FONAR CORP — Interim / Quarterly Report 1995

Mar 8, 1995

1 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 DECEMBER 31, 1994 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 December 31, 1994 - ------------------------------ -------------------------------- Common Stock, par value $.0001 34,810,973 Class B Common Stock, par value $.0001 3,194,556 Class C non-voting Common Stock, par value $.001 -0- - 2 - FONAR CORPORATION AND SUBSIDIARIES INDEX

• 3 - FONAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

• 4 - FONAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

• 5 - FONAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to condensed consolidated financial statements. - 6 - FONAR CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

• 7 - FONAR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 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. The comparative figures for fiscal 1994 have been adjusted to reflect year end adjustments. 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 six months ended December 31, 1994 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 1995. For further information, refer to the Company's consolidated report on Form 10-K for the fiscal year ended June 30, 1994. NOTE B - INVENTORIES

NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

• 8 - NOTE D - STOCKHOLDERS' EQUITY

NOTE E - CHANGES IN CAPITALIZATION The Company's debt to equity ratio changed from approximately 5:7 ($19.5 million:$28.3 million) as at June 30, 1994 to approximately 1:2 ($16.2 million:$22.8 million) as at December 31, 1994. This change in the Company's capitalization resulted from a combination of an increase in capital stock (approximately $5.4 million) and a decrease of approximately $3.0 million in current liabilities. - 9 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the first six months of fiscal 1995, the Company reported net loss of $ 123,000 on revenues of $ 8.6 million as compared to net income of $ 140,000 on revenues of $ 6.8 million for the corresponding period of the prior fiscal year. The comparative figures for fiscal 1994 have been adjusted to reflect year end adjustments. For the second quarter of fiscal 1995, the Company reported net loss of $ 51,000 on revenues of approximately $3.7 million, as compared to net income of $ 93,000 on revenues of approximately $3.6 million for the corresponding period for the prior fiscal year. The comparative figures for fiscal 1994 have been adjusted to reflect year end adjustments. The Company continues to benefit from the programs the Company set in motion in fiscal 1989; namely strict cost containment initiative, the redirecting of corporate business into more profitable enterprises within the MRI industry and the paying down of interest bearing debt. The Company is progressing toward the completion of its "Quad 12000" and "Quad 7000" MRI scanners, which together with other research and development projects is intended to significantly improve the Company's competitive position. The Company expects to commence sales of its "Quad" scanners in fiscal 1995. This scanner will be a highly competitive and totally new high field non-claustrophobic scanner not available in today's MRI market. The Company expects vigorous sales from this new product. 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. This income resource is considered to be a major asset of the company. 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 have been continued, which emphasize the development of new features for the Company's scanner upgrade program. More specifically, products derived from the Company's new "Quad" and "Ultimate" scanners are expected to generate substantial upgrade revenue as customers upgrade their existing scanners to take advantage of the improved image quality and high speed image processing capabilities. Products derived from the Company's "Ultimate MR" scanner product line are expected to generate significant revenue in fiscal 1995. The Ultimate MR scanner provides 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. Based on numerous indications of interest, meetings, sales trips abroad and negotiations, the Company is cautiously optimistic that foreign sales will produce significant revenue. - 10 - Liquidities and Capital Resources At December 31, 1994, the Company's liquidity and capital resources positions changed from the June 30, 1994 position as follows: December 31, June 30, 1994 1994 Change ------------- -------- -------- Working capital (deficiency) ($ 6,358,000) ($ 7,750,000) $ 1,392,000 Total liabilities were reduced since June 30, 1994 by approximately $3.3 million to approximately $16.2 million. Although vendor and creditor payment obligations continue to run beyond normal payment terms, the Company has been able to direct its resources to maintain scanner system deliveries and to reduce its past due payment obligations. 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. Continuing this program in the six months since June 30, 1994, the Company has reduced its interest bearing debt an additional $1.2 million to $ 4.8 million. - 11 - PART II - OTHER INFORMATION Item 1 - Legal Proceedings: In June 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 seeking compensatory damages of $1,758,000 and punitive damages of $10,000,000. The trial was held in November 1994. At trial, the Court dismissed the case against the defendants, finding that the plaintiff had failed to make a prima facie case. The plaintiff had alleged that the defendants had conspired with one of the Company's former lenders to divert the proceeds of a loan made by the plaintiff to the Company's lender from its original purpose to other projects. The defendants vigorously defended the case, principally on the grounds that they were under no contractual obligation to the plaintiff and had no knowledge of any arrangements made between the plaintiff and the Company's former lender. There are no other material changes in litigation for the second quarter of fiscal 1995 from that described in Form 10-K for the fiscal year ended June 30, 1994. 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 - 12 - 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: March 3, 1995 By: /s/ Raymond V. Damadian ------------------------- Raymond V. Damadian President & Chairman