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What changed in FONAR CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FONAR CORP's 2022 and 2023 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 2023 report.

+199 added−244 removedSource: 10-K (2023-09-28) vs 10-K (2022-09-28)

Top changes in FONAR CORP's 2023 10-K

199 paragraphs added · 244 removed · 149 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

78 edited+32 added−68 removed99 unchanged
Biggest changeExamples 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.
Biggest changeExamples 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.
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.
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.
Nuclear medicine systems, which are based upon the detection of gamma radiation generated by radioactive pharmaceuticals introduced into the body, are used to provide information concerning soft tissue and internal body organs and particularly to examine organ function over time. 5.
Nuclear medicine systems, which are based upon the detection of photons (gamma radiation) generated by radioactive pharmaceuticals introduced into the body, are used to provide information concerning soft tissue and internal body organs and particularly to examine organ function over time.
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.
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.
All of the eight facilities in Florida are licensed healthcare clinics through AHCA. HMCA’s clients and subsidiaries generate revenue from patients covered by no-fault insurance and workers’ compensation programs.
All of the nine facilities in Florida are licensed healthcare clinics through AHCA. HMCA’s clients and subsidiaries generate revenue from patients covered by no-fault insurance and workers’ compensation programs.
Stark Law Page 25 FONAR CORPORATION AND SUBSIDIARIES Under the federal Self-Referral Law, also referred to as the “Stark Law”, which is applicable to Medicare and Medicaid patients, and the self-referral laws of various States, certain health practitioners, including physicians, chiropractors and podiatrists, are prohibited from referring their patients for the provision of designated health services, including diagnostic imaging and physical therapy services, to any entity with which they or their immediate family members have a financial relationship, unless the referral fits within one of the specific exceptions in the statutes or regulations.
Stark Law Under the federal Self-Referral Law, also referred to as the “Stark Law”, which is applicable to Medicare and Medicaid patients, and the self-referral laws of various States, certain health practitioners, including physicians, chiropractors and podiatrists, are prohibited from referring their patients for the provision of designated health services, including diagnostic imaging and physical therapy services, to any entity with which they or their immediate family members have a financial relationship, unless the referral fits within one of the specific exceptions in the statutes or regulations.
Page 10 FONAR CORPORATION AND SUBSIDIARIES 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 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.
Classic symptoms of the Chiari Syndrome include the “drop attack,” where the patient unexpectedly experiences an explosive rush at the base of the brain which runs down the body to the extremities, causing the patient to collapse in a temporary neuromuscular paralysis. These symptoms subside when the patient is lying down.
Classic symptoms of Chiari syndrome include the “drop attack,” in which the afflicted individual unexpectedly experiences an explosive rush at the base of the brain that runs down the body to the extremities, causing the patient to collapse in a temporary neuromuscular paralysis. These symptoms subside when the patient is lying down.
See Note 17 to the Consolidated Financial Statements for separate financial information regarding our medical equipment and physician and diagnostic management services segments. Page 4 FONAR CORPORATION AND SUBSIDIARIES FORWARD LOOKING STATEMENTS.
See Note 16 to the Consolidated Financial Statements for separate financial information regarding our medical equipment and physician and diagnostic management services segments. Page 4 FONAR CORPORATION AND SUBSIDIARIES CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS.
For our fiscal year ended June 30, 2022, Medicare revenues represented approximately 3.2% of the revenues for HMCA’s clients and subsidiaries as compared to 3.4% for the fiscal year ended June 30, 2021. 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, 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.
Fonar has initiated six voluntary recalls. 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.
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 II devices are subject to “General Controls”; General Controls include: 1. Establishment registration of companies which are required to register under 21 CFR Part 807.20, such as manufacturers, distributors, re-packagers and re-labelers. Page 14 FONAR CORPORATION AND SUBSIDIARIES 2. Medical device listing with FDA of devices to be marketed. 3.
Class II devices are subject to “General Controls”; General Controls include: 1. Establishment registration of companies which are required to register under 21 CFR Part 807.20, such as manufacturers, distributors, re-packagers and re-labelers. 2. Medical device listing with FDA of devices to be marketed. 3.
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.
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.
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 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.
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 current fiscal year, the Company purchased non-controlling interests from the minority shareholders for $546,000.
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.
HMCA assists the clients to implement programs and procedures to ensure full and timely regulatory compliance and appropriate cost reimbursement under no-fault insurance and Workers’ Compensation guidelines, as well as compliance with other applicable governmental requirements and regulations, including HIPAA and other privacy requirements. Page 20 FONAR CORPORATION AND SUBSIDIARIES 4. Billing and Collections.
HMCA assists the clients to implement programs and procedures to ensure full and timely regulatory compliance and appropriate cost reimbursement under no-fault insurance and Workers’ Compensation guidelines, as well as compliance with other applicable governmental requirements and regulations, including HIPAA and other privacy requirements. 4. Billing and Collections.
State Regulation Page 28 FONAR CORPORATION AND SUBSIDIARIES In addition to the federal self-referral law and federal Anti-kickback statute, many States, including those in which HMCA and its clients operate, have their own versions of self-referral and anti-kickback laws. These laws are not limited in their applicability, as are the federal laws, to specific programs.
State Regulation In addition to the federal self-referral law and federal Anti-kickback statute, many States, including those in which HMCA and its clients operate, have their own versions of self-referral and anti-kickback laws. These laws are not limited in their applicability, as are the federal laws, to specific programs.
Federal False Claims Act Page 24 FONAR CORPORATION AND SUBSIDIARIES The federal False Claims Act and, in particular, the False Claims Act’s “qui tam” or “whistleblower” provisions allow a private individual to bring actions in the name of the government alleging that a defendant has made false claims for payment from federal funds.
Federal False Claims Act The federal False Claims Act and, in particular, the False Claims Act’s “qui tam” or “whistleblower” provisions allow a private individual to bring actions in the name of the government alleging that a defendant has made false claims for payment from federal funds.
Three different kinds of energy waves - X-ray, gamma and sound - are used in medical imaging techniques which compete with MRI medical scanning, the first two of which involve exposing the patient to potentially harmful radiation. These other imaging modalities compete with MRI products on the basis of specific applications.
Three different kinds of energy waves – x-ray, gamma, and sound – are used in medical imaging techniques that compete with MRI, the first two of which involve exposing the patient to potentially harmful radiation. These other imaging modalities compete with MRI products on the basis of cost, space requirements, and specific clinical applications.
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, including reductions pursuant to the Deficit Reduction Act, or DRA.
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.
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.
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.
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.
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.
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.
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.
Page 23 FONAR CORPORATION AND SUBSIDIARIES Health Maintenance Organizations, or HMO’s, Preferred Provider Organizations, or PPOs, and other managed care organizations attempt to control the cost of healthcare services by a variety of measures, including imposing lower payment rates, preauthorization requirements, limiting services and mandating less costly treatment alternatives.
Managed Care and Private Insurance Health Maintenance Organizations, or HMO’s, Preferred Provider Organizations, or PPOs, and other managed care organizations attempt to control the cost of healthcare services by a variety of measures, including imposing lower payment rates, preauthorization requirements, limiting services and mandating less costly treatment alternatives.
Either FDA or the manufacturer can initiate recalls. There are three classifications, i.e., I, II, or III, assigned by the Food and Drug Administration to a particular product recall to indicate the relative degree of health hazard presented by the product being recalled.
There are three classifications, i.e., I, II, or III, assigned by the Food and Drug Administration to a particular product recall to indicate the relative degree of health hazard presented by the product being recalled.
Page 17 FONAR CORPORATION AND SUBSIDIARIES Seizure A seizure is a civil court action against a specific quantity of goods which enables the FDA to remove these goods from commercial channels. After seizure, no one may tamper with the goods except by permission of the court.
Seizure A seizure is a civil court action against a specific quantity of goods which enables the FDA to remove these goods from commercial channels. After seizure, no one may tamper with the goods except by permission of the court.
OTHER IMAGING MODALITIES Fonar’s MRI scanners also compete with other diagnostic imaging systems, all of which are based upon the ability of energy waves to penetrate human tissue and to be detected by either photographic film or electronic devices for presentation of an image on a display monitor.
OTHER IMAGING MODALITIES FONAR’s MRI scanners also compete with other diagnostic imaging systems, all of which are based upon the ability of some form of energetic wave to penetrate human tissue and be detected by either photographic film or electronic devices for presentation on a display monitor.
For the fiscal year ended June 30, 2022 approximately 57.7% 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, 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.
Patient Protection and Affordable Care Act On March 23, 2010, President Obama signed into law healthcare reform legislation in the form of PPACA. The implementation of this law has had a significant impact on the healthcare industry.
We are not operating in any such states. Patient Protection and Affordable Care Act On March 23, 2010, President Obama signed into law healthcare reform legislation in the form of PPACA. The implementation of this law has had a significant impact on the healthcare industry.
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.
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.
Quality System Regulation Page 15 FONAR CORPORATION AND SUBSIDIARIES The Quality Management System is applicable to the design, manufacture, administration of installation and servicing of magnetic resonance imaging scanner systems.
Quality System Regulation The Quality Management System is applicable to the design, manufacture, administration of installation and servicing of magnetic resonance imaging scanner systems.
Page 26 FONAR CORPORATION AND SUBSIDIARIES The DRA also codified the reduction in reimbursement for multiple images on contiguous body parts previously announced by CMS, the agency responsible for administering the Medicare program.
The DRA also codified the reduction in reimbursement for multiple images on contiguous body parts previously announced by CMS, the agency responsible for administering the Medicare program.
In fiscal 2022, the aggregate amount of management fees was $4,865,443 per month. Fees under the management agreements are subject to adjustment by mutual agreement on an annual basis. Dr. Damadian owns three HMCA-managed MRI facilities in Florida. The fees for these three sites in Florida owned by Dr.
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.
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 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.
Page 16 FONAR CORPORATION AND SUBSIDIARIES FDA Enforcement FDA may take the following actions to enforce the MDR regulation: FDA-Initiated or Voluntary Recalls Recalls are regulatory actions that remove a hazardous, potentially hazardous, or a misbranded product from the marketplace. Recalls are also used to convey additional information to the user concerning the safe use of the product.
FDA Enforcement FDA may take the following actions to enforce the MDR regulation: FDA-Initiated or Voluntary Recalls Recalls are regulatory actions that remove a hazardous, potentially hazardous, or a misbranded product from the marketplace. Recalls are also used to convey additional information to the user concerning the safe use of the product. Either FDA or the manufacturer can initiate recalls.
Analysis of CSF flow in upright and recumbent postures may prove to be of significant value in the evaluation of a variety of disorders. BACKLOG Our backlog of unfilled orders at September 8, 2022 was approximately $844,000, as compared to $62,000 at September 15, 2021.
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.
For the fiscal year ended June 30, 2021, approximately 55.5.% of HMCA’s clients’ receipts were from patients covered by no-fault insurance and approximately 9.4% 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, 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.
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.
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.
Conventional lie-down MRI scanners cannot make an adequate evaluation of the pathology since the patient’s pathology is most visible and the symptoms are most acute when the patient is scanned in the upright weight-bearing position.
Conventional lie-down MRI scanners cannot make an adequate evaluation of the pathology since this pathology is most visible and the symptoms are most acute when the patient is scanned in the upright, weight-bearing position (Brain Injury 2010, 24 (7-8) 988-994).
The exceptions to this general model of operation are five 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. The facilities enter into contracts with third party payors, including managed care companies.
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.
Neither HMCA nor its clients engage in this practice. In fiscal 2022, approximately 3.2% of the revenues of HMCA’s clients were attributable to Medicare and 0.07% were attributable to Medicaid. In fiscal 2021, approximately 3.4% of the revenues of HMCA’s clients were attributable to Medicare and 0.09% were attributable to Medicaid.
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.
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.
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.
Page 27 FONAR CORPORATION AND SUBSIDIARIES We believe that we are in compliance with the current HIPAA requirements, as amended by HITECH, together with other legislation and regulations, and comparable state laws, but we anticipate that we may encounter certain costs associated with future compliance.
However, if we fail to comply with applicable state laws and regulations, we could be subject to sanctions. We believe that we are in compliance with the current HIPAA requirements, as amended by HITECH, together with other legislation and regulations, and comparable state laws, but we anticipate that we may encounter certain costs associated with future compliance.
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. In fiscal 2021, the aggregate amount of management fees was $4,897,720 per month.
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. 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.
As of June 30, 2022, 223 patents had been issued to Fonar, and approximately 10 patents were pending. 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.
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.
A study by the National Cancer Institute (2000) of 5,466 women with scoliosis reported a 70% increase in breast cancer resulting from 24.7 chest x-rays these patients received on average in the course of their scoliosis treatment. Other important new applications are Upright® imaging of the pelvic floor and abdomen to image prolapses and inguinal hernias.
A study by the National Cancer Institute (2000) of 5,466 women with scoliosis reported a 70% increase in breast cancer resulting from 24.7 chest x-rays received on average over the course of their treatment.
DIAGNOSTIC IMAGING FACILITIES Diagnostic imaging facilities managed by HMCA provide diagnostic imaging services to patients referred by physicians. The facilities are operated in a manner which eliminates the admission and other administrative inconveniences of in-hospital diagnostic imaging services. Imaging services are performed in an outpatient setting by trained medical technologists under the direction of physicians.
The facilities are operated in a manner which eliminates the admission and other administrative inconveniences of in-hospital diagnostic imaging services. Imaging services are performed in an outpatient setting by trained medical technologists under the direction of physicians. Following diagnostic procedures, the images are reviewed by the interpreting physicians who prepare reports of these tests and their findings.
RESEARCH AND DEVELOPMENT During the fiscal year ended June 30, 2022, we incurred expenditures of $1,494,181, none of which were capitalized, on research and development, as compared to $1,635,979, none of which were capitalized, during the fiscal year ended June 30, 2021.
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.
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. Administrative.
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.
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.
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.
Our advertising for Fonar and HMCA re-enforces the unique value provided by Fonar MRI scanners. We have increased internet awareness of our product by driving patient traffic to the Upright® scanning centers we manage via the Fonar website (www.fonar.com) as well as by creating Websites for each HMCA location.
We have increased internet awareness of our product by driving patient traffic to the HMCA scanning centers we manage via the FONAR website as well as through websites for each HMCA location. These websites give prospective customers of Upright® MRI scanners a view of operating Upright® MRI centers and highlight the benefits of using the Upright® MRI scanner.
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. We must now take into account is the COVID-19 virus, which adds additional uncertainties to future expectations.
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.
Separate, dedicated, motion-control software is used to maneuver the Upright® bed, and development of this software is ongoing as well.
The Windows-based Sympulse™ platform controls all of the functions of the Upright® scanner except those of the versatile, multi-position patient table. Separate, dedicated, motion-control software is used to maneuver the Upright® bed, and development of this software is ongoing as well.
During fiscal 2022, a scanner was added in New York, NY along with an additional scanner in this location, and an additional scanner was installed in Pembroke Pines, Florida HMCA GROWTH STRATEGY HMCA’s growth strategy focuses on upgrading and expanding the existing facilities it manages and expanding the number of facilities it either owns or manages for its clients, including new sites.
HMCA GROWTH STRATEGY HMCA’s growth strategy focuses on upgrading and expanding the existing facilities it manages and expanding the number of facilities it either owns or manages for its clients, including new sites.
Damadian are flat monthly fees which are subject to adjustment by mutual agreement on an annual basis. In fiscal 2022, the aggregate monthly amount of management fees payable to HMCA by these sites was $995,825 as compared to $931,561 in fiscal 2021. The Florida facilities owned by HMCA subsidiaries directly bill their patients or the patients’ insurance carriers.
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.
HMCA MARKETING HMCA’s marketing strategy is to expand the business and improve the facilities which it manages. 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.
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 develops marketing programs and educational programs in an effort to establish and maintain referring physician relationships for our clients and Florida subsidiaries. Managed care providers are an important factor in the diagnostic imaging industry. To further its position, HMCA is seeking to expand the imaging modalities offered at its managed and owned diagnostic imaging facilities.
Managed care providers are an important factor in the diagnostic imaging industry. To further its position, HMCA is seeking to expand the imaging modalities offered at its managed and owned diagnostic imaging facilities. Four facilities in New York and eight facilities in Florida have two or more MRI scanners.
This has led to many inquiries and to some sales of the Upright® MRI scanner and is intended to increase Fonar’s presence in the medical market.
We use internal personnel and independent manufacturer’s representatives for domestic and foreign sales. FONAR’s marketing strategy has been designed to reach key purchasing decision makers with information concerning the Upright® MRI. This has led to many inquiries and some sales of the Upright® MRI scanner and is intended to increase FONAR’s presence in the medical equipment market.
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 Page 22 FONAR CORPORATION AND SUBSIDIARIES 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.
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 the only MRI scanner that allows the patient to stand during the MRI exam. Fonar has developed a new RF receiver and scanning protocol that for the first time allows scoliosis patients to obtain diagnostic pictures of their spines without the risks of x-rays.
FONAR has developed an RF receiver coil and a 3D scanning protocol that for the first time allows scoliosis patients to obtain diagnostic, multi-slice images of their spines while standing, without the risks associated with radiation, and with the soft-tissue-contrast benefits of MRI over x-ray. The utility of upright, weight-bearing MRI is not limited to the spine.
The Upright® MRI (also known as the “Stand-Up® MRI”) is a “whole-body” MRI, meaning it can be used to scan any part her back, the Upright® MRI permits MRI scans to be taken in a weight-bearing state. Patients can be scanned while standing, sitting, bending or lying down.
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.
Ultrasound systems emit, detect and process high frequency sound waves reflected from organ boundaries and tissue interfaces to generate images of soft tissue and internal body organs. Although the images are substantially less detailed than those obtainable with x-ray methods, ultrasound is generally considered harmless and therefore has found particular use in imaging the pregnant uterus. 6.
Ultrasound systems emit, detect, and process high frequency sound waves reflected from organ boundaries and tissue interfaces to generate images of soft tissue and internal body organs.
The system’s lift and tilt functions deliver the targeted anatomical region to the center of the magnet. True image orientation is assured, regardless of the rotation angle, via computer read-back of the table’s position.
User-friendly software allows the scanner operator to move the anatomical region of interest precisely to the center of the magnet using a cursor placed on a localizer image. Anatomically true image orientation is assured, regardless of the rotation angle of the bed, via computer read-back of the table’s position.
Each facility is controlled, however, not by HMCA, but by the physician owner, or in the case of the four Florida sites owned by HMCA subsidiaries, by the medical director. All medical services are performed by physicians and other medical personnel under the physician-owner’s supervision. HMCA is the management company and performs services of a non-medical nature.
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.
In fiscal 2022, approximately 0.07% of the revenues of HMCA’s clients were attributable to Medicaid, as compared to 0.09% in fiscal 2021. Four of the Florida facilities (those owned by HMCA subsidiaries) do not participate in Medicaid. Managed Care and Private Insurance.
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.
All products which we sell have FDA clearance and would fall into the first category. Page 18 FONAR CORPORATION AND SUBSIDIARIES Foreign governments have differing requirements concerning the import of medical devices into their respective jurisdictions. The European Union, also referred to as EU, has some essential requirements described in the EU’s Medical Device Directive, also referred to as MDD.
All products which we sell have FDA clearance and would fall into the first category. Foreign governments have differing requirements concerning the import of medical devices into their respective jurisdictions. The European Union’s new medical device regulation, EU 2017/745 went into effect on May 25, 2021, and contains significant changes from the prior European regulatory scheme.
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 and, most recently, our steady recovery from the effects of the COVID-19 pandemic.
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.
Following diagnostic procedures, the images are reviewed by the interpreting physicians who prepare reports of these tests and their findings. The vast majority of reports for the New York facilities are transcribed by HMCA personnel and the remainder are outsourced to professional transcription services. Reports for the Florida facilities are outsourced to professional transcription services.
The vast majority of reports for the New York facilities are transcribed by HMCA personnel and the remainder are outsourced to professional transcription services. Reports for the Florida facilities are outsourced to professional transcription services. HMCA develops marketing programs and educational programs in an effort to establish and maintain referring physician relationships for our clients and Florida subsidiaries.
FONAR’s principal marketing efforts with respect to its products have been focused on the Upright® MRI, which we believe is a particularly unique product. It is the only MRI scanner which is both open and allows for weight-bearing imaging. We expect to continue our focus on the Upright® MRI in the immediate future.
PRODUCT MARKETING FONAR’s principal marketing efforts in the medical equipment segment have been focused on the Upright® MRI, which we believe is a unique product. We expect to focus on the Upright® MRI going forward. The principal markets for the Company’s scanners are private diagnostic imaging centers and hospital outpatient imaging facilities.
Page 19 FONAR CORPORATION AND SUBSIDIARIES As of June 30, 2022, HMCA managed a total of 41 MRI scanners of which twenty-six (26) scanners are located in New York and fifteen (15) scanners are located in Florida.
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.
These services include: 1. Offices and Equipment. HMCA identifies, negotiates leases for and/or provides office space and equipment to its clients. This includes technologically sophisticated medical equipment. HMCA also provides improvements to leaseholds, assistance in site selection and advice on improving, updating, expanding and adapting to new technology. 2. Personnel.
All medical services are performed by physicians and other medical personnel under the physician-owner’s supervision. HMCA is the management company and performs services of a non-medical nature. These services include: 1. Offices and Equipment. HMCA identifies, negotiates leases for and/or provides office space and equipment to its clients. This includes technologically sophisticated medical equipment.
X-rays are the most common energy source used in imaging the body and are employed in three imaging modalities: 1. Conventional X-ray systems, the oldest method of imaging, are typically used to image bones and teeth.
X-rays are the most common energy source used in imaging the body and are employed in three imaging modalities: conventional x-ray systems, computerized tomography (CT), and digital radiography. None of these enjoy the exquisite soft-tissue contrast of MRI, but they do offer high resolution imaging in certain applications and high speed of image acquisition.
They have in the past, and may in the future, heavily discount the sales price of their scanners. Such competitors sell both high field air core superconducting MRI scanners and iron frame products.
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.
The fixed monthly fees were $85,000 for HMCA in part of fiscal 2021. This contract was terminated as of January 1, 2021. The Company also entered into a one year renewable agreement to provide IT services to the billing company for a monthly fee of $23,884.
HMCA had previously contracted with an outside billing company (located in Melville, New York) which performed billing and collection for their clients’ No-Fault and Workers’ Compensation business. The Company had entered into a one year renewable agreement to provide IT services to the billing company for a monthly fee of $23,884. This agreement was terminated on May 31, 2023.
Scoliosis patients typically have been subjected to routine x-ray exams for years and must be imaged upright for an adequate evaluation of their scoliosis. Because the patient must be standing for the exam, an x-ray machine has been the only modality that could provide that service.
Prior to the advent of the Upright® MRI, the x-ray machine was the only imaging modality that could evaluate the condition because the patient must be imaged standing.
X-ray machines, ultrasound machines, digital radiography systems and nuclear medicine compete with the MRI scanners by offering significantly lower price and space requirements. However, Fonar believes that the utility of the images produced by its MRI scanners is generally superior to the utility of the images produced by those other methodologies.
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.
The terms of the patents in Fonar’s portfolio extend to various times. We also have patent cross-licensing agreements with other MRI manufacturers. We have not licensed, however, any technology relating to Upright® MRI scanning.
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.
SERVICE AND UPGRADES FOR MRI SCANNERS Our customer base of installed scanners has been and will continue to be an additional source of income, independent of direct sales. Income is generated from the installed base in two principal areas, namely, service and upgrades.
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.
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Although the impact will be negative, the severity, duration and recurrence of new strains of the COVID-19 virus adds a new dimension to the challenges and uncertainty facing our business and the world economy in general. THE UPRIGHT® MRI SCANNER The Upright® MRI scanner is the product we are presently promoting.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeHealthcare 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.
Biggest changePressure 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.
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.
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.
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. 4. 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. 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.
The expansion of health maintenance organizations, preferred provider organizations and other managed care organizations within 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.
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.
Information security risks have significantly increased 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.
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.
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. Possible 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. 9. Current and future changes in Florida Insurance Law.
Scanning Facility Competition. The market for diagnostic imaging services is highly competitive. The facilities we manage or own compete for patients on the basis of reputation, location and the quality of diagnostic imaging services. Groups of radiologists, established hospitals, clinics and other independent organizations that own and operate imaging equipment are the principal competitors. 7. Eligibility Changes to Insurance Programs.
Scanning Facility Competition. The market for diagnostic imaging services is highly competitive. The facilities we manage or own compete for patients on the basis of reputation, location and the quality of diagnostic imaging services. Groups of radiologists, established hospitals, clinics and other independent organizations that own and operate imaging equipment are the principal competitors.
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.
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.
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 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.
ITEM 1A. RISK FACTORS An investment in our securities is subject to various risks, the most significant of which are summarized below. 1. Reduced Reimbursement Rates. Most of our revenues are derived from our scanning center business conducted by HMCA. We are experiencing lower reimbursement rates from Medicare, other government programs and private insurance companies.
ITEM 1A. RISK FACTORS An investment in our securities is subject to various risks, the most significant of which are summarized below. 1. Reduced Reimbursement Rates. Most of our revenues are derived from our scanning center business conducted by HMCA.
The reduced reimbursement rates also affects our sales of MRI scanners negatively. With lower revenue projections, prospective customers would 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. 3. Manufacturing Competition.
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.
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. Page 32 FONAR CORPORATION AND SUBSIDIARIES ITEM 1B.
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.
Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks. 10. COVID-19.
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.
This would negatively impact our Florida diagnostic imaging facilities (both those we own and those we manage) with more unpaid bills, lower reimbursement rates and elongated waiting times. To date proponents of these changes have been unsuccessful. 9. Federal and state privacy and information security 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 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.
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To date, we have been able to counter the impact of these reductions by increasing our volume of scans notwithstanding the Covid-19 pandemic, and reducing our operating expenses, thereby maintaining profitability in this business segment. There is, however, no assurance that we will be able to continue to do so. 2. Demand for MRI Scanners.
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Our scanning center clients and the Florida facilities owned by HMCA are experiencing lower reimbursement rates from Medicare, other government programs and private insurance companies. To the extent possible, we counter these reductions by increasing scanning volume and controlling operating expenses.
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Page 30 FONAR CORPORATION AND SUBSIDIARIES 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.
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Inflation in the cost of both materials and labor have limited our ability to control our costs, negatively impacting our ability to maintain profitability in this business segment. 2. Inflation and Increasing Interest Rates. Inflation has drastically increased our costs for both materials and labor.
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In early 2019, two senate bills and one house bill in Florida were introduced, all of them calling for the repeal of PIP and replacing PIP with $25,000 Bodily Injury Coverage and Property Damage Liability Coverage. Another Florida senate bill was introduced that would preserve PIP but dramatically cut reimbursement rates.
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The Federal Reserve has increased interest rates substantially in an attempt to control inflation, which in turn has increased the cost of capital. Diagnostic imaging facilities require significant amounts of capital to operate, particularly in the context of opening new diagnostic imaging centers.
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None of the proposed bills made it onto the 2019 legislative agenda. During Fonar’s fiscal 2021, the Florida house and senate reached an agreement and passed similar legislation. It was, however, vetoed by the Governor. We cannot predict whether such efforts by the Florida legislature will continue or be successful.
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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.
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Currently, drivers and passengers get car damages and PIP, paid for up to $10,000, no matter who is at fault in an accident. Drivers have to pay an additional cost to insurance companies to pay for bodily injuries which covers them if they are at fault. While PIP is required, coverage for bodily injury is not.
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In addition, managed care contracting has become very competitive.
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Page 31 FONAR CORPORATION AND SUBSIDIARIES Over the past several years there have been various bills introduced by a number of Florida legislators to eliminate PIP and instead mandate coverage including some combination of a minimum of bodily injury and a reduced or no amount of medical payments (Medpay coverage).
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On March 24, 2023, Florida Governor Ron DeSantis signed into law House Bill 837.
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Eliminating PIP would mean that the $10,000 drivers now get paid toward medical costs through their insurers might not be there for them to pay for injured drivers. Importantly, payments would be reduced by approximately 60% due to claims being paid at commercial rates or through legal settlements instead of at the presently prevailing PIP fee schedule.
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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.
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Although we believe we have taken the proper steps and made a good recovery from the impact of the first wave of the COVID-19 virus, new strains of the disease have developed and future variants may continue to develop.
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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.
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The relatively recent new variants are particularly contagious and coupled with New York State requirements that medical employees must be vaccinated if they care for patients, including our technicians and support staff caring for scanning patients, has resulted in fewer available employees and adversely affected our ability to staff a full number of shifts.
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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.
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The course and severity of the virus in the following months, and the ultimate economic and medical impact it will have worldwide and at home, is uncertain. 11. Other changes in Domestic and Worldwide Economic Conditions.
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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%.
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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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company received approval from the Suffolk County IDA 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
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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+4 added−3 removed1 unchanged
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded in the Nasdaq SmallCap market under the National Association of Securities Dealers Automated Quotation System, also referred to as “NASDAQ”, under the symbol FONR. The following table sets forth the high and low trades reported in NASDAQ System for the periods shown.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on NASDAQ Capital Markets under the symbol FONR.
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Page 33 FONAR CORPORATION AND SUBSIDIARIES Fiscal Quarter High Low January - March 2018 $ 29.95 $ 22.15 April - June 2018 $ 30.10 $ 25.31 July - September 2018 $ 28.80 $ 23.70 October - December 2018 $ 25.77 $ 19.63 January March 2019 $ 23.85 $ 20.01 April - June 2019 $ 23.00 $ 18.85 July - September 2019 $ 25.25 $ 20.44 October - December 2019 $ 20.94 $ 19.07 January - March 2020 $ 20.24 $ 11.00 March - June 2020 $ 25.99 $ 13.85 July - September 2020 $ 26.49 $ 20.31 October - December 2020 $ 22.49 $ 16.74 January - March 2021 $ 20.40 $ 17.31 April - June 2021 $ 19.18 $ 16.58 July - September 2021 $ 18.04 $ 15.22 October - December 2021 $ 18.94 $ 14.32 January - March 2022 $ 19.32 $ 14.24 April - June 2022 $ 19.13 $ 14.80 July - September 14, 2022 $ 15.44 $ 13.56 Performance Graph The following graph compares the annual change in the Company’s cumulative total shareholder return on its Common Stock during a period commencing on June 29, 2018 and ending on June 30, 2022 (as measured by dividing (i) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment and (B) the difference between the Company’s share price at the end and the beginning of the measurement period; by (ii) the share price at the beginning of the measurement period) with the cumulative total return of each of: (a) the CRSP Composite Total Return Index for Nasdaq (“Nasdaq”); and (b) the CRSP Total Return Index for Nasdaq Healthcare companies (“Nas-Hea.”) during such period, assuming a $100 investment on June 29, 2018.
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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.
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The stock price performance on the graph below is not necessarily indicative of future price performance.
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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..
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Relative Dollar Values TOTAL RETURN June 29, 2018 June 28, 2019 June 30, 2020 June 30, 2021 June 30, 2022 Fonar Common Stock $ 100 $ 81 $ 80 $ 67 $ 57 Nasdaq Composite $ 100 $ 108 $ 137 $ 199 $ 152 Nasdaq Health $ 100 $ 103 $ 118 $ 163 $ 199 Nasdaq Medical Equipment $ 100 $ 119 $ 127 $ 184 $ 154 Page 34 FONAR CORPORATION AND SUBSIDIARIES On September 14, 2022, we had approximately 1,006 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 .
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The graph assumes $100 is invested in FONAR Common Stock (NASDAQ: FONR), the Nasdaq Composite Total Return (Nasdaq Composite), Nasdaq Health Care Management Services (Nasdaq Health), and Nasdaq Medical Equipment (Nasdaq Equipment). The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of the common stock.
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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.

Item 6. [Reserved]

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

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ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data has been extracted from our consolidated financial statements for the five years ended June 30, 2022. This consolidated selected financial data should be read in conjunction with our consolidated financial statements and the related notes included in Item 8 of this form.
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Item 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
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Page 35 FONAR CORPORATION AND SUBSIDIARIES STATEMENT OF OPERATIONS For the periods ending June 30, 2022 2021 2020 2019 2018 Revenues $ 97,592,145 $ 89,929,765 $ 85,690,462 $ 87,192,887 $ 81,515,994 Cost of $ 50,578,201 $ 46,456,127 $ 43,296,825 $ 43,984,593 $ 41,950,770 Revenues Research and $ 1,494,181 $ 1,635,979 $ 2,025,376 $ 1,812,347 $ 1,755,747 Development Expenses Basic Net $ 17,234,388 $ 13,673,811 $ 11,704,733 $ 20,513,674 $ 25,452,185 Income Basic Net $ 1.78 $ 1.47 $ 1.20 $ 2.26 $ 3.16 Income per common Share Diluted Net $ 1.75 $ 1.45 $ 1.18 $ 2.22 $ 3.10 Income per common Share Basic 6,554,209 6,505,283 6,443,713 6,354,103 6,287,510 Weighted average numbe r of shares outstanding Diluted 6,681,713 6,632,787 6,571,217 6,481,607 6,415,014 Weighted average number of shares outstanding BALANCE SHEET DATA Working $ 101,937,320 $ 88,534,063 $ 77,226,104 $ 70,998,783 $ 52,497,840 Capital Total Assets $ 199,341,982 $ 189,506,195 $ 180,259,380 $ 133,560,210 $ 118,310,945 Long-term debt and obligations under capital leases $ 993,670 $ 1,808,685 $ 2,116,587 $ 273,112 $ 306,035 Stockholder’s equity $ 146,236,281 $ 135,370,125 $ 126,242,616 $ 118,112,103 $ 102,234,471 Page 36 FONAR CORPORATION AND SUBSIDIARIES

Item 7. Management's Discussion & Analysis

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

54 edited+2 added−12 removed27 unchanged
Biggest changeResearch and development expenses decreased to $1.5 million in fiscal 2022 from $1.6 million in fiscal 2021. Our expenses for fiscal 2021 represented continued research and development of various upgrades for the Upright® MRI scanner. The reason for the decrease in research and development was due mainly to supply chain related delays due to the COVID-19 pandemic.
Biggest changeThe 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.
The Company has been able to navigate through these challenges and avoid any significant disruption of the business and the volume has risen back almost to pre-COVID-19 levels.
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.
The cost reductions 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. Current economic credit conditions have contributed to a slower than optimal business environment.
Fees for on-going service and maintenance from our installed base of scanners were $7.7 million for the year ended June 30, 2021 and $7.7 million for the year ended June 30, 2022. In order to promote profitability and to reduce demands on our cash and other liquid reserves, we maintain an aggressive program of cost cutting.
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.
Page 37 FONAR CORPORATION AND SUBSIDIARIES 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 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.
The operating loss for the medical equipment segment increased from an operating loss of $3.4 million in fiscal 2021 to an operating loss of $4.6 million in fiscal 2022. The losses are attributable most significantly to the fact that costs increased by a greater amount than revenues.
The operating loss for the medical equipment segment increased from an operating loss of $4.6 million in fiscal 2022 to an operating loss of $5.9 million in fiscal 2023. The losses are attributable most significantly to the fact that costs increased by a greater amount than revenues.
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.
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.
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.
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.
As of June 30, 2022, HMCA manages a total of 41 MRI scanners of which 26 MRI scanners are located in New York and 15 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, 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.
For the physician and diagnostic services management segment, HMCA, revenues increased to $89.3 million in fiscal 2022 as compared to $80.9 million in fiscal 2021. 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 $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.
Page 42 FONAR CORPORATION AND SUBSIDIARIES 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.
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.
For the year ended June 30, 2022, we realized a net income of $17.2 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, 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.
The 29.2% noncontrolling interest allocations of $4,793,000 and $3,466,000 for fiscal 2022 and fiscal 2021 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 17).
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).
Page 38 FONAR CORPORATION AND SUBSIDIARIES 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.
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.
Discussion of Operating Results of Physician and Diagnostic Services Management Segment. Fiscal 2022 Compared to Fiscal 2021 Revenues attributable to the Company’s physician and diagnostic services management segment, HMCA, increased to $89.4 million in fiscal 2022 as compared to $80.9 million in fiscal 2021.
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.
In fiscal 2022 we continued our investment in the development of various upgrades for the UPRIGHT® MRI, with an investment of $1,494,181 in research and development, none of which was capitalized, as compared to $1,635,979, none of which was capitalized, in fiscal 2021.
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.
Although we are unable to predict if there will be additional consequences on our operations from the continuing global pandemic of COVID-19, the Company believes with the positive cash flows, low debt and cash on hand, it will be able to continue operations going forward.
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.
It is too early to know how much of these reserves will be recovered. Also Fonar resolved certain sales tax liabilities during the year and was able to reverse accrued interest and penalties of $119,000 which was recorded under selling, general and administrative expenses.
It is too early to know how much of these reserves will be recovered. FONAR also resolved certain sales tax liabilities during the year and was able to reverse accrued interest and penalties of $55,000 and $119,000 for fiscal years ending 2023 and 2022 respectively which was recorded under selling, general and administrative expenses in the prior year.
As a result, the benefits of our net operating loss carry forwards could expire before they are utilized. At June 30, 2021, the net deferred tax asset was valued at $15,958,961 . At June 30, 2022, the net deferred tax asset was valued at $12,842,478.
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.
The principal uses of cash used in financing activities included the repayment of borrowings and capital lease obligations of $37,000, and distributions to non-controlling interests of $5.8 million. Total liabilities decreased slightly by 1.9% during fiscal 2022, from approximately $54.1 million at June 30, 2021 to approximately $53.1 million at June 30, 2022.
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 research and development expenditures were approximately 18.2% of revenues attributable to our medical equipment segment and 1.5% of total revenues in 2022, and 18.1% of medical equipment segment revenues and 1.8% of total revenues in fiscal 2021. This represented a 8.7% decrease in research and development expenditures in fiscal 2022 as compared to fiscal 2021.
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.
For the fiscal year 2022 the Company recorded an income tax expense of $5.5 million compared with an income tax expense of $4.0 million for 2021. 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.
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.
Page 44 FONAR CORPORATION AND SUBSIDIARIES The Company believes that its business plan has been responsible for the past five consecutive fiscal years of profitability (fiscal 2022, fiscal 2021, fiscal 2020, fiscal 2019 and fiscal 2018) and that its capital resources will be adequate to support operations at current levels through September 30, 2023.
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.
LIQUIDITY AND CAPITAL RESOURCES Cash, and cash equivalents increased by 9.6% from $44.5 million at June 30, 2021 to $48.7 million at June 30, 2022. Cash provided by operating activities for fiscal 2022 approximated $15.3 million.
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.
The Company has recorded a deferred tax asset of $12.8 million as of June 30, 2022, primarily relating to the tax benefits from the net operating loss carry forwards available to offset future taxable income. The utilization of these tax benefits is dependent on the Company generating future taxable income.
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.
Cash provided by operating activities was attributable to the net income of $17.2 million, depreciation and amortization of $4.5 million, deferred income tax expense benefit of $3.1 million which was offset by the increase in accounts, and medical and management fee receivables of $5.6 million. Cash used in investing activities for fiscal 2022 approximated $5.2 million.
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.
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.
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.
Previously, these measures included consolidating HMCA’s office space with Fonar’s office space and reducing the size of our workforce, compensation and benefits. We continue to reduce and contain expenses across the board.
Previously, these measures included consolidating HMCA’s office space with FONAR’s office space and reducing the size of our workforce, compensation and benefits. We continue to attempt to contain expenses across the board, despite significant increases in the cost of labor and materials as the result of inflation.
Revenues are in the form of fees which are earned under contracts with HMCA’s clients except for its three Florida subsidiaries which engage in the practice of medicine, and bill and collect fees from patients, insurers and other third party payors directly. The most significant adverse impact on on our Company in fiscal 2020 has been the COVID-19 pandemic.
Revenues are in the form of fees which are earned under contracts with HMCA’s clients except for its six Florida subsidiaries which engage in the practice of medicine, and bill and collect fees from patients, insurers and other third-party payors directly.
We believe that one of our principal challenges in achieving greater market penetration is attributable to the better name recognition and larger sales forces of our larger competitors such as General Electric, Siemens, Hitachi, Philips and Toshiba and the ability of some of our competitors to offer attractive financing terms through affiliates, such as G.E. Capital.
Page 33 FONAR CORPORATION AND SUBSIDIARIES We believe that one of our principal challenges in achieving greater market penetration is attributable to the better name recognition and larger sales forces of our larger competitors such as General Electric, Siemens, Hitachi, Philips and Toshiba.
The increase in revenues was due to an increase of $6.3 million of patient fees (net of contractual allowances and discounts less provision for bad debts) from patient and third party payors recognized by five of the facilities in Florida. Also management and other fees increased by $2.2 million due to two additional scanners being installed in existing facilities.
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.
Interest expense of $346,552 was recognized in fiscal 2022, as compared to interest expense of $248,665 in fiscal 2021. The increase in interest expense is attributable to an assessment of additional taxes and interest in connection with a state income tax audit.
The decrease in interest expense is attributable to an assessment of additional taxes and interest in connection with a state income tax audit in fiscal 2022.
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.
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.
Page 40 FONAR CORPORATION AND SUBSIDIARIES Cost of revenues as a percentage of the related revenues for our physician and diagnostic services management segment increased from $42.6 million or 52.7% of related revenues for the year ended June 30, 2021 to $47.1 million, or 52.7% of related revenues for the year ended June 30, 2022.
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.
The likelihood and effect of any subsequent reductions is not fully known. Capital expenditures for fiscal 2022 approximated $4.6 million. Capitalized patent costs were approximately $88,000. Purchases of property and equipment were approximately $4.5 million. Fonar is committed to making capital expenditures in the 2023 fiscal year, for placing two scanners at facilities located in Florida and New York.
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 efficacy of RBMs is still a highly controversial topic. We cannot predict whether the healthcare legislation or 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.
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 cash used in investing activities was attributable to purchases of property and equipment of $4.5 million, purchase of noncontrolling interests of $546,000 and costs of patents of $88,000. Cash used in financing activities for fiscal 2021 approximated $5.9 million.
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.
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 publicly traded open market at prevailing prices. During August 2021 the Company renewed their revolving credit agreement. The terms include borrowing limits of up to $10,000,000 and the agreement was extended to August 2022.
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.
For the fiscal years ended June 30, 2022 and June 30, 2021 11.8% and 12.2%, respectively, of total revenues were derived from contracts with facilities owned by Dr. Raymond V. Damadian, the Chairman of the Board and principal stockholder of Fonar. The agreements with these MRI facilities are for one-year terms which renew automatically on an annual basis, unless terminated.
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.
Page 39 FONAR CORPORATION AND SUBSIDIARIES Discussion of Operating Results of Medical Equipment Segment Fiscal 2022 Compared to Fiscal 2021 Revenues attributable to our medical equipment segment decreased by 9.1% to $8.2 million in fiscal 2022 from $9.0 million in fiscal 2021, with product sales revenues decreasing by 59.8% from $1.3 million in fiscal 2021 to $518,000 in fiscal 2022.
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.
Page 43 FONAR CORPORATION AND SUBSIDIARIES At June 30, 2022, we had working capital of approximately $101.9 million as compared to working capital of $88.5 million at June 30, 2021, and stockholders’ equity of $146.2 million at June 30, 2022 as compared to stockholders’ equity of $135.4 million at June 30, 2021.
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.
While revenue increased by 8.5% selling, general and administrative expenses decreased by 5.0% to $23.5 million in fiscal 2022 from $24.7 million in fiscal 2021. This increase in revenues was almost exclusively due to less reserves placed on service contracts and management fees and other receivables resulting from the COVID-19 pandemic as compared to fiscal 2021.
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.
Product sales to unrelated parties decreased by 59.8% in fiscal 2022 from $1.3 million in fiscal 2021 to $518,000 in fiscal 2022. There were no product sales to related parties in fiscal 2022 or 2021.
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.
Page 41 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.
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.
Although the Company is expecting to generate taxable income in future periods, they cannot accurately measure the full impact of the adoption of healthcare regulations, including the impact of continuing changes in MRI scanning reimbursement rates, and the severity and the duration of the COVID-19 virus, which could materially impact operations.
Although the Company is expecting to generate taxable income in future periods, we cannot accurately measure the full impact of the adoption of healthcare regulations, including the impact of continuing changes in MRI scanning reimbursement rates, which could materially impact operations. A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed.
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.
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.
FISCAL 2022 COMPARED TO FISCAL 2021 In fiscal 2022, we recognized net income of $17.2 million on revenues of $97.6 million, as compared to net income of $13.7 million on revenues of $89.9 million for fiscal 2021. This represents an increase in revenues of 8.5%. Patient fee revenue net of contractual allowances increased by 26.9%.
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%.
The fees for these sites, which are located in Florida, are flat monthly fees. Discussion of Certain Consolidated Results of Operations Fiscal 2022 Compared to Fiscal 2021 Interest and investment income decreased in 2022 compared to 2021. We recognized interest income of $247,158 in 2022 as compared to $311,931 in fiscal 2021, representing a decrease of 20.8%.
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.
Total costs and expenses increased by 3.8%. Our consolidated operating results increased by 28.7% to an operating income of $22.0 million for fiscal 2022 as compared to operating income of $17.1 million for fiscal 2021.
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.
A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed. 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.
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.
We have also been increasing the number of health insurance plans in which our clients participate. 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).
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 revenues increased more than the costs relating to these revenues. Operating results of this segment increased from operating income of $20.5 million in fiscal 2021 to operating income of $26.6 million in fiscal 2022.
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.
The interest rate on unpaid principal remains at 4% along with certain financial covenants still applicable.
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
As a result, actual amounts could differ materially from these estimates.
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.
Removed
Although it had seemed the worst had passed, events have shown a spike in new cases due primarily to the new Delta strain in the viruses. This is by no means a problem confined to our Company, but regardless of our best efforts, our results of operation and financial condition are potentially volatible and severe.
Added
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.
Removed
Generally COVID-19 had caused us to require that much of our workforce work from home and has restricted the ability of our personnel to travel for marketing purposes or to service our customers.
Added
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.
Removed
At the end of fiscal 2020, the Company was able to enact certain decisions to allow the Company to survive during the global pandemic and from further losses or additional decreases in scan volume. The Company also received some government stimulus funds from the Paycheck Protection Program (“PPP) and Medicare advances/stimulus payments.
Removed
During fiscal 2022, the PPP loan was forgiven in its entirety. During fiscal 2022, the Company had to deal with increased strictness in the enforcement of COVID-19 mandates, such as the requirement that employees in healthcare facilities be vaccinated, along with the newer variants that are more transmissible.
Removed
As a result, the Company experienced absences due to illness and the loss of unvaccinated employees whose duties required them to be in contact with patients.
Removed
Due to these conditions, The Company was sometimes unable to keep scanning facilities open for all shifts and as a result there was a slight decrease in scans during the second quarter of fiscal 2022.
Removed
Service revenue remained constant from $7.7 million in fiscal 2021 and in fiscal 2022. The Upright® MRI is unique in that it permits MRI scans to be performed on patients upright in the weight-bearing state and in multiple positions that correlate with symptoms.
Removed
The increase in costs was primarily due to the increase in business activity which resulted in our increased revenues. We recognized revenues of $62,000 from the sale of our Upright® MRI scanners in fiscal 2022, while in fiscal 2021, we recognized revenues of $733,000 from the sale of Upright® MRI scanners.
Removed
The compensatory element of stock issuances decreased from $83,277 in fiscal 2021 to $0 in fiscal 2022. Revenue from service and repair fees remained constant at $7.7 million in fiscal 2021 to and fiscal 2022.
Removed
On March 23, 2010, President Obama signed into law healthcare reform legislation in the form of the Patient Protection and Affordable Care Act, or PPACA. The ultimate impact of the PPACA is uncertain but to date has reduced our revenues from what they otherwise would have been.
Removed
The facility in Florida will be a new stand-alone facility and the facility in New York will also be a new stand-alone facility. The current estimated costs of these capital expenditures is approximately $3.1 million.
Removed
On September 13, 2022, the Company adopted a stock repurchase plan. The plan has no expiration date and cannot determine the number of shares which will be repurchased.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed1 unchanged
Biggest changeAll of our revenue, expense and capital purchasing activities are transacted in United States dollars. See Note 11 to the consolidated Financial Statements for information on long-term debt.
Biggest changeAll of our revenue, expense and capital purchasing activities are transacted in United States dollars. See Note 10 to the consolidated Financial Statements for information on long-term debt.

Other FONR 10-K year-over-year comparisons