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, 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
incorporation or organization) Identification No.)
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, 1996
- ------------------------------------------------------------------
Common Stock, par value $.0001 44,089,251
Class B Common Stock, par value $.0001 5,411
Class C Common Stock, par value $.0001 9,562,824
Class A Preferred Stock, par value $.0001 7,855,627
<PAGE> - Page 2 -
FONAR CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1996
and June 30, 1996 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 1996 and
September 30, 1995 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1996 and
September 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION 9
<PAGE> - Page 3 -
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED)
ASSETS September 30, June 30,
1996 1996
(UNAUDITED)
Current Assets: --------- -------
Cash $ 2,564 $ 3,712
Accounts receivable, net of allowance
for doubtful accounts of $ 713 1,740 1,797
Accounts receivable from affiliates 400 400
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note C) 305 336
Inventories (Note B) 4,769 3,624
Other current assets 1,413 1,595
------ ------
Total current assets 11,191 11,464
====== ======
Assets held for resale 450 450
------ ------
Property and equipment, at cost 13,898 13,820
Less accumulated depreciation and amortization (11,484) (11,319)
-------- --------
2,414 2,501
Investment, advances and notes to affiliates and
related parties, net of allowance of $ 1,250 28,598 28,353
Cost of acquired technology and license, patents
and software development costs, net 4,302 4,460
Net investment in sales-type leases 5,453 5,519
Costs and estimated earning in excess of billings
on uncompleted contracts (Note C) 9,460 9,460
Other assets 1,043 889
------ ------
$ 62,911 $ 63,096
LIABILITIES AND STOCKHOLDERS' EQUITY ====== ======
Current Liabilities:
Notes payable $ 100 $ 100
Current maturities of long-term debt and
capital lease obligations 2,858 2,909
Accounts payable 1,661 1,748
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note C) 54 170
Accrued expenses, customer advances and
ot0er current liabilities 8,867 8,892
------ ------
Total current liabilities 13,540 13,819
====== ======
Long-term debt and capital lease obligations
less current maturities 814 963
Other liabilities 49 59
------ ------
863 1,022
------ ------
Minority interest 67 117
------ ------
Stockholders' Equity (Note D) 48,441 48,138
------ ------
$ 62,911 $ 63,096
See notes to condensed consolidated financial statements. ====== ======
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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,
---------------------
1996 1995
-------- --------
REVENUES $ 2,588 $ 4,343
-------- --------
COSTS AND EXPENSES:
Cost of revenues 1,963 2,190
Research and development 919 847
Selling,general and administrative 2,044 1,999
-------- --------
Loss from operations ( 2,338) ( 693)
Other income 265 281
------- -------
Loss before provision for taxes and
minority interest ( 2,073) ( 412)
Provision for income and franchise taxes - -
------- -------
Minority interest in net loss (income) of
subsidiary and partnership 50 42
------- -------
NET LOSS $( 2,023) $( 370)
======= =======
Net Loss per common share:
Loss before taxes & minority interest $( .04) $( .01)
Minority interest .00 .00
------ ------
Net Loss per common share $( .04) $( .01)
====== ======
Weighted average number of common shares outstanding 55,138 42,411
====== ======
See notes to condensed consolidated financial statements.
<PAGE> - Page 5 -
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------ ------
Operating activities:
Net Loss $( 2,023) $( 370)
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in net income (loss) ( 50) ( 42)
Depreciation and amortization 399 478
(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 ( 866) 535
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 ( 238) ( 857)
------ ------
Net cash used by operating activities ( 2,778) ( 256)
------- ------
Investing activities:
Purchases of property and equipment,
net of capital lease obligations ( 58) ( 38)
Investment, advances and notes to
affiliates and related parties ( 245) ( 3,181)
Cost of acquired technology and license,
patents and software development costs, net ( 76) ( 43)
------ ------
Net cash used by investing activities ( 379) ( 3,262)
------ ------
Financing activities:
Proceeds from borrowings, net
of capital lease obligations 0 0
Repayment of borrowings and capital
lease obligations ( 220) ( 267)
Decrease in investment in sales-type leases - -
Collection of principal on sales-type leases 57 17
Issuance of common stock and warrants and
collection of stockholder notes, net 2,326 2,817
Decrease (Increase) in other assets ( 154) ( 483)
------ ------
Net cash provided by financing activities 2,009 2,084
------ ------
Decrease in Cash ( 1,148) ( 1,434)
Cash at beginning of period 3,712 3,267
------ ------
Cash at end of period $ 2,564 $ 1,833
====== ======
See notes to condensed consolidated financial statements.
<PAGE> - Page 6 -
FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 three months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ended June 30, 1997. For further information, refer to the
Company's consolidated report on Form 10-K for the fiscal year ended June
30, 1996.
NOTE B - INVENTORIES
The components of inventory consist of: (000's OMITTED)
------------------
September 30, June 30,
1996 1996
------- -------
Purchased parts components and supplies $ 4,364 $ 3,316
Work in process 405 308
------- -------
$ 4,769 $ 3,624
======= =======
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts are comprised of: (000's OMITTED)
--------------------
September 30, June 30,
1996 1996
------- -------
Costs incurred on uncompleted contracts $ 4,889 5,147
Estimated earnings 7,178 7,202
------- -------
12,067 12,349
Less: billings to date ( 2,356) ( 2,723)
------- -------
$ 9,711 $ 9,626
======= =======
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 $ 336
Costs and estimated earnings in excess of
billings on uncompleted contracts - long term 9,460 9,460
Billings in excess of costs and estimated
earnings on uncompleted contracts ( 54) ( 170)
------- -------
$ 9,711 $ 9,626
======= =======
<PAGE> - Page 7 -
NOTE D - STOCKHOLDERS' EQUITY
(000'S OMITTED)
Stockholders' Equity is comprised of: ---------------------------
September 30, June 30,
1996 1996
------------- -----------
Common Stock $.0001 par value; 50,000,000
shares authorized; 44,089,251 outstanding
at September 30 and 42,871,751 at June 30. $ 4 $ 4
Class B Common Stock $ .0001 par value;
4,000,000 shares authorized, 5,411
outstanding at September 30 and at June 30. - -
Class C Common Stock $.0001 par value; 9,562,824
outstanding at September 30 and at June 30. 1 1
Class A non-voting Preferred Stock $.0001 par
value; 7,855,627 outstanding at September 30
and at June 30. 1 1
Additional paid-in capital 78,814 75,985
Accumulated deficit (27,721) (25,698)
Notes receivable - stockholders ( 2,263) ( 1,760)
Treasury stock - 108,864 shares ( 395) ( 395)
------- -------
$ 48,441 $ 48,138
======= =======
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.
For the first quarter of fiscal 1997, the Company experienced a net loss
of $2.0 million on revenues of $2.6 million as compared to a net loss of
$370,000 on revenues of $4.3 million for the first quarter of fiscal 1996.
The Company's QUAD (TM) 7000 and QUAD (TM) 12000 MRI scanners, together
with other research and development projects, are intended to significantly
improve the Company's competitive position. Having received FDA approval
for its QUAD 7000 and QUAD 12000 scanners, the Company believes it is in a
position to aggressively secure new sales. The QUAD scanners are highly
competitive and totally new non-claustrophobic scanners not previously
available in the MRI market. At .6 Tesla field strength, 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 is in the final stages of concluding an agreement with a
chain of medical distributors with a large nationally based sales force.
Cost containment programs continue in force. Although the Company
continues to expand its operations and productive capacity to meet the
expanding rate of new orders worldwide, costs of revenues decreased slightly
to $1.96 million for the first quarter of fiscal 1997 as compared to $2.19
million for the first quarter for fiscal 1996, and research and development,
selling, general and administrative expenses also decreased slightly to
approximately $1.94 million for the first quarter of fiscal 1997 as compared
to $1.99 million for the same period in fiscal 1996.
<PAGE> - Page 8 -
These cost containment programs, which include increasing the portion of
manufacturing conducted on the Company's premises, have enabled the Company
to achieve significantly lower manufacturing costs than would have otherwise
been experienced in the production of its QUAD scanners. This has enabled
the Company to pass on to customers a much needed reduction in the sales
price of MRI scanners.
The Company has continued its program for upgrading previously installed
scanners. The versatility and productivity of MRI technology creates the
impetus for new uses. As a result, 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.
As part of its marketing program, the Company attended the industry's
annual trade show, RSNA (Radiological Society of North America) in November
1995 and plans to do so again in November 1996. At the RSNA show in 1995,
the Company exhibited its new QUAD 12000 and QUAD 7000 scanners. The
Company believes that it is uniquely positioned to take advantage of the
rapidly expanding "Open MRI" market, as the manufacturer of the only
high-field "Open MRI" in the industry. Three of the Company's new QUAD
scanners, one foreign and two domestic, were installed in the first quarter
of fiscal 1997.
The Company expects marked demand for its high-field "Open MRI" scanners
since image quality increases as a direct proportion to magnetic field
strength. 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 prove a significant
source of revenue.
Liquidity and Capital Resources
At September 30, 1996, the Company's liquidity and capital resources
positions changed from the June 30, 1996 position as follows:
September 30, June 30,
1996 1996 Change
____________ ____________ __________
Working capital
(deficiency) ($2,349,000) ($2,355,000) $6,000
Total liabilities were reduced since June 30, 1996 by approximately
$400,000 to approximately $14.4 million at September 30, 1996.
<PAGE> - Page 9 -
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, from June 30, 1993 to June 30, 1994 by $3.8 million to $6.0
million, and from June 30, 1994 through June 30, 1995, by $2.1 million to
approximately $3.9 million. At June 30, 1996 interest bearing debt was
approximately $4.0 million, and was reduced by approximately $200,000 to
$3.8 million at September 30, 1996.
As of June 30, 1996, the Company had no unused credit facilities with
banks or financial institutions.
While continuing to focus on new sources of income and cost containment,
the Company's business plan currently includes an aggressive program for
manufacturing and selling its new line of QUAD scanners which are achieving
success in the marketplace and which the Company has had under development
for four years.
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.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There were no material changes in litigation for the first quarter of
fiscal 1997 from that described in Form 10-K for the fiscal year ended June
30, 1996.
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> - Page 10 -
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)
By: /s/ Raymond V. Damadian
Raymond V. Damadian
President & Chairman
Dated: November 18, 1996
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