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 MARCH 31, 1996 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 March 31, 1996
- -------------------------------- ---------------------------------------
Common Stock, par value $.0001 41,799,813
Class B Common Stock, par value $.0001 5,848
Class C Common Stock, par value $.0001 9,562,824
Class A Preferred Stock, par value $.0001 7,855,627
Page 1
FONAR CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1996
and June 30, 1995 3
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1996 and
March 31, 1995 4
Condensed Consolidated Statements of Operations for
the Nine Months Ended March 31, 1996 and
March 31, 1995 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1996 and
March 31, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION 11
Page 2
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED)
ASSETS March 31, June 30,
1996 1995
(UNAUDITED)
Current Assets: ---------- -------
Cash $ 4,795 $ 3,267
Accounts and notes receivable, net of allowance
for doubtful accounts of $ 1,692 1,797 1,797
Accounts receivable from affiliates 400 400
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note C) 651 324
Inventories (Note B) 2,846 2,295
Other current assets 800 1,483
----- ------
Total current assets 11,289 9,566
----- ------
Assets held for resale 598 598
Property and equipment, at cost 13,311 13,416
Less accumulated depreciation and amortization (11,090) (10,630)
-------- --------
2,221 2,786
Investment in and receivables from affiliates,
net of allowance of $ 1,250 31,150 23,940
Cost of acquired technology and license, patents
and software development costs, net 4,439 5,084
Net investment in sales-type leases 5,661 4,962
Costs and estimated earnings in excess of billings
on uncompleted contracts (Note C) 5,996 6,681
Other assets 1,855 1,327
------ ------
$ 63,209 $ 54,944
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 100 $ 100
Current maturities of long-term debt and
capital lease obligations 2,906 3,252
Accounts payable 1,170 1,595
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note C) 170 11
Accrued expenses, customer advances and
other current liabilities 9,208 9,685
------ ------
Total current liabilities 13,554 14,643
------ ------
Long-term debt and capital lease obligations
less current maturities 792 529
Other liabilities 69 99
------ ------
861 628
------ ------
Minority interest 147 285
------ ------
Stockholders' Equity (Note D) 48,647 39,388
------ ------
$ 63,209 $ 54,944
====== ======
See notes to condensed consolidated financial statements.
Page 3
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(000's OMITTED, except per share data)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
REVENUES $ 3,047 $ 3,181
-------- --------
COSTS AND EXPENSES:
Cost of revenues 2,355 1,449
Research and development 888 735
Selling, general and administrative 2,214 2,083
-------- --------
Income (loss) from operations ( 2,410) ( 1,086)
Other income, net 4,257 118
------- -------
Income (loss) before provision for income taxes
and minority interest 1,847 ( 968)
Provision for income taxes - -
------- -------
Income (loss) before minority interest 1,847 ( 968)
------- -------
Minority interest in net loss (income) of
subsidiary and partnership 44 65
-------- ------
NET INCOME (LOSS) $ 1,891 $( 903)
======== ======
Net Income per common share:
Income (loss) before minority interest $ .04 $( .02)
Minority interest .00 .00
------ ------
Net Income per common share $ .04 $( .02)
====== ======
Weighted average number of common shares outstanding 51,368 39,606
====== ======
See notes to condensed consolidated financial statements.
Page 4
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(000's OMITTED, except per share data)
FOR THE NINE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
REVENUES $ 11,061 $ 11,759
-------- --------
COSTS AND EXPENSES:
Cost of revenues 6,697 5,251
Research and development 2,511 2,378
Selling, general and administrative 6,142 5,926
-------- --------
Loss from operations ( 4,289) ( 1,796)
Other income, net 4,795 597
-------- --------
Income (loss) before provision for income taxes
and minority interest 506 ( 1,199)
Provision for income taxes - -
-------- -------
Income (loss) before minority interest 506 ( 1,199)
Minority interest in net loss (income) of
subsidiary and partnership 138 174
-------- -------
NET INCOME (LOSS) $ 644 $( 1,025)
======== =======
Net Income per common share:
Income (loss) before minority interest $ .01 $( .03)
Minority interest .00 .00
------- ------
Net Income per common share $ .01 $( .03)
======= ======
Weighted average number of common shares outstanding 51,368 39,606
====== ======
See notes to condensed consolidated financial statements.
Page 5
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)
FOR THE NINE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
------ ------
Operating activities:
Net Income (Loss) $ 644 $( 1,025)
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in net income (loss) ( 138) ( 174)
Depreciation and amortization 1,876 1,742
(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 ( 210) ( 3,478)
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 ( 773) ( 1,394)
-------- --------
Net cash provided by used in operating activities 1,399 ( 4,329)
-------- --------
Investing activities:
Purchases of property and equipment,
net of capital lease obligations ( 91) ( 31)
Investment in and receivables from affiliates ( 6,799) ( 2,601)
Cost of acquired technology and license,
patents and software development costs ( 434) ( 751)
-------- --------
Net cash (used by) investing activities ( 7,324) ( 3,383)
-------- --------
Financing activities:
Proceeds from borrowings, net
of capital lease obligations - -
Repayment of borrowings and capital
lease obligations ( 635) ( 1,470)
Decrease in investment in sales-type leases - 962
Collection of principal on sales-type leases - 284
Issuance of common stock and warrants and
collection of stockholder notes, net 8,615 7,858
(Increase) Decrease in other assets ( 528) 43
-------- --------
Net cash provided by financing activities 7,452 7,677
-------- --------
Increase (Decrease) in Cash 1,527 ( 35)
Cash at beginning of period 3,268 577
------- -------
Cash at end of period $ 4,795 $ 542
======= =======
See notes to condensed consolidated financial statements.
Page 6
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
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 nine months ended March 31, 1996 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)
-------------------
March 31, June 30,
1996 1995
------- -------
Purchased parts components and supplies $ 2,734 $ 2,205
Work in process 112 90
------- -------
$ 2,846 $ 2,295
======= =======
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts are comprised of: (000's OMITTED)
--------------------
March 31, June 30,
1996 1995
------- -------
Costs incurred on uncompleted contracts $ 1,443 $ 4,373
Estimated earnings 6,032 5,053
------- -------
7,475 9,426
Less: billings to date ( 998) ( 2,432)
--------- --------
$ 6,477 $ 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 $ 651 $ 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 ( 170) ( 11)
------- -------
$ 6,477 $ 6,994
======= =======
Page 7
NOTE D - STOCKHOLDERS' EQUITY
(000'S OMITTED)
Stockholders' Equity is comprised of: ---------------------------
March 31, June 30,
1996 1995
------------- -----------
Common Stock $.0001 par value; 50,000,000
shares authorized; 41,799,813 outstanding
at March 31 and 38,229,448 at June 30. $ 4 $ 4
Class B Common Stock $ .0001 par value;
4,000,000 shares authorized, 5,848 outstanding
at March 31 and 3,193,456 at June 30. - -
Class C Common Stock $.0001 par value;
10,000,000 shares authorized, 9,562,824
outstanding at March 31. 1 -
Class A non-voting Preferred Stock $.0001 par
value; 8,000,000 shares authorized, 7,855,627
outstanding at March 31. 1 1
Additional paid-in capital 72,872 63,779
Accumulated deficit (21,460) (22,104)
Notes receivable - stockholders ( 2,376) ( 1,897)
Treasury stock - 108,864 shares ( 395) ( 395)
------- -------
$ 48,647 $ 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
($14.4 million:$48.6 million) as at March 31, 1996. This change in the
Company's capitalization resulted from a combination of an increase in
capital stock (approximately 9.2 million) and a decrease of approximately
$.9 million in current liabilities and a net income for the quarter.
Page 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the first nine months of fiscal 1996, the Company reported a net
income of $644,000 on revenues of $11.0 million as compared to a net loss
of $1.0 million on revenues of $11.8 million for the corresponding period of
the prior fiscal year.
For the third quarter of fiscal 1996, the Company reported a net income
of $1.9 million on revenues of approximately $3.0 million, as compared to a
net loss of $903,000 on revenues of approximately $3.2 million for the
corresponding period for the prior fiscal year.
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. 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 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.
The Company has continued its efforts to increase scanner sales in
foreign countries as well as domestically. 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 9
Liquidities and Capital Resources
At March 31, 1996, the Company's liquidity and capital resources
positions changed from the June 30, 1995 position as follows:
March 31, June 30,
1996 1995 Change
Working capital ------------- ---------- ----------
(deficiency) ($ 2,240,000) ($ 5,077,000) $2,837,000
Total liabilities were reduced since June 30, 1995 by approximately
$881,000 to approximately $14.4 million.
As of March 31, 1996, 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 March 31,
1996 interest bearing debt was further reduced by $635,000 to approximately
$3.2 million.
While continuing to focus on new sources of income and cost containment,
the Company's business plan is also re-emphasizing 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 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
Philips Electronics N.V., Philips Electronic North America
Corporation, Philips Medical Systems North America and U.S. Philips
Corporation (collectively "Philips")
In May 1995, the Company commenced an action against Philips for patent
infringement, and Philips in turn commenced actions against the Company
seeking a declaratory judgment that two of the Company's patents were
invalid and for infringement of two of Philips' patents. In March 1996 the
actions were resolved amicably between the parties, and the settlement
involved a monetary payment to the Company.
There were no other material changes in litigation for the third 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 11
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: May 13, 1996 By: /s/ Raymond V. Damadian
Raymond V. Damadian
President & Chairman
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,795
<SECURITIES> 0
<RECEIVABLES> 3,489
<ALLOWANCES> 1,692
<INVENTORY> 2,846
<CURRENT-ASSETS> 11,289
<PP&E> 13,311
<DEPRECIATION> 11,090
<TOTAL-ASSETS> 63,209
<CURRENT-LIABILITIES> 13,554
<BONDS> 792
0
1
<COMMON> 5
<OTHER-SE> 48,641
<TOTAL-LIABILITY-AND-EQUITY> 63,209
<SALES> 6,072
<TOTAL-REVENUES> 11,061
<CGS> 4,008
<TOTAL-COSTS> 6,697
<OTHER-EXPENSES> 2,511
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 307
<INCOME-PRETAX> 506
<INCOME-TAX> 0
<INCOME-CONTINUING> 506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
