FORM 8
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15 (d) of THE SECURITIES
EXCHANGE ACT OF 1934
FONAR CORPORATION
(Exact name of registrant as specified in charter)
Commission File No. 0-10248
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K (Date
of Earliest Event Reported: August 20, 1998) as set forth in the pages attached
hereto:
Item 7 (Financial Statements and Exhibits).
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
FONAR CORPORATION
(Registrant)
By: /s/ Raymond V. Damadian
Raymond V. Damadian
President
Date: November 3, 1998
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements. Separate financial statements of the acquired business,
Dynamic Healthcare Management, Inc. and affiliates, are filed under this
amendment to the aforementioned Current Report on Form 8-K of the Company.
Exhibits. Previously filed.
DYNAMIC HEALTHCARE MANAGEMENT, INC.
AND AFFILIATES
FINANCIAL REPORT
DECEMBER 31, 1996 AND 1997 (AUDITED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements. Separate financial statements of the acquired business,
Dynamic Healthcare Management, Inc. and affiliates, are filed under this
amendment to the aforementioned Current Report on Form 8-K of the Company.
Exhibits. Previously filed.
DYNAMIC HEALTHCARE MANAGEMENT, INC.
AND AFFILIATES
FINANCIAL REPORT
DECEMBER 31, 1996 AND 1997 (AUDITED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
DYNAMIC HEALTHCARE MANAGEMENT INC. AND AFFILIATES
INDEX TO FINANCIAL REPORT
REPORT OF INDEPENDENT ACCOUNTANTS
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 (Audited)
And At June 30, 1998 (Unaudited)
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1996 and 1997 (Audited)
And For The Six Months Ended June 30, 1998 (Unaudited)
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 (Audited)
And For The Six Months Ended June 30, 1998 (Unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS
<PAGE>
To the Board of Directors and Owners
of Dynamic Healthcare Management, Inc. and Affiliates
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying combined balance sheets of Dynamic Healthcare
Management, Inc. and Affiliates (the "Company") as of December 31, 1997 and 1996
and the related combined statements of income and retained earnings, and cash
flows for the years then ended. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Dynamic
Healthcare Management, Inc. and Affiliates as of December 31, 1997 and 1996 and
the combined results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As more fully discussed in Note 7 to the financial statements, Dynamic
Healthcare Management, Inc. and Affiliates was acquired by a subsidiary of Fonar
Corporation pursuant to a stock purchase agreement on August 20, 1998.
/s/ TABB, CONIGLIARO & McGANN, P.C.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
October 30, 1998
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
At December 31,
-----------------------
1996 1997 At June 30, 1998
(Unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 36,685 $ 99,231 $ 48,170
Accounts receivable - net of billing adjustments
and allowance for uncollectible accounts of
(Notes 2 and 3) 528,330 1,522,611 1,790,814
Prepaid expenses and other 4,000 4,000 2,264
--------- ---------- ---------
569,015 1,625,842 1,841,248
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization (Notes 2 and 4) 106,040 115,814 112,007
TOTAL ASSETS $ 675,055 $1,741,656 $1,953,255
--------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 33,199 $ 60,825 $ 24,862
Due to officer/Shareholder 88,019 18,519 12,519
Deferred Taxes Payable 20,000 48,000 48,000
--------- ---------- ----------
TOTAL LIABILITIES 141,218 127,344 85,381
--------- ---------- ----------
COMMITMENTS AND OTHER MATTERS (Notes 2, 3, 6 and 7)
STOCKHOLDERS' EQUITY: (Note 5)
Common stock - No par value 4,000 4,000 4,000
Retained earnings 529,837 1,610,312 1,863,874
--------- ---------- ------------
TOTAL STOCKHOLDERS' EQUITY 533,837 1,614,312 1,867,874
--------- ---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 675,055 $1,741,656 $1,953,255
========= ========== ============
</TABLE>
The accompanying notes are an integral part of the combined financial statements
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For The Years Ended
December 31
For The Six Months
1996 1997 ended June 30, 1998
----------- ----------- --------------
(Unaudited)
<S> <C> <C> <C>
NET PATIENT SERVICE REVENUE $ 3,646,866 $ 6,577,818 $ 3,318,911
----------- ----------- -----------
COSTS AND EXPENSES:
Operating expenses of medical practices 2,524,763 3,561,521 1,557,806
Officers and Physicians compensation 570,000 760,499 734,707
Depreciation and amortization 36,887 48,542 29,793
---------- ---------- -----------
TOTAL COSTS AND EXPENSES 3,131,650 4,370,562 2,322,306
---------- ---------- -----------
INCOME BEFORE INCOME TAXES 515,216 2,207,256 996,605
INCOME TAXES (Note 2) 11,592 34,781 18,043
---------- ---------- -----------
NET INCOME 503,624 2,172,475 978,562
RETAINED EARNINGS - BEGINNING 483,213 529837 1,610,312
LESS: DISTRIBUTIONS (457,000) (1,092,000) (725,000)
----------- ----------- -----------
RETAINED EARNINGS - ENDING $ 529,837 $ 1,610,312 $ 1,863,874
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial statements
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31
------------------- For The Six Months
1996 1997 Ended June 30, 1998
--------- --------- -----------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 503,624 $2,172,475 $ 978,562
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 36,887 48,542 29,793
--------- ---------- ----------
540,511 2,221,017 1,008,355
Changes in operating assets and liabilities:
Accounts receivable, net (182,632) (994,281) (268,203)
Other assets (3,000) (1,000) 1,736
Accounts payable and accrued liabilities 55,450 13,626 (35,963)
Due to officer/Shareholder 10,500 (54,500) (6,000)
Deferred Tax Payables 10,000 28,000 -
--------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 430,829 1,212,862 699,925
--------- ---------- ----------
CASH USED IN INVESTING ACTIVITIES
Purchase of property and equipment (21,592) (58,316) (25,986)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 4,000 - -
Dividends paid (457,000) (1,092,000) (725,000)
--------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (453,000) (1,092,500) (725,000)
--------- ---------- ----------
NET(DECREASE) INCREASE IN CASH (43,763) 62,546 (51,061)
--------- ---------- ----------
CASH - BEGINNING OF THE PERIOD 80,448 36,685 99,231
--------- ---------- ----------
CASH - END OF THE PERIOD $ 36,685 $ 99,231 $ 48,170
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
======== ========== ==========
Income taxes $ 1,592 $ 6,781 $ 18,718
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial statements
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 1 - DESCRIPTION OF BUSINESS
Dynamic Healthcare Management, Inc., a New York corporation, was
incorporated on January 7, 1994, herein referred to as Dynamic
and, collectively, with its affiliated companies as the
Company. The Company operates and manages three physical
therapy practices and provides management services, which include
administration, accounting, billing and collections and payroll.
As discussed further in Note 7, Dynamic Healthcare Management,
Inc. was acquired by a subsidiary of FONAR Corporation pursuant
to a stock purchase agreement dated August 20, 1998.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The combined financial statements include the accounts of Dynamic
and the following companies (the PCs) affiliated through
common ownership:
Company Location
Bellmore Medical Office, P.C. Bellmore, New York
Alliance Physical Medicine and Rehab, P.C. Hempstead, New York
Chiropractic Associates of Deer Park, P.C. Deer Park, New York
Unaudited Interim Financial Statements
--------------------------------------
The unaudited interim financial statements for the six months
ended June 30, 1998 included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Financial Accounting Standard Board (FASB) and, in the
opinion of the Company, reflect all adjustments (consisting only
of normal recurring adjustments) and disclosures which are
necessary for a fair presentation. The results of operations for
the six-month period are not necessarily indicative of the
results that may be expected for the full year ending December
31, 1998
Net patient service revenue
---------------------------
Net patient service revenue is reported at the estimated net
realizable amounts from patients, third-party payors and others
for services rendered. Net patient service revenue is recognized
at the time the service is performed.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk
----------------------------
Financial instruments, which potentially subject the Company to
concentration of credit risk is principally cash investments and
accounts receivable.
The Company provides medical services mostly to injuries due to
no fault and worker compensations claims principally in the New
York metropolitan area. A significant portion of the accounts
receivable is billable to third party medical reimbursement
organizations, mainly insurance carriers and health management
organizations ('HMO'). The Company grants credit without
collateral to its patients, most of whom are residents and are
insured under third-party payor agreements. Repayment is
dependent upon future financial stability of the disbursing
companies, which are subject to numerous regulations by the
federal, state and local governments.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
Property and Equipment
----------------------
Equipment is depreciated on the straight-line basis over the
estimated useful lives of the assets (5 to 7 years). Leasehold
improvements are amortized over the shorter of the term of the
lease or the life of the asset. Expenditures for maintenance and
repairs are charged to operations. Renewals and betterments are
capitalized.
Impairment of Assets
--------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ('SFAS 121'),
'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of', which requires impairment
losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed
of. The Company adopted SFAS 121 on January 1, 1996 and there was
no effect to the Company.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
----------------
The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Furthermore, healthcare industry
reforms and reimbursement practices will continue to impact on
the Company's revenues and operations. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
Cash, accounts receivable, accounts payable and accrued
liabilities are reflected in the accompanying balance sheets at
amounts considered by management to reasonably approximate fair
value.
Advertising costs
-----------------
Dynamic and Chiropractic Associate of Deer Park, P.C. have
expenses all advertising costs, including direct response
advertising costs, as they are incurred. Total advertising costs
for the years ended December 31, 1996, 1997 and for the six
months ended June 30, 1998 were $40,028, $25,188 and $36,343
respectively.
Income Taxes
------------
Dynamic and Chiropractic Associates of Deer Park, P.C. have
elected to be taxed under the provisions of subchapter 'S' of the
Internal Revenue Code and comparable state regulations. Under
these provisions, the Company does not pay federal or state
corporate income taxes on its taxable income (nor is it allowed a
net operating loss carryback or carryover as a deduction).
Instead, the stockholders report their proportionate share of the
Company's taxable income (or loss) and tax credits on their
personal income tax returns. However, New York State taxes
continue to be provided. The New York State taxes are equal to
the corporate tax computed as if the Company was not an 'S'
corporation, reduced by the tax that would be payable on the
Company's net income if taxed at the highest personal income tax
rate.
Deferred income taxes have been provided under the liability
method. Deferred tax assets and liabilities are determined based
upon the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense
is the result of changes in the deferred tax asset and liability.
Deferred income taxes reflected on the balance sheet resulted
primarily from the timing difference of reporting on the cash
basis for tax purposes and the accrual basis for financial
statement purposes.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 3 - ACCOUNTS RECEIVABLE
-------------------
The majority of the Company's accounts receivable and related
revenues are derived from third party payors, mainly insurance
carriers and HMO's. The third party payors are constantly
revising their reimbursements to healthcare providers, which has
a direct effect on the realization of the accounts receivable.
The Company has given effect to these reimbursement practices
through provisions in the allowance for billing adjustments and
uncollectible accounts. The allowance at December 31, 1996 and
1997 aggregated $792,400, $2,283,900 respectively and $2,686,300
at June 30, 1998 (unaudited).
NOTE 4 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
------------------------------------
Equipment and leasehold improvements at December 31, 1996, 1997
and June 30, 1998 consist of the following:
December 31, June 30,
1996 1997 1998
--------- -------- ---------
(Unaudited)
Equipment 164,598 221,913 248,114
Leasehold improvements 36,029 37,029 37,029
--------- -------- ---------
200,627 258,942 285,143
Less: Accumulated depreciation
and amortization 94,587 143,273 173,066
--------- -------- ---------
$ 106,040 $115,669 $ 112,077
========= ======== =========
For the years ended December 31, 1996 and 1997 and for the six
months ended June 30, 1998, depreciation and amortization
amounted to $36,887, $48,542 and $22,235 respectively.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 5 - STOCKHOLDERS EQUITY
Common stock - no par value - at December 31, 1996, 1997 and June
30, 1998 consisted of the following:
At December 31, At June 30,
1996 1997 1998
--------- -------- -------
(unaudited)
Dynamic Healthcare Management, Inc.
20 shares authorized, issued and
outstanding $1,000 $1,000 $1,000
Bellmore Medical Office, P.C.
10 shares authorized, issued and
outstanding 1,000 1,000 1,000
Alliance Physical Medicine and Rehab, P.C.
10 shares authorized, issued and
outstanding 1,000 1,000 1,000
Chiropractic Associates of Deer Park, P.C.
10 shares authorized, issued and
outstanding 1,000 1,000 1,000
------ ------ ------
Total $4,000 $4,000 $4,000
====== ====== ======
NOTE 6 - COMMITMENTS AND OTHER MATTERS
Operating Leases
----------------
The Company leases its medical office properties and various
equipment under noncancellable operating lease agreements, which
expire between January 2000 and January 2007, and require various
minimum annual rentals. One of the leases provide for renewal
options to extend the lease for an additional five years. Certain
property leases require additional payment for property taxes,
normal maintenance and insurance.
Rent expense under the operating leases approximated $125,640,
$168,240 and $86,950 for the years ended December 31, 1996, 1997
and the six months ended June 30, 1998 respectively.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 6 - COMMITMENTS AND OTHER MATTERS (Continued)
Operating Leases (Continued)
----------------------------
At December 31, 1997, the aggregate future minimum lease payments
due under these noncancellable operating leases are as follows:
Year Ending December 31, Operating Leases
------------------------ ----------------
1998 $ 158,676
1999 159,098
2000 145,208
2001 124,857
2002 126,779
2003 and thereafter 392,820
-----------
$ 1,107,438
===========
Government Regulations
----------------------
The healthcare industry is highly regulated by numerous laws,
regulations, approvals and licensing requirements at the federal,
state and local levels. Regulatory authorities have very broad
discretion to interpret and enforce these laws and promulgate
corresponding regulation. The Company believes that its
operations under agreements pursuant to which it is currently
providing services are in material compliance with these laws and
regulations. However, there can be no assurance that a court or
regulatory authority will not determine that the Company's
operations (including arrangements with new or existing clients)
violate applicable laws or regulations.
If the Company's interpretation of the relevant laws and
regulations is inaccurate, the Company's business and its
prospects could be materially and adversely affected. The
following are among the laws and regulations that affect the
Company's operations and development activities; corporate
practice of medicine; fee splitting; anti-referral laws;
anti-kickback laws; certificates of need; and proposed healthcare
reform legislation.
<PAGE>
DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998)
NOTE 7 - SUBSEQUENT EVENTS
Sale of Dynamic Healthcare Management, Inc.
-------------------------------------------
On August 20, 1998, Health Management Corporation of America.
('HMCA') consummated the acquisition of the common stock of the
Company. HMCA is a wholly-owned subsidiary of FONAR Corporation,
a publicly traded company listed on the NASDAQ Stock Exchange.
Pursuant to the purchase agreements, HMCA acquired all of the
common stock of the Company for $2,000,000 in cash, a note
payable for $2,870,000, bearing interest at 7.5% per annum,
payable in three annual installments, commencing one year from
closing, a note payable for $1,216,230.92, bearing interest at
7.5% per annum, payable in sixty monthly installments of
principal and interest, commencing September 20, 1998, $5,490,000
in convertible notes which maybe converted into shares of HMCA
common stock at the HMCA IPO price. If the IPO is not consummated
within two year of the closing date, the notes are payable in 36
monthly installments bearing interest at 7.5% per annum,
commencing two years from the closing date.
