Decrease in Cash ( 1,434) ( 39)
Cash at beginning of period 3,267 577
------ ------
Cash at end of period $ 1,833 $ 538
====== ======
See notes to condensed consolidated financial statements.
Page 5
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10Q and
Article 10 of Regulation S-K. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
adjusting accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 30, 1995
are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1996. For further information, refer to the
Company's consolidated report on Form 10-K for the fiscal year ended June
30, 1995.
NOTE B - INVENTORIES
The components of inventory consist of: (000's OMITTED)
------------------
September 30, June 30,
1995 1995
------- -------
Purchased parts components and supplies $ 2,441 $ 2,205
Work in process 100 90
------- -------
$ 2,541 $ 2,295
======= =======
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts are comprised of: (000's OMITTED)
--------------------
September 30, June 30,
1995 1995
------- -------
Costs incurred on uncompleted contracts $ 3,900 4,373
Estimated earnings 4,707 5,053
------- -------
8,607 9,426
Less: billings to date ( 2,306) ( 2,432)
------- -------
$ 6,301 $ 6,994
======= =======
Uncompleted contracts have been individually
netted and are reported as follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts -
short term $ 305 $ 324
Costs and estimated earnings in excess of
billings on uncompleted contracts - long term 5,996 6,681
Billings in excess of costs and estimated
earnings on uncompleted contracts ( -) ( 11)
------- -------
$ 6,301 $ 6,994
======= =======
page 6
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NOTE D - STOCKHOLDERS' EQUITY
(000'S OMITTED)
Stockholders' Equity is comprised of: ---------------------------
September 30, June 30,
1995 1995
------------- -----------
Common Stock $.0001 par value; 50,000,000
shares authorized; 33,271,272 outstanding
at September 30 and 31,235,773 at June 30. $ 4 $ 4
Class B Common Stock $ .0001 par value;
4,000,000 shares authorized, 3,194,556
outstanding at September 30 and at June 30. - -
Class A non-voting Preferred Stock $.0001 par
value; 7,624,117 outstanding at September 30
and at June 30. (Reflects stock dividend approved
on April 3, 1995 and issued on October 20, 1995) 1 1
Additional paid-in capital 66,662 63,779
Accumulated deficit (22,474) (22,104)
Notes receivable - stockholders ( 1,963) ( 1,897)
Treasury stock - 108,864 shares ( 395) ( 395)
------- -------
$ 41,835 $ 39,388
======= =======
NOTE E - CHANGES IN CAPITALIZATION
The Company's debt to equity ratio changed from approximately 3:8
($15.3 million :$39.4 million) as at June 30, 1995 to approximately
1:3 ($14.1 million:$41.8 million) as at September 30, 1995. This change
in the Company's capitalization results from a combination of an increase
in capital stock (approximately $2.9 million) and a decrease of
approximately $1.2 million in the Company's current liabilities.
page 7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the first three months of fiscal 1996, the Company reported a net
loss of $370,000 on revenues of $4.3 million as compared to net loss of
$ 72,000 on revenues of $4.9 million for the corresponding period of the
prior fiscal year.
The Company continues to benefit from the programs the Company set in
motion in fiscal 1989; namely strict cost containment initiatives, the
redirecting of corporate business into other profitable enterprises within
the MRI industry and the paying down of interest bearing debt.
The Company has received FDA approval for its "Quad 7000" and "Quad
12000" MRI scanners and has commenced selling. These products, together
with other research and development projects are intended to significantly
improve the Company's competitive position. The Quad scanners are highly
competitive and totally new non-claustrophobic scanners not previously
available in the MRI market. The 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 Company expects vigorous
sales from its new products.
The exceptional versatility and productivity of MRI technology creates
the impetus for new uses. As a result, dramatic new features are developed
and sold to the Company's customer base thereby extending the useful life of
their equipment, avoiding obsolescence and minimizing capital expenditures.
Upgrades consist of hardware, software and pulse sequences designed to
maximize throughput while maintaining image quality and patient comfort.
Accordingly, during the current fiscal year, the Company has continued
the program for upgrading previously installed scanners. In conjunction
with this program, significant research and development programs were
undertaken, emphasizing 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 upgrade revenue as customers
upgrade their existing scanners to take advantage of the improved image
quality and high speed image processing capabilities.
As part of its marketing program, the Company attended the industry's
annual trade show, RSNA (Radiological Society of North America) in November
1995, where its new Quad 12000 and Quad 7000 scanners were enthusiastically
received. The Company believes that it is uniquely positioned to take
advantage of the rapidly expanding "Open MRI" market. The Company now is
uniquely positioned as the manufacturer of the only high-field "Open MRI" in
the industry. The Company expects marked demand for this product since
image quality increases as a direct proportion to magnetic field strength.
The demand for "Open MRI" is very strong but the industry reputation of
these magnets has been hampered by their weak magnetic field strengths and
impaired image quality. Fonar's .6 Tesla Quad 12000, recently FDA approved,
cures this limitation. In addition, the Company's new scanners provide
improved image quality and high speed imaging at costs that are
significantly less than the competition and more in keeping with the medical
cost reduction demands being made by our national leaders on behalf of the
public.
In fiscal 1992, the Company began laying the ground work for increased
scanner sales in foreign countries as well as domestically. The Company has
continued these efforts, 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 revenue.
page 8
<PAGE>
Liquidities and Capital Resources
At September 30, 1995, the Company's liquidity and capital resources
positions changed from the June 30, 1995 position as follows:
September 30, June 30,
1995 1995 Change
------------- -------- --------
Working capital
(deficiency) ($ 5,546,000) ($ 5,077,477) ($ 468,595)
Total liabilities were reduced since June 30, 1995 by approximately $1.2
million to approximately $14.1 million.
As of September 30, 1995, the Company had no unused credit facilities
with banks or financial institutions.
Since June 1989, a principal objective of the Company has been to reduce
and ultimately eliminate its debt. Since the inception of the plan,
interest bearing debt was reduced from $23.1 million in fiscal 1989 to $18.5
million in fiscal 1990. From June 30, 1990 through June 30, 1991, interest
bearing debt was reduced by an additional $3.3 million to $15.2 million and
from June 30, 1991 through June 30, 1992 interest bearing debt was reduced
by an additional $3.1 million to $12.1 million. From June 30, 1992 through
June 30, 1993, interest bearing debt was reduced by $ 2.3 million to $ 9.8
million, and from June 30, 1993 to June 30, 1994 by $ 3.8 million to 6.0
million. Through June 30, 1995, interest bearing debt was reduced by an
additional $2.1 million to approximately $3.9 million and through September
30, 1995 interest bearing debt was further reduced by $ 300,000 to
approximately $3.6 million.
While continuing to focus on new sources of income and cost containment,
the Company's business plan, initiated in 1989, will also re-emphasize MRI
scanner sales with the new Quad scanners.
The Company expects to reduce its working capital deficiency during the
current fiscal year by internally generated cash from operating profits and
the refinancing and/or restructuring of maturity terms of certain loans.
The Company will also pursue equity financing alternatives.
The Company believes that the above mentioned programs will provide the
cash flows needed to achieve the sales, service and production levels
necessary to support its operations.
page 9
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There were no material changes in litigation for the first quarter of
fiscal 1996 from that described in Form 10-K for the fiscal year ended June
30, 1995.
Item 2 - Changes in Securities: None
Item 3 - Defaults Upon Senior Securities: None
Item 4 - Submission of Matters to a Vote of Security Holders: None
Item 5 - Other Information: None
Item 6 - Exhibits and Reports on Form 8-K: None
page 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FONAR CORPORATION
(Registrant)
Dated: December 21, 1995 By: /s/ Raymond Damadian
Raymond Damadian
President
page 11
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 1,833
<SECURITIES> 0
<RECEIVABLES> 2,359
<ALLOWANCES> 604
<INVENTORY> 2,541
<CURRENT-ASSETS> 8,056
<PP&E> 12,706
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<COMMON> 4
0
0
<OTHER-SE> 41,831
<TOTAL-LIABILITY-AND-EQUITY> 56,225
<SALES> 2,579
<TOTAL-REVENUES> 4,343
<CGS> 1,408
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<OTHER-EXPENSES> 847
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