10q10k10q10k.net

What changed in FONAR CORP's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of FONAR CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+181 added−190 removedSource: 10-K (2024-09-27) vs 10-K (2023-09-28)

Top changes in FONAR CORP's 2024 10-K

181 paragraphs added · 190 removed · 148 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

69 edited+10 added−17 removed123 unchanged
Biggest changeThe facilities enter into contracts with third-party payors, including managed care companies. None of HMCA’s clients, however, participate in any capitated plans or other risk sharing arrangements. Capitated plans are those HMO programs where the provider is paid a flat monthly fee per patient. The management fees payable by the facilities to HMCA are flat monthly fees.
Biggest changeCapitated plans are those HMO programs where the provider is paid a flat monthly fee per patient. The management fees payable by the facilities to HMCA are flat monthly fees. In fiscal 2024, the aggregate amount of active management fees was $4,960,733 per month. In fiscal 2023, the aggregate amount of active management fees was $4,860,732 per month.
Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties.
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties.
Page 11 FONAR CORPORATION AND SUBSIDIARIES Premarketing Submission Each person who wants to market Class I, II and some III devices intended for human use in the U.S. must submit a 510(k) to FDA at least 90 days before marketing unless the device is exempt from 510(k) requirements.
Premarketing Submission Page 11 FONAR CORPORATION AND SUBSIDIARIES Each person who wants to market Class I, II and some III devices intended for human use in the U.S. must submit a 510(k) to FDA at least 90 days before marketing unless the device is exempt from 510(k) requirements.
These procedures also include documentation and record keeping requirements for information that was evaluated to determine if an event was reportable; all medical device reports and information submitted to the FDA; any information that was evaluated during preparation of annual certification reports; and systems that ensure access to information that facilitates timely follow up and inspection by FDA.
These procedures also include documentation and record keeping requirements for information that was evaluated to determine if an event was reportable; all medical device reports and information submitted to the FDA; any information that was evaluated during preparation of annual certification reports; and systems that ensure access to information that facilitates timely follow up and inspection by the FDA.
Page 14 FONAR CORPORATION AND SUBSIDIARIES Citation A citation is a formal warning to a firm of intent to prosecute the firm if violations of the FD&C Act are not corrected. It provides the firm an opportunity to convince FDA not to prosecute. Injunction An injunction is a civil action filed by FDA against an individual or company.
Citation A citation is a formal warning to a firm of intent to prosecute the firm if violations of the FD&C Act are not corrected. It provides the firm an opportunity to convince FDA not to prosecute. Page 14 FONAR CORPORATION AND SUBSIDIARIES Injunction An injunction is a civil action filed by FDA against an individual or company.
HMCA also provides improvements to leaseholds, assistance in site selection and advice on improving, updating, expanding and adapting to new technology. 2. Personnel. HMCA staffs all the non-medical positions of its clients with its own employees, eliminating the client’s need to interview, train and manage non-medical employees. HMCA processes the necessary tax, insurance and other documentation relating to employees. 3.
HMCA also provides improvements to leaseholds, assistance in site selection and advice on improving, updating, expanding and adapting to new technology. 2. Personnel. HMCA staffs all the non-medical positions of its clients with its own employees, eliminating the client’s need to interview, train and manage non-medical employees. HMCA processes the necessary tax, insurance and other documentation relating to employees.
Examples of the other actions which may lead to liability under the False Claims Act are set forth below: Failure to comply with the many technical billing requirements applicable to our Medicare and Medicaid business; Failure to comply with the prohibition against billing for services ordered or supervised by a physician who is excluded from any federal healthcare program, or the prohibition against employing or contracting with any person or entity excluded from any federal healthcare program; Page 21 FONAR CORPORATION AND SUBSIDIARIES Failure to comply with the Medicare physician supervision requirements for the services we provide, or the Medicare documentation requirements concerning physician supervision.
Examples of the other actions which may lead to liability under the False Claims Act are set forth below: Failure to comply with the many technical billing requirements applicable to our Medicare and Medicaid business; Page 20 FONAR CORPORATION AND SUBSIDIARIES Failure to comply with the prohibition against billing for services ordered or supervised by a physician who is excluded from any federal healthcare program, or the prohibition against employing or contracting with any person or entity excluded from any federal healthcare program; Failure to comply with the Medicare physician supervision requirements for the services we provide, or the Medicare documentation requirements concerning physician supervision.
Page 25 FONAR CORPORATION AND SUBSIDIARIES Compliance Program We maintain a program to monitor compliance with federal and state laws and regulations applicable to the healthcare entities. The compliance program includes the adoption of (i) Standards of Conduct for our employees and affiliates and (ii) a process that specifies how employees, affiliates and others may report regulatory or ethical concerns.
Page 23 FONAR CORPORATION AND SUBSIDIARIES Compliance Program We maintain a program to monitor compliance with federal and state laws and regulations applicable to the healthcare entities. The compliance program includes the adoption of (i) Standards of Conduct for our employees and affiliates and (ii) a process that specifies how employees, affiliates and others may report regulatory or ethical concerns.
These services include administrative services, billing and collection services, credentialing services, contract negotiations, compliance consulting, purchasing IT services, hiring, conducting interviews, training, supervision and management of non-medical personnel, storage of medical records, office space, equipment, repair maintenance services, accounting, assistance with compliance matters and the development and implementation of practice growth and marketing strategies.
These services include administrative services, billing and collection services, credentialing services, contract negotiations, compliance consulting, purchasing IT services, hiring, conducting interviews, training, supervision and management of non-medical personnel, storage of medical records, office space, equipment, repair maintenance services, accounting, assistance with legal and regulatory matters, and the development and implementation of practice growth and marketing strategies.
A complete list of the sites managed by HMCA can be found at HMCA’s website, www.hmca.com. SERVICE AND UPGRADES FOR MRI SCANNERS Income is generated from the installed base in two principal areas, namely, service and upgrades. Service and maintenance revenues from our external installed base were approximately $7.5 million in fiscal 2023 and $7.7 million in fiscal 2022.
A complete list of the sites managed by HMCA can be found at HMCA’s website, www.hmca.com. SERVICE AND UPGRADES FOR MRI SCANNERS Income is generated from the installed base in two principal areas, namely, service and upgrades. Service and maintenance revenues from our external installed base were approximately $7.6 million in fiscal 2024 and $7.5 million in fiscal 2023.
Section 820.3(b) of the Quality Systems regulation defines a complaint as, “any written, electronic or oral communication that alleges deficiencies related to the identity, quality, durability, reliability, safety, effectiveness, or performance of a device after it is released for distribution.” Page 12 FONAR CORPORATION AND SUBSIDIARIES A report is required when a manufacturer becomes aware of information that reasonably suggests that one of their marketed devices has or may have caused or contributed to a death, serious injury, or has malfunctioned and that the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.
Section 820.3(b) of the Quality Systems regulation defines a complaint as, “any written, electronic or oral communication that alleges deficiencies related to the identity, quality, durability, reliability, safety, effectiveness, or performance of a device after it is released for distribution.” A report is required when a manufacturer becomes aware of information that reasonably suggests that one of their marketed devices has or may have caused or contributed to a death, serious injury, or has malfunctioned and that the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.
Our plans and objectives are based, in part, on assumptions involving the expansion of business. These assumptions involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Our plans and objectives are based, in part, on assumptions involving the expansion of business. These assumptions involve judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
In addition to acting as a management company, HMCA owns and operates five diagnostic imaging facilities in Florida, where the corporate practice of medicine is permitted.
In addition to acting as a management company, HMCA owns and operates six diagnostic imaging facilities in Florida, where the corporate practice of medicine is permitted.
For example, the spin-lattice relaxation time T1 that characterizes the nuclear magnetic resonance (NMR) signal increases with field strength, decreasing the difference in T1 values between tissues that is an essential contributor to contrast in images.
For example, the spin-lattice relaxation time T 1 that characterizes the nuclear magnetic resonance (NMR) signal increases with field strength, decreasing the difference in T 1 values between tissues that is an essential contributor to contrast in images.
EMPLOYEES FONAR and HMCA had approximately 561 employees as of September 12, 2023. This total number included employees engaged in production, customer support, research and development, information technology, employees engaged in marketing and sales, billing and collection, legal and compliance matters, as well as transcriptionists, Florida technologists, field service technicians and individuals in various administrative positions.
EMPLOYEES FONAR and HMCA had approximately 520 employees as of September 12, 2024. This total number included employees engaged in production, customer support, research and development, information technology, employees engaged in marketing and sales, billing and collection, legal and compliance matters, as well as transcriptionists, Florida technologists, field service technicians and individuals in various administrative positions.
Page 16 FONAR CORPORATION AND SUBSIDIARIES PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES HMCA’s services to the facilities it manages encompass substantially all of their business operations. Each facility is controlled, however, not by HMCA, but by the physician owner, or in the case of the six Florida sites owned by HMCA subsidiaries, by the medical director.
PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES HMCA’s services to the facilities it manages encompass substantially all of their business operations. Each facility is controlled, however, not by HMCA, but by the physician owner, or in the case of the six Florida sites owned by HMCA subsidiaries, by the medical director.
For our fiscal year ended June 30, 2023, Medicare revenues represented approximately 2.9% of the revenues for HMCA’s clients and subsidiaries as compared to 3.2% for the fiscal year ended June 30, 2022. Medicaid The Medicaid program is a jointly-funded federal and state program providing coverage for low-income persons.
For our fiscal year ended June 30, 2024, Medicare revenues represented approximately 2.7% of the revenues for HMCA’s clients and subsidiaries as compared to 2.9% for the fiscal year ended June 30, 2023. Medicaid The Medicaid program is a jointly-funded federal and state program providing coverage for low-income persons.
Noncompliance also may result in exclusion from participation in government programs, including Medicare and Medicaid. These actions could have a material adverse effect on our business, financial condition, and results of operations. Civil Money Penalty Law and Other Federal Statutes The Civil Money Penalty, or CMP, law covers a variety of practices.
Noncompliance also may result in exclusion from participation in government programs, including Medicare and Medicaid. These actions could have a material adverse effect on our business, financial condition, and results of operations. Page 22 FONAR CORPORATION AND SUBSIDIARIES Civil Money Penalty Law and Other Federal Statutes The Civil Money Penalty, or CMP, law covers a variety of practices.
GOVERNMENT REGULATION FDA Regulation The Food and Drug Administration in accordance with Title 21 of the Code of Federal Regulations regulates the manufacturing and marketing of FONAR’s MRI scanners. The regulations can be classified as either pre-market or post-market. The pre-market requirements include obtaining marketing clearance, proper device labeling, establishment registration and device listing.
Page 10 FONAR CORPORATION AND SUBSIDIARIES GOVERNMENT REGULATION FDA Regulation The Food and Drug Administration in accordance with Title 21 of the Code of Federal Regulations regulates the manufacturing and marketing of FONAR’s MRI scanners. The regulations can be classified as either pre-market or post-market. The pre-market requirements include obtaining marketing clearance, proper device labeling, establishment registration and device listing.
A malfunction which is or can be corrected during routine service or device maintenance still must be reported if the recurrence of the malfunction is likely to cause or contribute to a death or serious injury if it were to recur. We have established and maintained written procedures for implementation of the MDR regulation.
Page 12 FONAR CORPORATION AND SUBSIDIARIES A malfunction which is or can be corrected during routine service or device maintenance still must be reported if the recurrence of the malfunction is likely to cause or contribute to a death or serious injury if it were to recur. We have established and maintained written procedures for implementation of the MDR regulation.
While software improvements to the user interface are important in their own right, significant value is added to the MRI scanner by the modification of existing protocols for examining various parts of the body, and the development of new protocols that utilize new underlying capabilities of the pulse sequence software.
Page 8 FONAR CORPORATION AND SUBSIDIARIES While software improvements to the user interface are important in their own right, significant value is added to the MRI scanner by the modification of existing protocols for examining various parts of the body, and the development of new protocols that utilize new underlying capabilities of the pulse sequence software.
HMCA is seeking to increase the number of locations of those facilities where market conditions are promising and to promote growth of our clients’ and Florida subsidiaries’ patient volume and revenue. Page 18 FONAR CORPORATION AND SUBSIDIARIES DIAGNOSTIC IMAGING FACILITIES Diagnostic imaging facilities managed by HMCA provide diagnostic imaging services to patients referred by physicians.
HMCA is seeking to increase the number of locations of those facilities where market conditions are promising and to promote growth of our clients’ and Florida subsidiaries’ patient volume and revenue. DIAGNOSTIC IMAGING FACILITIES Diagnostic imaging facilities managed by HMCA provide diagnostic imaging services to patients referred by physicians.
Administrative. HMCA assists in the scheduling of patient appointments, purchasing of office and medical supplies and equipment and handling of reporting, accounting, processing and filing systems. It prepares and files the physician portions of complex applications to enable its clients to participate in managed care programs and to qualify for insurance reimbursement.
Page 16 FONAR CORPORATION AND SUBSIDIARIES 3. Administrative. HMCA assists in the scheduling of patient appointments, purchasing of office and medical supplies and equipment and handling of reporting, accounting, processing and filing systems. It prepares and files the physician portions of complex applications to enable its clients to participate in managed care programs and to qualify for insurance reimbursement.
RESEARCH AND DEVELOPMENT During the fiscal year ended June 30, 2023, we incurred expenditures of $1,567,749, none of which were capitalized, on research and development, as compared to $1,494,181, none of which were capitalized, during the fiscal year ended June 30, 2022. Research and development activities have focused principally on software improvements to the user interface of the MRI scanner.
RESEARCH AND DEVELOPMENT During the fiscal year ended June 30, 2024, we incurred expenditures of $1,735,949, none of which were capitalized, on research and development, as compared to $1,567,749, none of which were capitalized, during the fiscal year ended June 30, 2023. Research and development activities have focused principally on software improvements to the user interface of the MRI scanner.
For the fiscal year ended June 30, 2022, approximately 57.7.% of HMCA’s clients’ receipts were from patients covered by no-fault insurance and approximately 8.6% of HMCA’s clients’ receipts were from patients covered by workers’ compensation programs. The foregoing numbers do not include payments from third-party administrators.
For the fiscal year ended June 30, 2023, approximately 58.4% of HMCA’s clients’ receipts were from patients covered by no-fault insurance and approximately 8.6% of HMCA’s clients’ receipts were from patients covered by workers’ compensation programs. The foregoing numbers do not include payments from third-party administrators.
Page 23 FONAR CORPORATION AND SUBSIDIARIES Further, HIPAA requires healthcare providers and their business associates to maintain the privacy and security of individually identifiable protected health information (“PHI”). HIPAA imposes federal standards for electronic transactions, for the security of electronic health information and for protecting the privacy of PHI.
Further, HIPAA requires healthcare providers and their business associates to maintain the privacy and security of individually identifiable protected health information (“PHI”). HIPAA imposes federal standards for electronic transactions, for the security of electronic health information and for protecting the privacy of PHI.
For the fiscal year ended June 30, 2023 approximately 58.4% of our clients’ receipts were from patients covered by no-fault insurance and approximately 8.6% of our client’s receipts were from patients covered by workers’ compensation programs.
For the fiscal year ended June 30, 2024 approximately 58.0% of our clients’ receipts were from patients covered by no-fault insurance and approximately 8.8% of our client’s receipts were from patients covered by workers’ compensation programs.
Six of the facilities in Florida are owned by HMCA subsidiaries, where the corporate practice of medicine is permitted. We believe the utilization of FONAR Upright® MRI scanning systems, which are produced under the protection of our patents, accounts for the historically robust patient volume at the scanning facilities. During fiscal 2023, two scanners were installed in Casselberry, Florida.
Six of the facilities in Florida are owned by HMCA subsidiaries, where the corporate practice of medicine is permitted. We believe the utilization of FONAR Upright® MRI scanning systems, which are produced under the protection of our patents, accounts for the historically robust patient volume at the scanning facilities.
One facility in New York and two in Florida also perform X-rays. During fiscal 2023, a new location was opened in Casselberry, Florida. REIMBURSEMENT HMCA’s clients receive reimbursements for their services through Medicare, Medicaid, managed care, private commercial insurance, third-party administrators, Workers’ Compensation, No-Fault and other insurance.
One facility in New York and two in Florida also perform X-rays. REIMBURSEMENT HMCA’s clients receive reimbursements for their services through Medicare, Medicaid, managed care, private commercial insurance, third-party administrators, Workers’ Compensation, No-Fault and other insurance.
Medicare The Medicare program provides reimbursement for hospitalization, physician, diagnostic and certain other services to eligible persons 65 years of age and over and certain other individuals.
Page 18 FONAR CORPORATION AND SUBSIDIARIES Medicare The Medicare program provides reimbursement for hospitalization, physician, diagnostic and certain other services to eligible persons 65 years of age and over and certain other individuals.
The Upright® MRI is also, by design, a non-claustrophobic MRI scanner. The Upright® MRI employs a dipole magnet whose magnetic field orientation is transverse to the axis of the patient’s body. The gap between the poles of the magnet is the space into which the patient is placed.
The Upright® MRI employs a dipole magnet whose magnetic field orientation is transverse to the axis of the patient’s body. The gap between the poles of the magnet is the space into which the patient is placed.
Page 13 FONAR CORPORATION AND SUBSIDIARIES Class I Is a situation in which there is a reasonable probability that the use of, or exposure to, a violative product will cause serious adverse health consequences or death.
Class I Is a situation in which there is a reasonable probability that the use of, or exposure to, a violative product will cause serious adverse health consequences or death.
In fiscal 2023, approximately 0.05% of the revenues of HMCA’s clients were attributable to Medicaid, as compared to 0.07% in fiscal 2022.
In fiscal 2024, approximately 0.06% of the revenues of HMCA’s clients were attributable to Medicaid, as compared to 0.05% in fiscal 2023.
Neither HMCA nor its clients engage in this practice. Page 22 FONAR CORPORATION AND SUBSIDIARIES In fiscal 2023, approximately 2.9% of the revenues of HMCA’s clients were attributable to Medicare and 0.05% were attributable to Medicaid. In fiscal 2022, approximately 3.2% of the revenues of HMCA’s clients were attributable to Medicare and 0.07% were attributable to Medicaid.
Neither HMCA nor its clients engage in this practice. Page 21 FONAR CORPORATION AND SUBSIDIARIES In fiscal 2024, approximately 2.7% of the revenues of HMCA’s clients were attributable to Medicare and 0.06% were attributable to Medicaid. In fiscal 2023, approximately 2.9% of the revenues of HMCA’s clients were attributable to Medicare and 0.05% were attributable to Medicaid.
We have significantly enhanced our patent position within the industry and now possess a substantial patent portfolio which provides us, under the aegis of United States patent law, “the exclusive right to make, use and sell” many of the scanner features which FONAR pioneered and which are now incorporated in most MRI scanners sold by the industry.
We maintain a robust patent portfolio that provides us, under the aegis of United States patent law, “the exclusive right to make, use and sell” many of the scanner features which FONAR pioneered and which are now incorporated in most MRI scanners sold by the industry.
As of June 30, 2023, HMCA managed a total of 41 MRI scanners of which twenty-four (24) scanners are located in New York and seventeen (17) scanners are located in Florida. For the 2023 fiscal year, the revenues HMCA recognized from the MRI facilities has increased to $90.4 million from $89.4 million in fiscal 2022.
As of June 30, 2024, HMCA managed a total of 42 MRI scanners of which twenty-five (25) scanners are located in New York and seventeen (17) scanners are located in Florida. For the 2024 fiscal year, the revenues HMCA recognized from the MRI facilities has increased to $94.6 million from $90.4 million in fiscal 2023.
Page 24 FONAR CORPORATION AND SUBSIDIARIES Certificates of Need Some states require hospitals and certain other healthcare facilities and providers to obtain a certificate of need, or CON, or similar regulatory approval prior to establishing certain healthcare operations or services, incurring certain capital projects and/or the acquisition of major medical equipment including MRI and PET/CT systems.
Certificates of Need Some states require hospitals and certain other healthcare facilities and providers to obtain a certificate of need, or CON, or similar regulatory approval prior to establishing certain healthcare operations or services, incurring certain capital projects and/or the acquisition of major medical equipment including MRI and PET/CT systems. We are not operating in any such states.
Class II Is a situation in which use of, or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote. Class III Is a situation in which use of, or exposure to, a violative product is not likely to cause adverse health consequences.
Class II Page 13 FONAR CORPORATION AND SUBSIDIARIES Is a situation in which use of, or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote.
The motorized patient table, or bed, can be rotated to any angle between 0 (horizontal) and 84 degrees (nearly vertical). Unlike a conventional recumbent MRI patient table, which can only move into or out of the scanner’s bore, the Upright® MRI bed can be translated with two degrees of freedom, in/out and up/down.
Unlike a conventional recumbent MRI patient table, which can only move into or out of the scanner’s bore, the Upright® MRI bed can be translated with two degrees of freedom, in/out and up/down.
These reductions could have an adverse impact on our financial condition and results of operations. These reductions have been, and any future reductions may be, similar to the reimbursement reductions previously proposed. HMCA COMPETITION The physician and diagnostic management services field is highly competitive. A number of large hospitals have acquired medical practices and this trend may continue.
These reductions could have an adverse impact on our financial condition and results of operations. These reductions have been, and any future reductions may be, similar to the reimbursement reductions previously proposed. Page 19 FONAR CORPORATION AND SUBSIDIARIES HMCA COMPETITION The physician and diagnostic management services field is highly competitive.
Although the images are substantially less detailed than those obtainable with x-rays or MRI, ultrasound is generally considered harmless and therefore has found applications in imaging the pregnant uterus and the breast, to name two.
Although the images are substantially less detailed than those obtainable with x-rays or MRI, ultrasound is generally considered harmless and therefore has found applications in imaging the pregnant uterus and the breast, to name two. X-ray (including CT), nuclear medicine, and ultrasound compete with the MRI scanners by offering significantly lower price and space requirements.
In addition to that collaboration, R&D staff have pursued a variety of novel and Upright® MRI-specific research projects. It is anticipated that these will ultimately lead to new applications that are made available to existing customers as upgrade add-ons to their machines. For example, phase-contrast imaging techniques originally developed for angiography have recently been applied to cerebro-spinal fluid (CSF) flow.
It is anticipated that these will ultimately lead to new applications that are made available to existing customers as upgrade add-ons to their machines. For example, phase-contrast imaging techniques originally developed for angiography have recently been applied to cerebro-spinal fluid (CSF) flow.
The Company is expanding the ancillary services offered in its network to include x-rays, and other MRI equipment such as high-field (1.5 or 3.0 Tesla magnet strength) MRI scanners and extremity MRI scanners. 7. Marketing Strategies. HMCA is responsible for developing and proposing marketing plans for its clients. 8. Expansion Plans.
HMCA can offer access to diagnostic imaging equipment through diagnostic imaging facilities it manages. The Company is expanding the ancillary services offered in its network to include x-rays, and other MRI equipment such as high-field (1.5 or 3.0 Tesla magnet strength) MRI scanners and extremity MRI scanners. 7. Marketing Strategies.
A number of FONAR’s existing patents specifically relate to protecting FONAR’s position in the Upright MRI market. The patents further enhance Dr. Damadian’s pioneer patent, the 1974 Patent, that initiated the MRI industry and provided the original invention of MRI scanning. The terms of the patents in FONAR’s portfolio extend to various times.
The 1974 Patent was extended beyond its original 17-year term and expired in February, 1992. A number of FONAR’s existing patents specifically relate to protecting FONAR’s position in the Upright MRI market. The patents further enhance Dr. Damadian’s pioneer patent that initiated the MRI industry and provided the original invention of MRI scanning.
HDM operates under the assumed name “Health Management Company of America” (“HMCA”). The combined business (HDM and Health Management Corporation of America) will be referred to as “HMCA” for all periods before and after July 1, 2015, unless otherwise indicated. HMCA provides comprehensive non-medical management services to diagnostic imaging facilities.
Health Management Corporation of America is owned 100% by FONAR Corporation. HDM operates under the assumed name “Health Management Company of America” (“HMCA”). Page 15 FONAR CORPORATION AND SUBSIDIARIES The combined business (HDM and Health Management Corporation of America) will be referred to as “HMCA” for all periods before and after July 1, 2015, unless otherwise indicated.
One of our patents, issued in the name of Dr. Damadian and licensed to FONAR, was United States patent No. 3,789,832, Apparatus and Method for Detecting Cancer in Tissue, also referred to in this report as the “1974 Patent”. The 1974 Patent was the first MRI patent issued by the United States Patent Office.
We believe that these patents, and the know-how we have developed, are material to our business. Our seminal patent, issued in the name of Dr. Damadian and licensed to FONAR, was United States patent No. 3,789,832, Apparatus and Method for Detecting Cancer in Tissue, also referred to in this report as the “1974 Patent”.
The development of our MRI scanners has been based upon the 1974 Patent, and we believe that the 1974 Patent was the first of its kind to utilize MR to scan the human body and to detect cancer. The 1974 Patent was extended beyond its original 17-year term and expired in February, 1992.
The 1974 Patent was the first MRI patent issued by the United States Patent Office. The development of our MRI scanners has been based upon the 1974 Patent, and we believe that the 1974 Patent was the first of its kind to utilize MR to scan the human body and to detect cancer.
HMCA expects that more competition will develop. Many competitors have greater financial and other resources than HMCA. Page 20 FONAR CORPORATION AND SUBSIDIARIES With respect to the diagnostic imaging facilities managed by HMCA, the outpatient diagnostic imaging industry is highly competitive.
A number of large hospitals have acquired medical practices and this trend may continue. HMCA expects that more competition will develop. Many competitors have greater financial and other resources than HMCA. With respect to the diagnostic imaging facilities managed by HMCA, the outpatient diagnostic imaging industry is highly competitive.
The Upright® MRI is a “whole-body” MRI, meaning that it can be used to scan virtually any part of the body. The Upright® MRI differs from conventional MRI scanners in that it is not limited to scanning patients in the recumbent posture. For example, patients can be scanned while sitting, standing, bending, or lying down.
MEDICAL EQUIPMENT SEGMENT PRODUCTS The Upright® MRI scanner is our primary product. The Upright® MRI is a “whole-body” MRI, meaning that it can be used to scan virtually any part of the body. The Upright® MRI differs from conventional MRI scanners in that it is not limited to scanning patients in the recumbent posture.
Civil Money Penalties The FDA, after an appropriate hearing, may impose civil money penalties for violations of the FD&C Act that relate to medical devices.
Frequently, corrections which are made at the site of the device are called field corrections as opposed to recalls. Civil Money Penalties The FDA, after an appropriate hearing, may impose civil money penalties for violations of the FD&C Act that relate to medical devices.
The fact that the patient space is unobstructed permits scanning in a variety of postures that cannot be duplicated in conventional MRI scanners.
For example, patients can be scanned while sitting, standing, bending, or lying down. The fact that the patient space is unobstructed permits scanning in a variety of postures that cannot be duplicated in conventional MRI scanners.
Their success in the US has so far been limited. We believe that the higher field strength and larger dimensions of the FONAR Upright® MRI magnet, together with the greater variety of patient positioning possibilities afforded by the FONAR Upright® MRI bed, give us a competitive advantage over the products introduced by these companies.
We believe that the higher field strength and larger dimensions of the FONAR Upright® MRI magnet, together with the greater variety of patient positioning possibilities afforded by the FONAR Upright® MRI bed, give us a competitive advantage over the products introduced by these companies. Most of our competitors have marketing and financial resources more substantial than those available to us.
Damadian until his passing in August of 2022. The fees for these three sites are flat monthly fees which are subject to adjustment by mutual agreement on an annual basis. In fiscal 2023 and fiscal 2022, the aggregate monthly amount of management fees payable to HMCA by these sites was $995,825.
The fees for these three sites are flat monthly fees which are subject to adjustment by mutual agreement on an annual basis. In fiscal 2024 and fiscal 2023, the aggregate monthly amount of management fees payable to HMCA by these sites was $995,825. The six Florida facilities owned by HMCA subsidiaries directly bill their patients or the patients’ insurance carriers.
In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. MEDICAL EQUIPMENT SEGMENT PRODUCTS The Upright® MRI scanner is the product we are presently promoting.
In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. These statements are not guarantees of future performance and undue reliance should not be placed on them.
We have applied to the Notified Body, TUV-SUD, to perform a Conformity Assessment of our technical documentation and our Quality Management System. We (optimistically) expect to have this completed by end of our third quarter, March 30, 2024. Other countries require that their own testing laboratories perform an evaluation of our devices.
We have applied to the Notified Body, TUV-SUD, to perform a Conformity Assessment of our technical documentation and our Quality Management System. Other countries require that their own testing laboratories perform an evaluation of our devices. This requires that we must bring the foreign agency’s personnel to the USA to perform the evaluation at our expense before exporting.
Page 8 FONAR CORPORATION AND SUBSIDIARIES The development of clinically practical scan protocols and software depends on close contact between research and development scientists and engineers, and end users. That close contact is facilitated in part by the relationship with HMCA and the scanning centers.
The development of clinically practical scan protocols and software depends on close contact between research and development scientists and engineers, and end users. That close contact is facilitated in part by the relationship with HMCA and the scanning centers. In addition to that collaboration, R&D staff have pursued a variety of novel and Upright® MRI-specific research projects.
In fiscal 2023, the aggregate amount of active management fees was $4,860,732 per month. In fiscal 2022, the aggregate amount of active management fees was $4,865,443 per month. Fees under the management agreements are subject to adjustment by mutual agreement on an annual basis. Timothy Damadian currently owns three HMCA-managed MRI facilities in Florida. The facilities were owned by Dr.
Fees under the management agreements are subject to adjustment by mutual agreement on an annual basis. Page 17 FONAR CORPORATION AND SUBSIDIARIES Timothy Damadian currently owns three HMCA-managed MRI facilities in Florida. The facilities were owned by Dr. Damadian until his passing in August of 2022.
FONAR has initiated six voluntary recalls, which occurred between 1987-2016. Five of the recalls were Class II and one was Class III. The recalls involved making minor corrections to the product in the field. Frequently, corrections which are made at the site of the device are called field corrections as opposed to recalls.
Class III Is a situation in which use of, or exposure to, a violative product is not likely to cause adverse health consequences. FONAR has initiated six voluntary recalls which occurred between 1987 and 2016. Five of the recalls were Class II and one was Class III. The recalls involved making minor corrections to the product in the field.
HMCA assists the clients in developing expansion plans including the opening of new or replacement facilities where appropriate. HMCA’s objective is to free physicians from as many non-medical duties as is practicable, allowing physicians to spend less time on business and administrative matters and more time practicing medicine.
HMCA’s objective is to free physicians from as many non-medical duties as is practicable, allowing physicians to spend less time on business and administrative matters and more time practicing medicine. The exceptions to this general model of operation are six of the facilities located in Florida.
The MPFS is updated on an annual basis and sometimes modified more frequently. Page 19 FONAR CORPORATION AND SUBSIDIARIES We have experienced reimbursement reductions for radiology services provided to Medicare beneficiaries, including reductions pursuant to the Deficit Reduction Act, or DRA.
The MPFS is updated on an annual basis and sometimes modified more frequently. We have experienced reimbursement reductions for radiology services provided to Medicare beneficiaries. In calendar year 2024, changes to the MPFS included a reduction in the conversion factor.
Our experience is that when presented with a choice between being scanned lying down in a tunnel-like enclosure or seated in an open MRI, most patients will choose the latter. Page 5 FONAR CORPORATION AND SUBSIDIARIES The Upright® MRI facilitates patient scanning in a variety of postures thanks to a unique, three-axis patient handling system.
Our experience is that when presented with a choice between being scanned lying down in a tunnel-like enclosure or seated in an open MRI, most patients will choose the latter. The Upright® MRI is also, by design, a non-claustrophobic MRI scanner.
Most of our competitors have marketing and financial resources more substantial than those available to us. They have in the past, and may in the future, heavily discount the sales price of their scanners.
They have in the past, and may in the future, heavily discount the sales price of their scanners.
Page 10 FONAR CORPORATION AND SUBSIDIARIES X-ray (including CT), nuclear medicine, and ultrasound compete with the MRI scanners by offering significantly lower price and space requirements. However, history has shown that the superior tissue contrast characteristics of MRI have secured its place as the diagnostic imaging modality of choice for a wide variety of pathologies.
However, history has shown that the superior tissue contrast characteristics of MRI have secured its place as the diagnostic imaging modality of choice for a wide variety of pathologies.
HMCA is responsible for the billing and collection of revenues from third-party payors including those governed by No-Fault and Workers’ Compensation statutes. 5. Cost Saving Programs.
HMCA is responsible for the billing and collection of revenues from third-party payors including those governed by No-Fault and Workers’ Compensation statutes. 5. Cost Saving Programs. Based on available volume discounts, HMCA seeks to assist in obtaining favorable pricing for office and medical supplies, equipment, contrast agents, and other inventory for its clients. 6. Diagnostic Imaging and Ancillary Services.
Analysis of CSF flow in upright and recumbent postures may prove to be of significant value in the evaluation of a variety of disorders and lead to a better understanding of human physiology. BACKLOG Our backlog of unfilled orders at September 8, 2023 was approximately $608,000, as compared to $844,000 at September 8, 2022.
Analysis of CSF flow in upright and recumbent postures may prove to be of significant value in the evaluation of a variety of disorders and lead to a better understanding of human physiology. PATENTS AND LICENSES We currently have numerous patents in effect which relate to the technology and components of our MRI scanners.
Page 17 FONAR CORPORATION AND SUBSIDIARIES The exceptions to this general model of operation are six of the facilities located in Florida. These Florida facilities are owned by limited liability companies which, as our subsidiaries, conduct their operations directly and bill and collect their fees from the patients and third-party payors.
These Florida facilities are owned by limited liability companies which, as our subsidiaries, conduct their operations directly and bill and collect their fees from the patients and third-party payors. The facilities enter into contracts with third-party payors, including managed care companies. None of HMCA’s clients, however, participate in any capitated plans or other risk sharing arrangements.
This requires that we must bring the foreign agency’s personnel to the USA to perform the evaluation at our expense before exporting. Some countries, including many in Latin America and Africa, have very few regulatory requirements, beyond FDA clearance. To date, FONAR has been able to comply with all foreign regulatory requirements applicable to its export sales.
Some countries, including many in Latin America and Africa, have very few regulatory requirements, beyond FDA clearance. To date, FONAR has been able to comply with all foreign regulatory requirements applicable to its export sales. PHYSICIAN AND DIAGNOSTIC SERVICES MANAGEMENT BUSINESS Health Diagnostics Management, LLC (HDM) is owned by Health Management Corporation of America (70.8%) and investors (29.2%).
Each of these is primarily focused on the high-field (1.0 T and above) marketplace, though some have produced open MRI scanners for imaging in the recumbent posture. None of these firms has so far introduced an open, upright MRI. In recent years Paramed and Esaote have introduced MRI scanners aimed at the upright, weight-bearing MRI market.
None of these firms has so far introduced an open, upright MRI. In recent years, other companies have introduced MRI scanners aimed at the upright, weight-bearing MRI market. Their success in the US has so far been limited.
We also have patent cross-licensing agreements with other MRI manufacturers. We have not licensed, however, any technology relating to Upright® MRI scanning. Page 9 FONAR CORPORATION AND SUBSIDIARIES PRODUCT COMPETITION MRI SCANNERS FONAR faces competition for MRI product sales from companies such as Siemens, General Electric, Hitachi, Philips, Canon, and United Imaging.
Page 9 FONAR CORPORATION AND SUBSIDIARIES PRODUCT COMPETITION MRI SCANNERS FONAR faces competition for MRI product sales from companies such as Siemens, General Electric, Hitachi, Philips, Canon, and United Imaging. Each of these is primarily focused on the high-field (1.0 T and above) marketplace, though some have produced open MRI scanners for imaging in the recumbent posture.
Removed
It is expected that the existing backlog of orders will be filled during the 2023 fiscal year. PATENTS AND LICENSES We currently have numerous patents in effect which relate to the technology and components of our MRI scanners. We believe that these patents, and the know-how we have developed, are material to our business.
Added
Page 5 FONAR CORPORATION AND SUBSIDIARIES The Upright® MRI facilitates patient scanning in a variety of postures thanks to a unique, three-axis patient handling system. The motorized patient table, or bed, can be rotated to any angle between 0 (horizontal) and 84 degrees (nearly vertical).
Removed
As of June 30, 2023, 225 patents had been issued to FONAR, and approximately 8 patents were pending. Two new patents were issued in fiscal year 2023. One patent describes an equipment calibration system for ultrasound equipment used to non-invasively measure intracranial pressure. The other described a method for identifying the presence and amount of vascular congestion using MRI.
Added
We have engaged with a third-party software vendor, AIRS Medical USA, Inc., to distribute their SwiftMR TM to our installed base of customers. We believe that the SwiftMR TM product significantly improves the image quality and efficiency of both the Upright® MRI and the outside manufacturer equipment that is operated by our installed base.
Removed
Page 15 FONAR CORPORATION AND SUBSIDIARIES PHYSICIAN AND DIAGNOSTIC SERVICES MANAGEMENT BUSINESS Health Diagnostics Management, LLC (HDM) is owned by Health Management Corporation of America (70.8%) and investors (29.2%). Health Management Corporation of America is owned 100% by FONAR Corporation. During the fiscal year 2022, the Company purchased non-controlling interests from the minority shareholders for $546,000.
Added
Revenues from the sale of SwiftMR TM are included in the service and maintenance revenues described above. We have also formed a new subsidiary, Opus Diagnostic Management, LLC, which is focused on providing service for MRI scanners sold by other manufacturers.
Removed
We completed the consolidation of our two Manhattan centers into their new location in Midtown, removing the scanner previously located at Avenue A. The extremity-only scanner at our Brooklyn location was deemed to be passed its useful life and was removed from service.
Added
We hope to control the cost of maintaining and repairing the outside manufacturer equipment operated by HMCA, and eventually expand into providing maintenance and repair services to third party operators of outside manufacturer equipment. Revenues from Opus are included in the service and maintenance revenues described above.
Removed
Based on available volume discounts, HMCA seeks to assist in obtaining favorable pricing for office and medical supplies, medical imaging film, equipment, contrast agents, such as gadolinuim, and magnavist and other inventory for its clients. 6. Diagnostic Imaging and Ancillary Services. HMCA can offer access to diagnostic imaging equipment through diagnostic imaging facilities it manages.
Added
As of June 30, 2024, a total of 241 patents have been issued to FONAR. In fiscal year 2024, we obtained two new patents. One such patent deals with a method of detecting coronary and/or pulmonary deficiencies using Upright® MRI technology. Another describes a method for quantification of Cerebro-Spinal Fluid flor anywhere in the cerebro-spinal anatomy.
Removed
The six Florida facilities owned by HMCA subsidiaries directly bill their patients or the patients’ insurance carriers. Patient fees net of provision for bad debts were $29,793,993 in fiscal 2023 as compared to $29,582,238 in fiscal 2022.

… 16 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

12 edited+5 added−9 removed10 unchanged
Biggest changeThese changes will negatively impact our Florida diagnostic imaging facilities (both those we own and those we manage) with more unpaid bills, and lower reimbursement rates. The full extent of those reductions are unclear at this time. In addition to the above, Florida legislature continues to propose an outright repeal of Florida’s No-Fault law.
Biggest changeOn March 24, 2023, Florida Governor Ron DeSantis signed into law House Bill 837. Dubbed the Tort Reform Act. The bill makes sweeping changes to Florida’s negligence laws. These changes will negatively impact our Florida diagnostic imaging facilities (both those we own and those we manage) with more unpaid bills, and lower reimbursement rates.
The expansion of health maintenance organizations, preferred provider organizations and other managed care organizations in New York or Florida could have a negative impact on the utilization and pricing of services performed at the facilities HMCA manages or owns to the extent these organizations exert control over patients’ access to diagnostic imaging services, selections of the provider of such services and reimbursement rates for those services. 7.
The expansion of health maintenance organizations, preferred provider organizations and other managed care organizations in New York or Florida could have a negative impact on the utilization and pricing of services performed at the facilities HMCA manages or owns to the extent these organizations exert control over patients’ access to diagnostic imaging services, selections of the provider of such services and reimbursement rates for those services. 6.
Page 27 FONAR CORPORATION AND SUBSIDIARIES 8. Eligibility Changes to Insurance Programs. Due to potential decreased availability of healthcare through private employers, the number of patients who are uninsured or participate in governmental programs may increase. Healthcare reform legislation will increase the participation of individuals in the Medicaid program in states that elect to participate in the expanded Medicaid coverage.
Page 25 FONAR CORPORATION AND SUBSIDIARIES 7. Eligibility Changes to Insurance Programs. Due to potential decreased availability of healthcare through private employers, the number of patients who are uninsured or participate in governmental programs may increase. Healthcare reform legislation will increase the participation of individuals in the Medicaid program in states that elect to participate in the expanded Medicaid coverage.
These increased costs make it more difficult to achieve organic growth and extend the time that a new center takes to achieve profitability. Continued costs increases, coupled with reduced reimbursement rates, may threaten the profitability of our current operations and cause the cost of expansion to become prohibitively high. Page 26 FONAR CORPORATION AND SUBSIDIARIES 3. Demand for MRI Scanners.
These increased costs make it more difficult to achieve organic growth and extend the time that a new center takes to achieve profitability. Continued costs increases, coupled with reduced reimbursement rates, may threaten the profitability of our current operations and cause the cost of expansion to become prohibitively high. Page 24 FONAR CORPORATION AND SUBSIDIARIES 3. Cybersecurity threats.
If we fail to comply with applicable privacy and security laws, regulations and standards, properly maintain the integrity of our data, protect our proprietary rights to our systems, or defend against cybersecurity attacks, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected.
If we fail to comply with applicable privacy and security laws, regulations and standards, properly maintain the integrity of our data, protect our proprietary rights to our systems, or defend against cybersecurity attacks, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected. 9. Current and future changes in Florida Insurance Law.
The reduced margins have a negative effect on our sales of MRI scanners. With lower revenue projections, prospective customers demand lower prices for scanners. Although the reduced reimbursements may not affect foreign demand, a lower number of sales in the aggregate could reduce economies of scale and consequently, profit margins. 4. Manufacturing Competition.
With lower revenue projections, prospective customers demand lower prices for scanners. Although the reduced reimbursements may not affect foreign demand, a lower number of sales in the aggregate could reduce economies of scale and consequently, profit margins. 11. Manufacturing Competition.
Page 28 FONAR CORPORATION AND SUBSIDIARIES 10. Federal and state privacy and information security laws. We must comply with numerous federal and state laws and regulations governing the collection, dissemination, access, use, security and privacy of PHI, including HIPAA and its implementing privacy and security regulations, as amended by the federal HITECH Act.
We must comply with numerous federal and state laws and regulations governing the collection, dissemination, access, use, security and privacy of PHI, including HIPAA and its implementing privacy and security regulations, as amended by the federal HITECH Act.
Even for those patients who remain in private insurance plans, changes to those plans could increase patient financial responsibility, resulting in a greater risk of uncollectible receivables. These factors and events could have a material adverse effect on our business, financial condition, and results of operations. 9. Current and future changes in Florida Insurance Law.
Even for those patients who remain in private insurance plans, changes to those plans could increase patient financial responsibility, resulting in a greater risk of uncollectible receivables. These factors and events could have a material adverse effect on our business, financial condition, and results of operations. 8. Federal and state privacy and information security laws.
Turbulence and uncertainty in the United States and international markets and economies may adversely affect our liquidity, financial condition, revenues, profitability and business operations generally. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We are subject to risk arising from adverse changes in general domestic and global economic conditions, including recession or economic slowdown and disruption of credit markets. Turbulence and uncertainty in the United States and international markets and economies may adversely affect our liquidity, financial condition, revenues, profitability and business operations generally. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Pressure to Control Healthcare Costs. One of the principal objectives of health maintenance organizations and preferred provider organizations is to control the cost of healthcare services. Healthcare providers participating in managed care plans may be required to refer diagnostic imaging tests to certain providers depending on the plan in which a covered patient is enrolled.
Healthcare providers participating in managed care plans may be required to refer diagnostic imaging tests to certain providers depending on the plan in which a covered patient is enrolled. In addition, managed care contracting has become very competitive.
We depend on referrals of patients from unaffiliated physicians and other third parties to the facilities we manage or own for the services we perform. If these physicians and other third parties were to reduce the number of patients they refer or discontinue referring patients, scan volumes could decrease, which would reduce our net revenue and operating margins. 6.
If these physicians and other third parties were to reduce the number of patients they refer or discontinue referring patients, scan volumes could decrease, which would reduce our net revenue and operating margins. 5. Pressure to Control Healthcare Costs. One of the principal objectives of health maintenance organizations and preferred provider organizations is to control the cost of healthcare services.
We believe that with time, that objective will be reached, particularly with customers scanning patients having neck, back, knee and various orthopedic issues who would benefit from being scanned in weight-bearing positions. 5. Dependence on Referrals. HMCA derives substantially all of its revenue, directly or indirectly, from fees charged for the diagnostic imaging services performed at the facilities.
We believe that with time, that objective will be reached, particularly with customers scanning patients having neck, back, knee and various orthopedic issues who would benefit from being scanned in weight-bearing positions. Page 26 FONAR CORPORATION AND SUBSIDIARIES 12. Other changes in Domestic and Worldwide Economic Conditions.
Removed
In addition, managed care contracting has become very competitive.
Added
The healthcare industry has increasingly become a target for threat actors. Our organization relies on information technology systems and computer networks to operate. Our partners, vendors and business associates are equally reliant on their own computer systems to provide the services that we depend on to perform core functions such as scheduling and billing.
Removed
On March 24, 2023, Florida Governor Ron DeSantis signed into law House Bill 837.
Added
Data incidents in the form of breaches, ransomware attacks, denial-of-service attacks, and a variety of other hazards could materially disrupt our operations, or the operations of our partners. In addition, the costs to respond to such incidents related to rebuilding internal systems, restoring data, responding to regulatory investigations and/or litigation could be significant.
Removed
Dubbed the Tort Reform Act, the bill makes sweeping changes to Florida’s negligence laws, including reducing the statute of limitations, barring recovery for plaintiffs who are found to be 50% or greater at fault, and changing the rule of evidence regarding admissibility of the costs of prior and future medical treatment.
Added
Our cybersecurity liability insurance may be inadequate to cover these losses. The cost of maintaining and improving our security technologies to protect ourselves from these threats is increasing. Risk outside of our control, such as cybersecurity attacks to our partners, vendors and business associates could threaten our ability to operate in the short term and reduce operating margins. 4.
Removed
The bill is viewed as a boon to insurance companies, and is largely aimed at reducing the cost of personal injury lawsuits to insurers operating in Florida’s motor vehicle and general liability markets. The full impact of the bill remains to be seen. Certain provisions of the bill are expected to negatively impact our reimbursement percentage and/or reimbursement rates.
Added
Dependence on Referrals. HMCA derives substantially all of its revenue, directly or indirectly, from fees charged for the diagnostic imaging services performed at the facilities. We depend on referrals of patients from unaffiliated physicians and other third parties to the facilities we manage or own for the services we perform.
Removed
We expect that some percentage of our patients who are seeking treatment following motor vehicle accidents will not meet the new 51% threshold, and as a result we expect an increase in the percentage of uncollectible billings from those patients. We are unable to estimate what that percentage might be.
Added
The full extent of those reductions are unclear at this time. Florida legislators continue to propose significant changes to the current structure of Florida’s auto insurance industry, which may impact our future operations in Florida. 10. Demand for MRI Scanners. The reduced margins have a negative effect on our sales of MRI scanners.
Removed
Further, changes to the evidentiary admissibility rules may lead to a higher percentage of our billings being paid at commercial rates instead of at the presently prevailing PIP schedule, a reduction in reimbursement of approximately 60%.
Removed
SB 586 and its companion statue H 429, again propose a repeal of Personal Injury Protection and replacing it with $25,000 Bodily Injury Coverage and Property Damage Liability Coverage. We cannot predict whether Florida will continue to pursue the repeal of the No-Fault Law in light of the passage of HB 837, and whether such efforts will be successful.
Removed
Information security risks have significantly increased in recent years because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct our operations, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state agents.
Removed
Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks. 11. Other changes in Domestic and Worldwide Economic Conditions. We are subject to risk arising from adverse changes in general domestic and global economic conditions, including recession or economic slowdown and disruption of credit markets.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeThe Company received approval from the Suffolk County Industrial Development Agency on February 29, 2016 of a 50% property tax abatement, valued at $440,000, over a 10 year period commencing January, 2017. ITEM 3. LEGAL PROCEEDINGS. There are no material legal proceedings threatened or pending against the Company.
Biggest changeThe Company received approval from the Suffolk County Industrial Development Agency on February 29, 2016 of a 50% property tax abatement, valued at $440,000, over a 10 year period commencing January, 2017. ITEM 3. LEGAL PROCEEDINGS. There are no material legal proceedings threatened or pending against the Company. ITEM 4. MINE SAFETY DISCLOSURES. Not Applicable PART II
ITEM 2. PROPERTIES FONAR and HMCA currently lease approximately 78,000 square feet of office and plant space at its principal offices in Melville, New York. The term of the lease runs through November, 2026. Management believes that the premises will be adequate for its current needs.
ITEM 2. PROPERTIES FONAR and HMCA currently lease approximately 78,000 square feet of office and plant space at its principal offices in Melville, New York. The term of the lease runs through November, 2033. Management believes that the premises will be adequate for its current needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+4 added−1 removed2 unchanged
Biggest changeAt the present time, the only class of our securities for which there is a market is the Common Stock. We currently have a policy of retaining earnings to finance the development and expansion of our business. We expect to continue this policy for the foreseeable future.
Biggest changePage 28 FONAR CORPORATION AND SUBSIDIARIES At the present time, the only class of our securities for which there is a market is the Common Stock. We currently have a policy of retaining earnings to finance the development and expansion of our business. We expect to continue this policy for the foreseeable future.
Performance Graph The following graph compares the Company’s cumulative total stockholder return on its Common Stock against industry and broad-market indexes which have been compiled by the Nasdaq Global Index Group. The periods commence on June 28, 2019 for five years and end on June 30, 2023..
Performance Graph The following graph compares the Company’s cumulative total stockholder return on its Common Stock against industry and broad-market indexes which have been compiled by the Nasdaq Global Index Group. The periods commence on June 28, 2020 for five years and end on June 30, 2024..
On September 12, 2023, we had approximately 996 stockholders of record of our Common Stock, 12 stockholders of record of our Class B Common Stock, 3 stockholders of record of our Class C Common Stock and 1,155 stockholders of record of our Class A Non-voting Preferred Stock.
On September 12, 2024, we had approximately 978 stockholders of record of our Common Stock, 12 stockholders of record of our Class B Common Stock, 3 stockholders of record of our Class C Common Stock and 1,008 stockholders of record of our Class A Non-voting Preferred Stock .
Removed
Date June 28, 2019 June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 FONR Common Stock $ 100 $ 99 $ 82 $ 71 $ 79 Nasdaq Composite $ 100 $ 127 $ 184 $ 141 $ 178 Nasdaq Health $ 100 $ 114 $ 58 $ 193 $ 185 Nasdaq Equipment $ 100 $ 106 $ 54 $ 129 $ 145 ] Page 30 FONAR CORPORATION AND SUBSIDIARIES ITEM 6. [Reserved] Not applicable.
Added
Date June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 June 30, 2024 FONR Common Stock $ 100 $ 83 $ 71 $ 80 $ 75 Nasdaq Composite $ 100 $ 145 $ 111 $ 140 $ 182 Health Care Management Services $ 100 $ 139 $ 169 $ 162 $ 177 Medical Equipment $ 100 $ 145 $ 121 $ 137 $ 143 Page 29 FONAR CORPORATION AND SUBSIDIARIES Share Repurchase Program In September 2022, our Board of Directors authorized a program to repurchase up to $9 million of our common stock.
Added
Under this program, we may purchase stock in the open market or through privately negotiated transactions in accordance with applicable securities laws, including pursuant to pre-arranged stock trading plans. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, and other market conditions.
Added
We are not obligated to repurchase a specific number of shares under this program and it may be modified, suspended or discontinued at any time.
Added
The following table summarizes the number of shares repurchased during the three months ended June 30, 2024: Fiscal Month Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value that May Still Be Purchased Under the Program (In Thousands) April 1, 2024 – April 30, 2024 0 $ — 0 5,355 May 1, 2024 – May 31, 2024 17,851 $ 15.02 17,851 5,087 June 1, 2024 – June 30, 2024 22,847 $ 15.45 22,847 4,734 Total 40,698 $ 15.26 40,698 ITEM 6. [Reserved] Not applicable.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. [Reserved] 31 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 39 Item 8. Financial Statements and Supplementary Data 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 81 Item 9A. Controls and Procedures 81
Biggest changeItem 6. [Reserved[ 30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 38 Item 8. Financial Statements and Supplementary Data 38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 80 Item 9A. Controls and Procedures 80 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

61 edited+14 added−15 removed7 unchanged
Biggest changeFor net deferred tax assets we consider estimates of future taxable income, including tax planning strategies, in determining whether our net deferred tax assets are more likely than not to be realized. Our ability to project future taxable income may be significantly affected by our ability to determine the impact of regulatory changes which could adversely affect our future profits.
Biggest changeIf future taxable income or other factors are not consistent with our expectations, an adjustment to our allowance for net deferred tax assets may be required. For net deferred tax assets we consider estimates of future taxable income, including tax planning strategies, in determining whether our net deferred tax assets are more likely than not to be realized.
CRITICAL ACCOUNTING POLICIES Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Management makes estimates and assumptions when preparing financial statements.
CRITICAL ACCOUNTING ESTIMATES Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Management makes estimates and assumptions when preparing financial statements.
The cost-containment measures, consolidated with the increasing influence of managed-care payors and competition for patients, have resulted in reduced rates of reimbursement for services provided by our clients from time to time. Our future revenues and results of operations may be adversely impacted by future reductions in reimbursement rates.
The cost-containment measures, consolidated with the increasing influence of managed-care payers and competition for patients, have resulted in reduced rates of reimbursement for services provided by our clients from time to time. Our future revenues and results of operations may be adversely impacted by future reductions in reimbursement rates.
Revenues from HMCA have been the principal reason for our profitability, and we have so far been able to maintain and increase such revenues by increasing the number of scans being performed by the sites we manage and those we own, notwithstanding reductions in reimbursement rates from third-party payors.
Revenues from HMCA have been the principal reason for our profitability, and we have so far been able to maintain and increase such revenues by increasing the number of scans being performed by the sites we manage and those we own, notwithstanding reductions in reimbursement rates from third-party payers.
The health care industry is experiencing the effects of the federal and state governments’ trend toward cost containment, as governments and other third-party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers.
The health care industry is experiencing the effects of the federal and state governments’ trend toward cost containment, as governments and other third-party payers seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers.
To the extent reimbursement from third-party payors is reduced, it will likely have an adverse impact on the rates they pay us, as they would need to reduce the management fees they pay HMCA to offset such decreased reimbursement rates.
To the extent reimbursement from third-party payers is reduced, it will likely have an adverse impact on the rates they pay us, as they would need to reduce the management fees they pay HMCA to offset such decreased reimbursement rates.
Fees for on-going service and maintenance from our installed base of scanners were $7.7 million for the year ended June 30, 2022 and $7.5 million for the year ended June 30, 2023. In order to promote profitability and to reduce demands on our cash and other liquid reserves, we maintain an aggressive program of cost containment.
Fees for on-going service and maintenance from our installed base of scanners were $7.5 million for the year ended June 30, 2023 and $7.6 million for the year ended June 30, 2024. In order to promote profitability and to reduce demands on our cash and other liquid reserves, we maintain an aggressive program of cost containment.
As of June 30, 2023, the valuation allowance was $364,000. We have been taking steps to improve HMCA revenues by our marketing efforts, which focus on the unique capability of our Upright® MRI scanners to scan patients in different positions. We have also been increasing the number of health insurance plans in which our clients participate.
As of June 30, 2024, the valuation allowance was $193,000. We have been taking steps to improve HMCA revenues by our marketing efforts, which focus on the unique capability of our Upright® MRI scanners to scan patients in different positions. We have also been increasing the number of health insurance plans in which our clients participate.
FONAR’s open MRI scanners were the first high field strength open MRI scanners in the industry. HMCA generates revenues from providing comprehensive management services, including development, administration, accounting, billing and collection services, together with office space, medical equipment, supplies and non-medical personnel to its clients.
FONAR’s open MRI scanners were the first high field strength open MRI scanners in the industry. Page 30 FONAR CORPORATION AND SUBSIDIARIES HMCA generates revenues from providing comprehensive management services, including development, administration, accounting, billing and collection services, together with office space, medical equipment, supplies and non-medical personnel to its clients.
Page 37 FONAR CORPORATION AND SUBSIDIARIES Our business plan also calls for a continuing emphasis on providing our customers with enhanced equipment service and maintenance capabilities and delivering state-of-the-art, innovative and high quality equipment upgrades at competitive prices.
Our business plan also calls for a continuing emphasis on providing our customers with enhanced equipment service and maintenance capabilities and delivering state-of-the-art, innovative and high quality equipment upgrades at competitive prices.
As of June 30, 2023, HMCA manages a total of 41 MRI scanners of which 24 MRI scanners are located in New York and 17 are located in Florida. We have also intensified our marketing activities through the hiring of additional marketers for HMCA’s clients.
As of June 30, 2024, HMCA manages a total of 42 MRI scanners of which 25 MRI scanners are located in New York and 17 are located in Florida. We have also intensified our marketing activities through the hiring of additional marketers for HMCA’s clients.
For the physician and diagnostic services management segment, HMCA, revenues increased to $90.4 million in fiscal 2023 as compared to $89.3 million in fiscal 2022. This is primarily attributable to an increase in patient scans resulting from our marketing efforts.
For the physician and diagnostic services management segment, HMCA, revenues increased to $94.6 million in fiscal 2024 as compared to $90.4 million in fiscal 2023. This is primarily attributable to an increase in patient scans resulting from our marketing efforts.
Discussion of Operating Results of Physician and Diagnostic Services Management Segment Fiscal 2023 Compared to Fiscal 2022 Revenues attributable to the Company’s physician and diagnostic services management segment, HMCA, increased to $90.4 million in fiscal 2023 as compared to $89.4 million in fiscal 2022.
Discussion of Operating Results of Physician and Diagnostic Services Management Segment Fiscal 2024 Compared to Fiscal 2023 Revenues attributable to the Company’s physician and diagnostic services management segment, HMCA, increased to $94.6 million in fiscal 2024 as compared to $90.4 million in fiscal 2023.
In fiscal 2023 we continued our investment in the development of various upgrades for the UPRIGHT® MRI, with an investment of $1,567,749 in research and development, none of which was capitalized, as compared to $1,494,181, none of which was capitalized, in fiscal 2022.
In fiscal 2024 we continued our investment in the development of various upgrades for the UPRIGHT® MRI, with an investment of $1,735,949 in research and development, none of which was capitalized, as compared to $1,567,749, none of which was capitalized, in fiscal 2023.
The 29.2% noncontrolling interest allocations of $2,751,000 and $4,793,000 for fiscal 2023 and fiscal 2022, respectively, have been calculated by Income from operations, and adding depreciation and amortization net of miscellaneous losses and other income from the Physician and Diagnostic Service Management segment (See Note 16).
The 29.2% non-controlling interest allocations of $3,530,000 and $2,751,000 for fiscal 2024 and fiscal 2023, respectively, have been calculated by Income from operations, and adding depreciation and amortization net of miscellaneous losses and other income from the Physician and Diagnostic Service Management segment (See Note 16).
Page 35 FONAR CORPORATION AND SUBSIDIARIES For the fiscal year 2023 the Company recorded an income tax expense of $3.6 million compared with an income tax expense of $5.5 million for 2022. The income tax benefits are attributable to the expected tax benefits associated with the projected realization and utilization of our net operating losses in future periods.
For the fiscal year 2024 the Company recorded an income tax expense of $5.2 million compared with an income tax expense of $3.6 million for 2023. The income tax benefits are attributable to the expected tax benefits associated with the projected realization and utilization of our net state operating losses in future periods.
Certain third-party payors have proposed and implemented changes in the methods and rates of reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging services that HMCA’s clients provide.
Page 35 FONAR CORPORATION AND SUBSIDIARIES Certain third-party payers have proposed and implemented changes in the methods and rates of reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging services that HMCA’s clients provide.
The research and development expenditures were approximately 18.9% of revenues attributable to our medical equipment segment and 1.5% of total revenues in 2023, and 18.2% of medical equipment segment revenues and 1.5% of total revenues in fiscal 2022. This represented a 4.9% increase in research and development expenditures in fiscal 2023 as compared to fiscal 2022.
The research and development expenditures were approximately 20.8% of revenues attributable to our medical equipment segment and 1.7% of total revenues in 2024, and 18.9% of medical equipment segment revenues and 1.5% of total revenues in fiscal 2023. This represented a 10.7% increase in research and development expenditures in fiscal 2024 as compared to fiscal 2023.
The principal uses of cash used in financing activities included the repayment of borrowings and capital lease obligations of $37,000, purchase of treasury stock of $1.8 million and distributions to non-controlling interests of $5.8 million. Total liabilities decreased by 6.3% during fiscal 2023, from approximately $53.1 million at June 30, 2022 to approximately $49.8 million at June 30, 2023.
The principal uses of cash used in financing activities included the repayment of borrowings and capital lease obligations of $45,000, purchase of treasury stock of $2.5 million and distributions to non-controlling interests of $5.6 million. Total liabilities increased by 15.5% during fiscal 2024, from approximately $49.8 million at June 30, 2023 to approximately $57.5 million at June 30, 2024.
Revenue from service and repair fees decreased from $7.7 million in fiscal 2022 to $7.5 million in fiscal 2023. Continuing our tradition as the originator of MRI, we remain committed to maintaining our position as the leading innovator of the industry through investing in research and development.
Revenue from service and repair fees increased from $7.5 million in fiscal 2023 to $7.6 million in fiscal 2024. Page 34 FONAR CORPORATION AND SUBSIDIARIES Continuing our tradition as the originator of MRI, we remain committed to maintaining our position as the leading innovator of the industry through investing in research and development.
The Company believes that its business plan has been responsible for the past five consecutive fiscal years of profitability (fiscal 2023, fiscal 2022, fiscal 2021, fiscal 2020 and fiscal 2019) and that its capital resources will be adequate to support operations at current levels through September 30, 2024. On September 13, 2022, the Company adopted a stock repurchase plan.
Page 37 FONAR CORPORATION AND SUBSIDIARIES The Company believes that its business plan has been responsible for the past five consecutive fiscal years of profitability (fiscal 2024, fiscal 2023, fiscal 2022, fiscal 2021 and fiscal 2020) and that its capital resources will be adequate to support operations at current levels through September 30, 2025.
FISCAL 2023 COMPARED TO FISCAL 2022 In fiscal 2023, we recognized net income of $12.1 million on revenues of $98.6 million, as compared to net income of $17.2 million on revenues of $97.6 million for fiscal 2022. This represents an increase in revenues of 1.1%. Total costs and expenses increased by 10.9%.
FISCAL 2024 COMPARED TO FISCAL 2023 In fiscal 2024, we recognized net income of $14.1 million on revenues of $102.9 million, as compared to net income of $12.1 million on revenues of $98.6 million for fiscal 2023. This represents an increase in revenues of 4.3%. Total costs and expenses increased by 3.0%.
LIQUIDITY AND CAPITAL RESOURCES Cash, and cash equivalents increased by 5.2% from $48.7 million at June 30, 2022 to $51.3 million at June 30, 2023. Cash provided by operating activities for fiscal 2023 approximated $14.5 million.
LIQUIDITY AND CAPITAL RESOURCES Cash, and cash equivalents increased by 9.9% from $51.3 million at June 30, 2023 to $56.3 million at June 30, 2024. Cash provided by operating activities for fiscal 2024 approximated $14.1 million.
As a result our business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known.
Current economic credit conditions have contributed to a slower than optimal business environment. As a result our business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known.
The cost control efforts are intended to enable us to withstand periods of low volumes of MRI scanner sales, by keeping expenditures at levels which can be supported by service revenues and HMCA revenues. Current economic credit conditions have contributed to a slower than optimal business environment.
The cost control efforts are intended to enable us to withstand periods of low volumes of MRI scanner sales, by keeping expenditures at levels which can be supported by service revenues and HMCA revenues.
Cash provided by operating activities was attributable to the net income of $12.1 million, depreciation and amortization of $4.5 million, provision for bad debts of $5.5 million, deferred income tax expense benefit of $3.0 million which was offset by the increase in accounts, and medical and management fee receivables of $8.1 million.
Cash provided by operating activities was attributable to the net income of $14.1 million, depreciation and amortization of $4.6 million, provision for credit losses of $1.9 million, deferred income tax expense benefit of $2.8 million which was offset by the increase in accounts, and medical and management fee receivables of $11.7 million.
These estimates and assumptions affect various matters, including: Our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; Our disclosure of contingent assets and liabilities at the dates of the financial statements; and Our reported amounts of net revenue and expenses in our consolidated statements of operations during the reporting periods.
These estimates and assumptions affect various matters, including: Our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; Our disclosure of contingent assets and liabilities at the dates of the financial statements; and Our reported amounts of net revenue and expenses in our consolidated statements of operations during the reporting periods These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control.
Discussion of Operating Results of Medical Equipment Segment Fiscal 2023 Compared to Fiscal 2022 Revenues attributable to our medical equipment segment increased by 0.5% to $8.3 million in fiscal 2023 from $8.2 million in fiscal 2022, with product sales revenues increasing by 41.2% from $518,000 in fiscal 2022 to $732,000 in fiscal 2023.
Discussion of Operating Results of Medical Equipment Segment Fiscal 2024 Compared to Fiscal 2023 Revenues attributable to our medical equipment segment remained constant at $8.3 million in fiscal 2024 and in fiscal 2023, with product sales revenues increasing by 0.8% from $732,000 in fiscal 2023 to $738,000 in fiscal 2024.
In many cases, this leads to lower utilization of imaging procedures based on a determination of medical necessity. The efficacy of RBMs is still a highly controversial topic. We cannot predict whether the use of RBMs will negatively impact our business, but it is possible that our financial position and results of operations could be negatively affected.
The efficacy of RBMs is still a highly controversial topic. We cannot predict whether the use of RBMs will negatively impact our business, but it is possible that our financial position and results of operations could be negatively affected.
Page 36 FONAR CORPORATION AND SUBSIDIARIES In addition, the use of radiology benefit managers, or RBM’s has increased in recent years. It is common practice for health insurance carriers to contract with RBMs to manage utilization of diagnostic imaging procedures for their insureds.
In addition, the use of radiology benefit managers, or RBM’s has increased in recent years. It is common practice for health insurance carriers to contract with RBMs to manage utilization of diagnostic imaging procedures for their insureds. In many cases, this leads to lower utilization of imaging procedures based on a determination of medical necessity.
The increase in revenues was due to an increase of $212,000 of patient fees (net of contractual allowances and discounts less provision for bad debts) from patient and third-party payors recognized by six of the facilities in Florida. Management and other fees increased by $799,000.
The increase in revenues was due to an increase of $4.0 million of patient fees (net of contractual allowances and discounts) from patient and third-party payers recognized by six of the facilities in Florida. Management and other fees increased by $0.1 million.
For the year ended June 30, 2023, we realized a net income of $12.1 million. Our principal sources of liquidity are derived from revenues. Our business plan includes a program for manufacturing and selling our Upright® MRI scanners.
For the year ended June 30, 2024, we realized a net income of $14.1 million. Our principal sources of liquidity are derived from revenues. Our business plan includes a program for manufacturing and selling our Upright® MRI scanners. In addition, we are enhancing our revenue by participating in the physician and diagnostic services management business through our subsidiary, HMCA.
Cost of revenues as a percentage of the related revenues for our physician and diagnostic services management segment increased from $47.1 million or 52.7% of related revenues for the year ended June 30, 2022 to $49.0 million, or 54.1% of related revenues for the year ended June 30, 2023. The cost relating to these revenues increased more than the revenues.
Page 33 FONAR CORPORATION AND SUBSIDIARIES Cost of revenues as a percentage of the related revenues for our physician and diagnostic services management segment increased from $49.0 million or 54.1% of related revenues for the year ended June 30, 2023 to $53.0 million, or 56.0% of related revenues for the year ended June 30, 2024.
The terms include borrowing limits of up to $10,000,000 and the agreement was extended to November 15, 2023. The interest rate on unpaid principal remains at 4% along with certain financial covenants still applicable. Page 38 FONAR CORPORATION AND SUBSIDIARIES
During January 2024 the Company renewed their revolving credit agreement. The terms include borrowing limits of up to $10,000,000 and the agreement was extended to November 14, 2024. The interest rate on unpaid principal remains at 4% along with certain financial covenants still applicable.
The fair value of a reporting unit is estimated using a combination of the income or discounted cash flows approach and the market approach, which uses comparable market data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.
Impairment of goodwill is tested by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value of a reporting unit is estimated using a combination of the income or discounted cash flows approach and the market approach, which uses comparable market data.
The increase in costs was primarily due to the increase in business activity which resulted in our increased revenues. Research and development expenses increased to $1.6 million in fiscal 2023 from $1.5 million in fiscal 2022. Our expenses for fiscal 2023 represented continued research and development of various upgrades for the Upright® MRI scanner.
Research and development expenses increased to $1.7 million in fiscal 2024 from $1.6 million in fiscal 2023. Our expenses for fiscal 2024 represented continued research and development of various upgrades for the Upright® MRI scanner.
Our consolidated operating results decreased by 32.8% to an operating income of $14.8 million for fiscal 2023 as compared to operating income of $22.0 million for fiscal 2022.
Our consolidated operating results increased by 11.8% to an operating income of $16.5 million for fiscal 2024 as compared to operating income of $14.8 million for fiscal 2023.
The Company has recorded a deferred tax asset of $10.0 million as of June 30, 2023, primarily relating to the tax benefits from the net operating loss carry forwards, allowance for doubtful accounts and tax credits available to offset future taxable income. The utilization of these tax benefits is dependent on the Company generating future taxable income and other factors.
The Company has recorded a deferred tax asset of $7.2 million as of June 30, 2024, primarily relating to the tax benefits from the net state operating loss carry forwards, allowance for credit losses and tax credits available to offset future taxable income.
We expect recent changes to the Florida insurance laws to result in less patients being reimbursed through no-fault auto insurance, resulting in both lower reimbursement rates and a higher rate of uncollectible billings.
We expect recent changes to the Florida insurance laws to result in less patients being reimbursed through no-fault auto insurance, resulting in both lower reimbursement rates and a higher rate of uncollectible billings. Further, we believe that the passage of New York Public Health Law Article 49A will have a significant negative impact on our collection rates.
We recognized interest income of $1.2 million in 2023 as compared to $247,158 in fiscal 2022, representing an increase of 394.4%. This is due to the increase in the prime interest rate and the Company placing cash in interest bearing accounts. Interest expense of $50,131 was recognized in fiscal 2023, as compared to interest expense of $346,552 in fiscal 2022.
We recognized interest income of $2.1 million in 2024 as compared to $1.2 million in fiscal 2023, representing an increase of 74.0%. This is due to the increase in the prime interest rate and the Company placing cash in interest bearing accounts and purchasing short term treasury bills.
On September 26, 2022, the Board of Directors has approved up to $9 million to be repurchased under the plan which will be purchased on the open market at prevailing prices. During fiscal 2023, we repurchased 103,148 shares for $1.8 million. During August 2023 the Company renewed their revolving credit agreement.
On September 13, 2022, the Company adopted a stock repurchase plan. On September 26, 2022, the Board of Directors has approved up to $9 million to be repurchased under the plan which will be purchased on the open market at prevailing prices. During fiscal 2024, we repurchased 156,206 shares for $2.5 million.
We periodically assess the recoverability of long-lived assets, including property and equipment, intangibles and management agreements, when there are indications of potential impairment, based on estimates of undiscounted future cash flows. The amount of impairment is calculated by comparing anticipated discounted future cash flows with the carrying value of the related asset.
However, if estimates or the related assumptions change in the future, we may be required to record impairment charges to reduce the carrying amount of goodwill. We periodically assess the recoverability of long-lived assets, including property and equipment, intangibles and management agreements, when there are indications of potential impairment, based on estimates of undiscounted future cash flows.
Our management fees are dependent on collection by our clients of fees from reimbursements from Medicare, Medicaid, private insurance, no fault and workers’ compensation carriers, self–pay and other third-party payors.
Operationally, we have invested in technology that we believe will reduce scan times and improve operational efficiency in the centers that we manage. Our management fees are dependent on collection by our clients of fees from reimbursements from Medicare, Medicaid, private insurance, no fault and workers’ compensation carriers, self–pay and other third-party payers.
As a result, the benefits of our net operating loss carry forwards could expire before they are utilized. At June 30, 2022, the net deferred tax asset was valued at $12,842,478. At June 30, 2023, the net deferred tax asset was valued at $10,041,960.
Our ability to project future taxable income may be significantly affected by our ability to determine the impact of regulatory changes which could adversely affect our future profits. As a result, the benefits of our net operating loss carry forwards could expire before they are utilized. At June 30, 2023, the net deferred tax asset was valued at $10,041,960 .
We believe that our efforts to expand and improve the operation of our physician and diagnostic services management segment are directly responsible for the profitability of this segment and our company as a whole. For the fiscal year ended June 30, 2023, 12.1% of total revenues were derived from contract with facilities that were owned by Dr. Raymond V.
We believe that our efforts to expand and improve the operation of our physician and diagnostic services management segment are directly responsible for the profitability of this segment and our company as a whole.
A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed, (principally related to research and development credits).
The utilization of these tax benefits is dependent on the Company generating future taxable income and other factors. A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed, (principally related to research and development credits and unrealizable state operating losses).
At June 30, 2023, we had working capital of approximately $110.0 million as compared to working capital of $101.9 million at June 30, 2022, and stockholders’ equity of $150.8 million at June 30, 2023 as compared to stockholders’ equity of $146.2 million at June 30, 2022.
Page 36 FONAR CORPORATION AND SUBSIDIARIES At June 30, 2024, we had working capital of approximately $122.5 million as compared to working capital of $110.00 million at June 30, 2023, and stockholders’ equity of $156.8 million at June 30, 2024 as compared to stockholders’ equity of $150.8 million at June 30, 2023.
The fees for these sites, which are located in Florida, are flat monthly fees. Page 34 FONAR CORPORATION AND SUBSIDIARIES Discussion of Certain Consolidated Results of Operations Fiscal 2023 Compared to Fiscal 2022 Interest and investment income increased in 2023 compared to 2022.
The agreements with these MRI facilities are for one-year terms which renew automatically on an annual basis, unless terminated. The fees for these sites, which are located in Florida, are flat monthly fees. Discussion of Certain Consolidated Results of Operations Fiscal 2024 Compared to Fiscal 2023 Interest and investment income increased in 2024 compared to 2023.
We depreciate our long-lived assets over their estimated economic useful lives with the exception of leasehold improvements where we use the shorter of the assets useful lives or the lease term of the facility for which these assets are associated.
With respect to leasehold improvements, we use the shorter of the assets useful lives or the lease term of the facility for which these assets are associated. We amortize our intangible assets, including patents, and capitalized software development costs, over the shorter of the contractual/legal life or the estimated economic life.
The likelihood and effect of any subsequent reductions is not fully known. Capital expenditures for fiscal 2023 approximated $4.3 million. Capitalized patent costs were approximately $120,000. Purchases of property and equipment were approximately $4.2 million. FONAR is has not committed to making any material capital expenditures in the 2024 fiscal year.
The likelihood and effect of any subsequent reimbursement reductions is not fully known. Capital expenditures for fiscal 2024 approximated $926,000. Capitalized patent costs were approximately $33,000. Purchases of property and equipment were approximately $790,000. Purchase of short term investments was $103,000.
While revenue increased by 1.1% selling, general and administrative expenses increased by 25.0% to $29.4 million in fiscal 2023 from $23.5 million in fiscal 2022. This increase in selling, general and administrative expenses was due to placing more reserves on management fees and other receivables and from the impact of the COVID-19 virus as compared to fiscal 2022.
While revenue increased by 4.3% selling, general and administrative expenses decreased by 8.6% to $26.9 million in fiscal 2024 from $29.4 million in fiscal 2023. This difference in selling, general and administrative expenses was due to less reserves on management fees and other receivables due to increased scan volume as compared to fiscal 2023.
Cash used in investing activities for fiscal 2023 approximated $4.3 million. The cash used in investing activities was attributable to purchases of property and equipment of $4.2 million and costs of patents of $120,000. Cash used in financing activities for fiscal 2023 approximated $7.6 million.
Cash used in investing activities for fiscal 2024 approximated $851,000. The cash used in investing activities was attributable to purchases of property and equipment of $790,000, purchase of short term investments of $103,000, costs of patents of $33,000, offset by proceeds from sale of equipment of $75,000. Cash used in financing activities for fiscal 2024 approximated $8.2 million.
In performing this analysis, management considers such factors as current results, trends, and future prospects, in addition to other economic factors. RESULTS OF OPERATIONS.
The amount of impairment is calculated by comparing anticipated discounted future cash flows with the carrying value of the related asset. In performing this analysis, management considers such factors as current results, trends, and future prospects, in addition to other economic factors. Page 32 FONAR CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS.
Damadian until his passing, and currently owned by Timothy Damadian, the Chief Executive Officer of FONAR. 11.8% of total revenues were derived from these contracts for the 2022 fiscal year. The agreements with these MRI facilities are for one-year terms which renew automatically on an annual basis, unless terminated.
For the fiscal year ended June 30, 2024, 11.6% of total revenues were derived from contracts with facilities that are currently owned by Timothy Damadian, the Chief Executive Officer of FONAR, and were previously owned and operated by Dr. Raymond V. Damadian until his passing. 12.1% of total revenues were derived from these contracts for the 2023 fiscal year.
Management evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.
Our amortization life for patents and capitalized software development costs is 15 to 17 years and 5 years, respectively. Goodwill is recorded as a result of business combinations. Management evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.
In addition, lower reimbursement rates have reduced the demand for our MRI products, resulting in lower sales volumes. As a result of fewer sales, service revenues have decreased since as older scanners are taken out of service, there are fewer new scanners available to sign service contracts.
As a result of fewer sales, service revenues have decreased since as older scanners are taken out of service, there are fewer new scanners available to sign service contracts. The operating loss for the medical equipment segment increased from an operating loss of $5.9 million in fiscal 2023 to an operating loss of $7.0 million in fiscal 2024.
Under this method, we recognize revenue and related costs of revenue, as each sub-assembly is completed. Amounts received in advance of our commencement of production are recorded as customer advances. We continuously, qualitatively and quantitatively evaluate the realizability (including both positive and negative evidence) of the net deferred tax assets and assess the valuation allowance periodically.
Page 31 FONAR CORPORATION AND SUBSIDIARIES We recognize revenue and related costs of revenue from sales contracts for our MRI scanners and major upgrades, under the percentage-of-completion method. Under this method, we recognize revenue and related costs of revenue, as each sub-assembly is completed. Amounts received in advance of our commencement of production are recorded as customer advances.
Operating results of this segment decreased from operating income of $26.6 million in fiscal 2022 to operating income of $20.7 million in fiscal 2023. The decrease is due mainly to more reserves being taken on management fees.
Operating results of this segment increased from operating income of $20.7 million in fiscal 2023 to operating income of $23.5 million in fiscal 2024. The increase is due mainly to increased patient fee revenue due to higher scan volumes.
In the notes to our consolidated financial statements, we discuss our significant accounting policies. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We recognize revenue and related costs of revenue from sales contracts for our MRI scanners and major upgrades, under the percentage-of-completion method.
As a result, actual amounts could differ materially from these estimates. We believe our critical accounting estimates in the following areas affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Our evaluation considers the financial condition of the Company and both the business conditions and regulatory environment of the industry. If future taxable income or other factors are not consistent with our expectations, an adjustment to our allowance for net deferred tax assets may be required.
Income Taxes and Related Tax Asset Valuation Allowances We qualitatively and quantitatively evaluate the realizability (including both positive and negative evidence) of the net deferred tax assets and assess the valuation allowance periodically. Our evaluation considers the financial condition of the Company and both the business conditions and regulatory environment of the industry.
Based on our test for goodwill impairment, we noted no impairment related to goodwill. However, if estimates or the related assumptions change in the future, we may be required to record impairment charges to reduce the carrying amount of goodwill.
If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. Based on our test for goodwill impairment, we noted no impairment related to goodwill.
Removed
Since March, 2020, the global pandemic of COVID-19 has caused turbulence and uncertainty in the United States and international economies which have adversely affected our workforce, liquidity, financial conditions, revenues, profitability and business operations.
Added
Revenue Recognition and Receivable Allowances The Company’s receivables from the related and non-related professional corporations, as well as those receivables due under fee-for-service contracts at the Florida subsidiaries, are largely dependent on collection of fees from various third-party payers. As described in greater detail in Note 2, we recognize revenue in accordance with ASC 606, as the services are provided.
Removed
The Company has been able to navigate through these challenges and avoid any significant disruption of the business and the volume has risen back to pre-COVID-19 levels.
Added
Medical receivables are due under fee-for-service contracts with third-party payors, such as hospitals, government sponsored healthcare programs, patients legal counsel and directly from patients. The carrying amount of the medical receivable is reduced by contractual allowances and discounts based on the historical experience with each payor class on a per location basis.
Removed
Although we are unable to predict if there will be additional consequences on our operations, the Company believes with the positive cash flows, low debt and cash on hand, it will be able to continue operations going forward.
Added
Management fee receivable is related to the management fees outstanding from the related and no-related professional corporations (“PCs”) under management agreements. The Company establishes a current expected credit loss (“CECL”) to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be paid.
Removed
Page 31 FONAR CORPORATION AND SUBSIDIARIES These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ materially from these estimates.
Added
The PCs may be limited in their ability to pay the full management fees receivable if they do not collect sufficient expected fees from third-party payers and patients. The Company’s management fees are collateralized, individually and collectively, by the assets of the PCs.
Removed
The Securities and Exchange Commission defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Added
The CECL is determined based upon the difference between the management fee receivable and the current amount of outstanding fees estimated to be collected by the PCs.
Removed
The Company provides for medical receivables that could become uncollectible by establishing an allowance for doubtful accounts in order to adjust medical receivables to estimated net realizable value. In evaluating the collectability of medical receivables, the Company considers a number of factors, including the age of the account, historical collection experiences, payor type, current economic conditions and other relevant factors.
Added
The Company’s considerations into the estimate of the PCs fee collection included historical loss rates to pools of receivables with similar risks and characteristics, current and forward looking economic conditions, and the financial condition of each PC.
Removed
There are various factors that impact collection trends, such as payor mix, changes in the economy, increase burden on copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.
Added
At June 30, 2024, the net deferred tax asset was valued at $7,223,255. Long-Lived and Intangible Assets We depreciate our long-lived assets over their estimated economic useful lives, with the exception of leasehold improvements.
Removed
Page 32 FONAR CORPORATION AND SUBSIDIARIES We amortize our intangible assets, including patents, and capitalized software development costs, over the shorter of the contractual/legal life or the estimated economic life. Our amortization life for patents and capitalized software development costs is 15 to 17 years and 5 years, respectively.
Added
Service revenue increased by 0.8% from $7.5 million in fiscal 2023 to $7.6 million in fiscal 2024. Lower reimbursement rates have reduced the demand for our MRI products, resulting in lower sales volumes.
Removed
Our amortization of the non-competition agreements entered into with certain individuals in connection with the HDM transaction are depreciated over seven years, and customer relationships are amortized over 20 years. Goodwill is recorded as a result of business combinations.
Added
The losses are attributable most significantly to the fact that costs increased by a greater amount than revenues. The increase in costs was the result of several factors. We made a significant investment into developing the capacity to service MRI equipment manufactured by third manufacturers through our Opus Diagnostic Services, LLC subsidiary.
Removed
Service revenue decreased by 2.2% from $7.7 million in fiscal 2022 to $7.5 million in fiscal 2023. Product sales to unrelated parties increased by 41.2% from $518,000 in fiscal 2022 to $732,000 in fiscal 2023. There were no product sales to related parties in fiscal 2023 or 2022.

… 10 more changes not shown on this page.

Other FONR 10-K year-over-year comparisons