10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2019

Commission file number 0-10248

FONAR CORPORATION

____________________________________________

(Exact name of registrant as specified in its charter)

DELAWARE	11-2464137
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)
110 Marcus Drive  Melville, New York	11747
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (631) 694-2929

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit such files. YES _X_ NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of accelerated filer, large accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.(Check one): Large accelerated filer___ Accelerated filer _X_ Non-accelerated filer___ Smaller reporting company _X__Emerging growth company___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO _X_

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock	FONR	NASDAQ Capital Market

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date.

Class	Outstanding at April 30, 2019
Common Stock, par value $.0001		6,357,482
Class B Common Stock, par value $.0001		146
Class C Common Stock, par value $.0001		382,513
Class A Preferred Stock, par value $.0001		313,438

FONAR CORPORATION AND SUBSIDIARIES

INDEX

PART I - FINANCIAL INFORMATION	PAGE
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2019 (Unaudited) and June 30, 2018	3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2019 and March 31, 2018 (Unaudited)	6
Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)	7
Condensed Consolidated Statements of Changes in Equity for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)	8
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and March 31, 2018 (Unaudited)	10
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)	12
Notes to Condensed Consolidated Financial Statements (Unaudited)	13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33
PART II - OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults Upon Senior Securities	35
Item 4. Mine Safety Disclosures	35
Item 5. Other Information	36
Item 6. Exhibits	36
Signatures	36

Page 2

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

ASSETS

	March 31, 2019		June 30, 2018 *
Cash and cash equivalents	$	24,780	$	19,634
Accounts receivable – net		3,709		3,814
Accounts receivable - related party		30		—
Medical receivable – net		15,318		13,351
Management and other fees receivable – net		24,979		21,863
Management and other fees receivable – related medical practices – net		6,204		5,535
Inventories		1,810		1,431
Costs and estimated earnings in excess of billings on uncompleted contracts		335		87
Prepaid expenses and other current assets		1,647		1,350
Total Current Assets		78,812		67,065
Income taxes receivable		1,200		1,200
Deferred income tax asset		18,989		22,689
Property and equipment – net		17,440		16,492
Goodwill		3,985		3,985
Other intangible assets - net		4,959		5,602
Other assets		1,207		1,278
Total Assets	$	126,592	$	118,311

*Condensed from audited financial statements.

See accompanying notes to condensed consolidated financial statements.

Page 3

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY

	March 31, 2019		June 30, 2018 *
Current Liabilities:
Current portion of long-term debt and capital leases	$	40	$	39
Accounts payable		1,631		1,300
Other current liabilities		4,973		8,178
Unearned revenue on service contracts		3,777		4,192
Unearned revenue on service contracts - related party		27		—
Customer deposits		834		858
Total Current Liabilities		11,282		14,567
Long-Term Liabilities:
Deferred income tax liability		239		239
Due to related medical practices		93		227
Long-term debt and capital leases, less current portion		282		306
Other liabilities		755		737
Total Long-Term Liabilities		1,369		1,509
Total Liabilities		12,651		16,076

*Condensed from audited financial statements.

See accompanying notes to condensed consolidated financial statements.

Page 4

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)

	March 31, 2019			June 30, 2018 *
STOCKHOLDERS' EQUITY:
Class A non-voting preferred stock $.0001 par value; 453 shares authorized at March 31, 2019 and June 30, 2018, 313 issued and outstanding at March 31, 2019 and June 30, 2018	$	—		$	—
Preferred stock $.001 par value; 567 shares authorized at March 31, 2019 and June 30, 2018, issued and outstanding – none		—			—
Common Stock $.0001 par value; 8,500 shares authorized at March 31, 2019 and June 30, 2018, 6,369 and 6,299 issued at March 31, 2019 and June 30, 2018; 6,357 and 6,288 outstanding at March 31, 2019 and June 30, 2018		1			1
Class B Common Stock (10 votes per share) $ .0001 par value; 227 shares authorized at March 31, 2019 and June 30, 2018, .146 issued and outstanding at March 31, 2019 and June 30, 2018		—			—
Class C Common Stock (25 votes per share) $.0001 par value; 567 shares authorized at March 31, 2019 and June 30, 2018, 383 issued and outstanding at March 31, 2019 and June 30, 2018		—			—
Paid-in capital in excess of par value		181,086			179,132
Accumulated deficit		(69,039	)		(79,773	)
Notes receivable from employee stockholders		—			(9	)
Treasury stock, at cost - 12 shares of common stock at March 31, 2019 and June 30, 2018		(675	)		(675	)
Total Fonar Corporation’s Stockholder Equity		111,373			98,676
Noncontrolling interests		2,568			3,559
Total Stockholders' Equity		113,941			102,235
Total Liabilities and Stockholders' Equity	$	126,592		$	118,311

*Condensed from audited financial statements.

See accompanying notes to condensed consolidated financial statements.

Page 5

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

	FOR THE THREE MONTHS ENDED MARCH 31,
REVENUES	2019			2018
Patient fee revenue, net of contractual allowances and discounts	$	6,410		$	10,163
Provision for bad debts for patient fee		—			(4,552	)
Patient fee revenue - net		6,410			5,611
Product sales – net		796			69
Service and repair fees – net		1,964			2,314
Service and repair fees – related parties - net		28			28
Management and other fees – net		11,191			10,670
Management and other fees – related medical practices – net		2,390			2,287
Total Revenues – Net		22,779			20,979
COSTS AND EXPENSES
Costs related to patient fee revenue		2,740			2,570
Costs related to product sales		216			173
Costs related to service and repair fees		752			775
Costs related to service and repair fees – related parties		10			9
Costs related to management and other fees		5,834			5,733
Costs related to management and other fees – related medical practices		1,634			1,281
Research and development		381			503
Selling, general and administrative		4,604			5,533
Total Costs and Expenses		16,171			16,577
Income From Operations		6,608			4,402
Interest Expense		(27	)		(46	)
Investment Income		104			74
Other Expense		—			(8	)
Income Before Provision for Income Taxes and Noncontrolling Interests		6,685			4,422
Provision for Income Taxes		(1,484	)		(160	)
Net Income		5,201			4,262
Net Income - Noncontrolling Interests		(1,338	)		(781	)
Net Income - Controlling Interests	$	3,863		$	3,481
Net Income Available to Common Stockholders	$	3,623		$	3,263
Net Income Available to Class A Non-Voting Preferred Stockholders	$	179		$	163
Net Income Available to Class C Common Stockholders	$	61		$	55
Basic Net Income Per Common Share Available to Common Stockholders	$	0.57		$	0.52
Diluted Net Income Per Common Share Available to Common Stockholders	$	0.56		$	0.51
Basic and Diluted Income Per Share-Class C Common	$	0.16		$	0.15
Weighted Average Basis Shares Outstanding-Common Stockholders		6,357			6,287
Weighted Average Diluted Shares Outstanding-Common Stockholders		6,485			6,415
Weighted Average Basic Shares Outstanding – Class C Common		383			383
Weighted Average Diluted Shares Outstanding – Class C Common		383			383

See accompanying notes to condensed consolidated financial statements.

Page 6

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

	FOR THE NINE MONTHS ENDED MARCH 31,
	2019			2018
REVENUES
Patient fee revenue, net of contractual allowances and discounts	$	17,856		$	28,353
Provision for bad debts for patient fee		—			(12,873	)
Patient fee revenue - net		17,856			15,480
Product sales – net		1,241			508
Service and repair fees – net		6,116			6,929
Service and repair fees – related parties - net		83			83
Management and other fees – net		32,448			30,781
Management and other fees – related medical practices – net		6,965			6,699
Total Revenues – Net		64,709			60,480
COSTS AND EXPENSES
Costs related to patient fee revenue		8,016			7,619
Costs related to product sales		539			562
Costs related to service and repair fees		2,242			2,309
Costs related to service and repair fees – related parties		30			27
Costs related to management and other fees		17,493			17,116
Costs related to management and other fees – related medical practices		4,421			3,692
Research and development		1,368			1,258
Selling, general and administrative		12,474			12,899
Total Costs and Expenses		46,583			45,482
Income From Operations		18,126			14,998
Interest Expense		(78	)		(138	)
Investment Income		336			179
Other Expense		—			(15	)
Income Before Provision for Income Taxes and Noncontrolling Interests		18,384			15,024
Provision for Income Taxes		(3,826	)		(920	)
Net Income		14,558			14,104
Net Income - Noncontrolling Interests		(3,824	)		(2,715	)
Net Income - Controlling Interests	$	10,734		$	11,389
Net Income Available to Common Stockholders	$	10,067		$	10,675
Net Income Available to Class A Non-Voting Preferred Stockholders	$	496		$	532
Net Income Available to Class C Common Stockholders	$	170		$	182
Basic Net Income Per Common Share Available to Common Stockholders	$	1.58		$	1.70
Diluted Net Income Per Common Share Available to Common Stockholders	$	1.55		$	1.66
Basic and Diluted Income Per Share-Class C Common	$	0.44		$	0.48
Weighted Average Basic Shares Outstanding-Common Stockholders		6,353			6,287
Weighted Average Diluted Shares Outstanding-Common Stockholders		6,481			6,415
Weighted Average Basic Shares Outstanding – Class C Common		383			383
Weighted Average Diluted Shares Outstanding – Class C Common		383			383

See accompanying notes to condensed consolidated financial statements.

Page 7

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

For the Nine Months Ending March 31, 2019

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit
Balance – July 1, 2018	$	1	$	179,132	$	(79,773	)
Issuance of Common Stock		—		1,954		—
Net income – Controlling interests		—		—		10,734
Repayment of notes receivable		—		—		—
Distributions – Noncontrolling		—		—		—
Income – Noncontrolling interests		—		—		—
Balance – March 31, 2019	$	1	$	181,086	$	(69,039	)

For the Nine Months Ending March 31, 2019

	Notes receivable from employee stockholders			Treasury Stock			Non controlling Interests			Total
Balance – July 1, 2018	$	(9	)	$	(675	)	$	3,559		$	102,235
Issuance of Common Stock		—			—			—			1,954
Net income – Controlling interests		—			—			—			10,734
Repayment of notes receivable		9			—			—			9
Distributions – Noncontrolling		—			—			(4,815	)		(4,815	)
Income – Noncontrolling interests		—			—			3,824			3,824
Balance – March 31, 2019	$	—		$	(675	)	$	2,568		$	113,941

Page 8

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

For the Nine Months Ending March 31, 2018

		Common Stock		Paid in capital in excess of par value		Accumulated Deficit
Balance – July 1, 2017	$	1	$	179,131	$	(101,003	)
Issuance of Common Stock		—		—		—
Net income – Controlling interests		—		—		11,389
Repayment of notes receivable		—		—		—
Distributions – Noncontrolling		—		—		—
Income – Noncontrolling interests		—		—		—
Balance – March 31, 2018	$	1	$	179,131	$	(89,614	)

For the Nine Months Ending March 31, 2018

	Notes receivable from employee stockholders			Treasury Stock			Non controlling Interests			Total
Balance – July 1, 2017	$	(17	)	$	(675	)	$	5,473		$	82,910
Issuance of Common Stock		—			—			—			—
Net income – Controlling interests		—			—			—			11,389
Repayment of notes receivable		6			—			—			6
Distributions – Noncontrolling		—			—			(4,456	)		(4,456	)
Income – Noncontrolling interests		—			—			2,715			2,715
Balance – March 31, 2018	$	(11	)	$	(675	)	$	3,732		$	92,564

Page 9

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

For the Three Months Ending March 31, 2019

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit
Balance – January 1, 2019	$	1	$	181,086	$	(72,902	)
Issuance of Common Stock		—		—		—
Net income – Controlling interests		—		—		3,863
Repayment of notes receivable		—		—		—
Distributions – Noncontrolling		—		—		—
Income – Noncontrolling interests		—		—		—
Balance – March 31, 2019	$	1	$	181,086	$	(69,039	)

For the Three Months Ending March 31, 2019

	Notes receivable from employee stockholders			Treasury Stock			Non controlling Interests			Total
Balance – January 1, 2019	$	(9	)	$	(675	)	$	2,355		$	109,856
Issuance of Common Stock		—			—			—			—
Net income – Controlling interests		—			—			—			3,863
Repayment of notes receivable		9			—			—			9
Distributions – Noncontrolling		—			—			(1,125	)		(1,125	)
Income – Noncontrolling interests		—			—			1,338			1,338
Balance – March 31, 2019	$	—		$	(675	)	$	2,568		$	113,941

Page 10

 FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

For the Three Months Ending March 31, 2018

	Common Stock		Paid in capital in excess of par value		Accumulated Deficit
Balance – January 1, 2018	$	1	$	179,131	$	(93,095	)
Issuance of Common Stock		—		—		—
Net income – Controlling interests		—		—		3,481
Repayment of notes receivable		—		—		—
Distributions – Noncontrolling		—		—		—
Income – Noncontrolling interests		—		—		—
Balance – March 31, 2018	$	1	$	179,131	$	(89,614	)

For the Three Months Ending March 31, 2018

	Notes receivable from employee stockholders			Treasury Stock			Non controlling Interests			Total
Balance – January 1, 2018	$	(13	)	$	(675	)	$	4,646		$	89,995
Issuance of Common Stock		—			—			—			—
Net income – Controlling interests		—			—			—			3,481
Repayment of notes receivable		2			—			—			2
Distributions – Noncontrolling		—			—			(1,695	)		(1,695	)
Income – Noncontrolling interests		—			—			781			781
Balance – March 31, 2018	$	(11	)	$	(675	)	$	3,732		$	92,564

Page 11

FONAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

	FOR THE NINE MONTHS ENDED MARCH 31,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	14,557		$	14,104
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,852			2,949
Deferred income tax		3,701			575
Provision for bad debts		(652	)		122
Stock issued for costs and expenses		1,955			—
(Increase) decrease in operating assets, net:
Accounts, medical receivable and management fee(s)		(5,025	)		(3,005	)
Notes receivable		(13	)		—
Costs and estimated earnings in excess of billings on uncompleted contracts		(248	)		649
Inventories		(378	)		(13	)
Prepaid expenses and other current assets		(214	)		(132	)
Other assets		—			(883	)
Increase (decrease) in operating liabilities, net:
Accounts payable		331			(164	)
Other current liabilities		(3,593	)		(1,681	)
Customer advances		(24	)		79
Other liabilities		18			1
Due to related medical practices		(135	)		—
Net cash provided by operating activities		13,132			12,601
Cash Flows from Investing Activities:
Purchases of property and equipment		(3,069	)		(2,594	)
Cost of patents		(88	)		(75	)
Net cash used in investing activities		(3,157	)		(2,669	)
Cash Flows from Financing Activities:
Repayment of borrowings and capital lease obligations		(23	)		(150	)
Additional acquisition costs		—			(58	)
Distributions to noncontrolling interests		(4,815	)		(4,455	)
Repayment of notes receivable from employee stockholders		9			5
Net cash used in financing activities		(4,829	)		(4,658	)
Net Increase in Cash and Cash Equivalents		5,146			5,274
Cash and Cash Equivalents – Beginning of Period		19,634			10,140
Cash and Cash Equivalents – End of Period	$	24,780		$	15,414

See accompanying notes to condensed consolidated financial statements.

Page 12

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Effective July 1, 2015, the Company restructured the corporate organization of the management of diagnostic imaging centers segment of our business. The reorganization was structured to more completely integrate the operations of Health Management Corporation of America and HDM. Imperial contributed all of its assets (which were utilized in the business of Health Management Corporation of America) to HDM and received a 24.2% interest in HDM. Health Management Corporation of America retained a direct ownership interest of 45.8% in HDM, and the original investors in HDM retained a 30.0% ownership interest in the newly expanded HDM. The entire management of diagnostic imaging centers business segment is now being conducted by HDM, operating under the name “Health Management Company of America”.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed on September 21, 2018 for the fiscal year ended June 30, 2018.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenues

On July 1, 2018, the Company adopted the new revenue recognition accounting standard issued by the Financial Accounting Standards Board (“FASB”) and codified in the ASC as topic 606 (“ASC 606”). The revenue recognition standard in ASC 606 outlines a single comprehensive model for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s revenue recognition policies and significant judgments employed in the determination of revenue.

Page 13

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues (Continued)

The Company applied the modified retrospective approach to all contracts when adopting ASC 606. As a result, at the adoption of ASC 606 the majority of what was previously classified as the provision for bad debts in the statement of operations is now reflected as implicit price concessions (as defined in ASC 606) and therefore included as a reduction to net operating revenues in 2019. For changes in credit issues not assessed at the date of service, the Company will prospectively recognize those amounts in other operating expenses on the statement of operations. For periods prior to the adoption of ASC 606, the provision for bad debts has been presented consistent with the previous revenue recognition standards that required it to be presented separately as a component of net operating revenues. Additionally, upon adoption of ASC 606 the allowance for doubtful accounts of approximately $22.7 million as of July 1, 2018 was reclassified as a component of net patient accounts receivable. Other than these changes in presentation on the condensed consolidated statement of operations and condensed consolidated balance sheet, the adoption of ASC 606 did not have a material impact on the consolidated results of operations for the three months and nine months ended March 31, 2019, and the Company does not expect it to have a material impact on its consolidated results of operations for the remainder of 2019 and on a prospective basis.

Our revenues generally relate to net patient fees received from various payers and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Earnings Per Share

Basic earnings per share (“EPS”) is computed based on weighted average number of shares common stock and stock equivalents outstanding, net of common stock. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used the Two-Class method for calculating basic earnings per share and applied the if converted method in calculating diluted earnings per share for the three and nine months ended March 31, 2019 and 2018.

Diluted EPS reflects the potential dilution from the exercise or conversion of all dilutive securities into common stock based on the average market price of common shares outstanding during the period. For the three and nine months ended March 31, 2019 and 2018, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.

Page 14

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings Per Share (Continued)

	Three months ended March 31, 2019						Three months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	3,863	$	3,623	$	61	$	3,481	$	3,263	$	55
Denominator:
Weighted average shares  outstanding		6,357		6,357		383		6,287		6,287		383
Basic income per common  share	$	0.61	$	0.57	$	0.16	$	0.55	$	0.52	$	0.15
Diluted
Denominator:
Weighted average shares outstanding				6,357		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,485		383				6,415		383
Diluted income per common share			$	0.56	$	0.16			$	0.51	$	0.15

	Nine months ended March 31, 2019						Nine months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	10,734	$	10,067	$	170	$	11,389	$	10,675	$	182
Denominator:
Weighted average shares outstanding		6,353		6,353		383		6,287		6,287		383
Basic income per common share	$	1.69	$	1.58	$	0.44	$	1.81	$	1.70	$	0.48
Diluted
Denominator:
Weighted average shares outstanding				6,353		383				6,287		383
Convertibloe Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,481		383				6,415		383
Diluted income per common share			$	1.55	$	0.44			$	1.66	$	0.48

Page 15

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize as revenue the amount that reflects the consideration which it expects to be entitled in exchange for goods and services as it transfers control to its customers. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company earns revenue from the sale of scanners, maintenance contracts, product upgrades, patient services and management fees. Under the new guidance, the reporting for patient services revenue is now reported differently. All other streams of revenue were not impacted by the new guidance. The primary change for healthcare providers under the new guidance relates to revenue generated from patient services, with patient responsibility for payment. Under the new guidance, the Company is required to report an implicit price concession (both initially and for the subsequent changes in estimates) as a reduction of revenues as opposed to bad debt expense as a component of operating expenses. The Company now records any changes in expectation of collection amounts due to patient specific events that suggests that the patient no longer has the ability and intent to pay the amount due through the bad debt expense, as that is more indicative of a change in the customer’s credit worthiness as opposed to change in the transaction price.

The new standard supersedes most current revenue guidance, including industry-specific guidance. The guidance became effective for the Company on July 1, 2018 and as part of adopting the standard, the Company identified revenue streams of like contracts to allow for ease of implementation. The Company used primarily a portfolio approach to apply the new model to classes of customers with similar characteristics. The impact of adopting the new standard on our total revenue; and income from operations was not material. While the adoption of ASU 2014-09 did impact the presentation of net operating revenues in our Consolidated Statements of Operations and will impact certain disclosures, it did not materially impact our financial position, results of operations or cash flows. There was no cumulative effect of a change in accounting principle recorded related to the adoption of ASU 2014-09 on July 1, 2018.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance on our consolidated condensed financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company has adopted this guidance on our consolidated condensed financial statements and it has no impact on the Company’s financial statements.

Page 16

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

During February 2016, FAS issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact the adoption of this guidance will have on the Company’s consolidated condensed financial statements.

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2019 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2019 or 2018, and it does not believe that any of those pronouncements will have a significant impact on our condensed consolidated financial statements at the time they become effective.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifcations did not have any effect on reported consolidated net income for any periods presented.

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE

Receivables, net is comprised of the following at March 31, 2019:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	3,899	$	190	$	3,709
Accounts receivable - related party	$	30		—	$	30
Medical receivable – net	$	15,318		—	$	15,318
Management and other fees receivable	$	34,479	$	9,500	$	24,979
Management and other fees receivable from related medical practices ("PC’s")	$	8,746	$	2,542	$	6,204

Page 17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)

Receivables, net is comprised of the following at June 30, 2018:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	4,004	$	190	$	3,814
Accounts receivable - related party	$	—		—	$	—
Medical receivable	$	36,079	$	22,728	$	13,351
Management and other fees receivable	$	32,846	$	10,983	$	21,863
Management and other fees receivable from related medical practices ("PC’s")	$	7,246	$	1,711	$	5,535

The Company's customers are concentrated in the healthcare industry.

Accounts Receivable

Credit risk with respect to the Company’s accounts receivable related to product sales and service and repair fees is limited due to the customer advances received prior to the commencement of work performed and the billing of amounts to customers as sub-assemblies are completed. Service and repair fees are billed on a monthly or quarterly basis and the Company does not continue providing these services if accounts receivable become past due. The Company controls credit risk with respect to accounts receivable from service and repair fees through its credit evaluation process, credit limits, monitoring procedures and reasonably short collection terms. The Company performs ongoing credit authorizations before a product sales contract is entered into or service and repair fees are provided.

Medical Receivables

Medical receivables are due under fee-for-service contracts from third party payors, such as hospitals, government sponsored healthcare programs, patient’s legal counsel and directly from patients. Substantially all the revenue relates to patients residing in Florida. The carrying amount of the medical receivable is reduced by allowances for contractual adjustments and subsequent changes in credit worthiness based on specific payor class and historical experience at each site.

Management and Other Fees Receivable

The Company's receivables from the related and non-related professional corporations (PC's) substantially consist of fees outstanding under management agreements. Payment of the outstanding fees is dependent on collection by the PC's of fees from third party medical reimbursement organizations, principally insurance companies and health management organizations.

Page 18

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)

Payment of the management fee receivables from the PC’s may be impaired by the inability of the PC’s to collect in a timely manner their medical fees from the third party payors, particularly insurance carriers covering automobile no-fault and workers compensation claims due to longer payment cycles and rigorous informational requirements and certain other disallowed claims. Approximately 67% and 66% of the PCs’ net revenues for the three months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. Approximately 67% and 66% of the PCs’ net revenues for the nine months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. The Company considers the aging of its accounts receivable in determining the amount of allowance for doubtful accounts. The Company generally takes all legally available steps to collect its receivables. Credit losses associated with the receivables are provided for in the condensed consolidated financial statements and have historically been within management's expectations.

Net revenues from management and other fees charged to the related PCs accounted for approximately 10.5% and 10.9% of the consolidated net revenues for the three months ended March 31, 2019 and 2018, respectively. Net revenues from management and other fees charged to the related PCs accounted for approximately 10.8% and 11.0% of the consolidated net revenues for the nine months ended March 31, 2019 and 2018, respectively.

Tallahassee Magnetic Resonance Imaging, PA, Stand Up MRI of Boca Raton, PA and Stand Up MRI & Diagnostic Center, PA (all related medical practices) entered into a guaranty agreement, pursuant to which they cross guaranteed all management fees which are payable to the Company, which have arisen under each individual management agreement. Additional Company managed entities also operate under a guaranty agreement, pursuant to which management fees are payable to the Company.

The Company’s patient fee revenue, net of contractual allowances and discounts less the provision for bad debts for the three and nine months ended March 31, 2019 and 2018 are summarized in the following tables.

	For the Three Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	1,345	$	1,238
Medicare/Medicaid		315		337
Workers' Compensation/Personal Injury		4,569		6,577
Other		181		2,011
Patient Fee Revenue, net of contractual allowances and discounts		6,410		10,163
Provision for Bad Debts and bad debt expense		—		(4,552	)
Net Patient Fee for Revenue	$	6,410	$	5,611

	For the Nine Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	3,860	$	3,452
Medicare/Medicaid		876		903
Workers' Compensation/Personal Injury		12,227		18,685
Other		893		5,313
Patient Fee Revenue, net of contractual allowances and discounts		17,856		28,353
Provision for Bad Debts and bad debt expense		—		(12,873	)
Net Patient Fee for Revenue	$	17,856	$	15,480

Page 19

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 4 - INVENTORIES

Inventories included in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Purchased parts, components   and supplies	$	1,686	$	1,312
Work-in-process		124		119
Total Inventories	$	1,810	$	1,431

NOTE 5 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information relating to uncompleted contracts is as follows:

	March 31, 2019		June 30, 2018
Costs incurred on uncompleted contracts	$	449	$	449
Estimated earnings		742		309
Subtotal		1,191		758
Less: Billings to date		856		671
Total Costs and estimated earnings in excess of billings on uncompleted contracts	$	335	$	87

NOTE 6 – OTHER INTANGIBLE ASSETS

Other intangible assets, net of accumulated amortization, in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Capitalized software development costs	$	7,005	$	7,005
Patents and copyrights		4,924		4,836
Non-compete		4,100		4,100
Customer relationships		3,800		3,800
Gross Other intangible assets		19,829		19,741
Less: Accumulated amortization		14,870		14,139
Other Intangible Assets – net	$	4,959	$	5,602

Page 20

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 6 – OTHER INTANGIBLE ASSETS (CONTINUED)

Amortization of patents and copyrights for the three months ended March 31, 2019 and 2018 amounted to $50 and $50, respectively.

Amortization of capitalized software development costs for the three months ended March 31, 2019 and 2018 amounted to $0 and $43, respectively.

Amortization of non-compete for the three months ended March 31, 2019 and 2018 amounted to $146 and $146, respectively.

Amortization of customer relationships for the three months ended March 31, 2019 and 2018 amounted to $48 and $48, respectively.

Amortization of patents and copyrights for the nine months ended March 31, 2019 and 2018 amounted to $149 and $152, respectively.

Amortization of capitalized software development costs for the nine months ended March 31, 2019 and 2018 amounted to $0 and $173 respectively.

Amortization of non-compete for the nine months ended March 31, 2019 and 2018 amounted to $439 and $439, respectively.

Amortization of customer relationships for the nine months ended March 31, 2019 and 2018 amounted to $143 and $143, respectively.

NOTE 7 – OTHER CURRENT LIABILITIES

Other current liabilities in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Accrued salaries, commissions and payroll taxes	$	1,096	$	3,438
Litigation accruals		145		145
Sales tax payable		1,695		2,092
Legal and other professional fees		132		119
Accounting fees		90		125
Self-funded health insurance reserve		—		79
Accrued interest and penalty		1,253		1,498
Other		562		682
Total Other Current Liabilities	$	4,973	$	8,178

NOTE 8 – STOCKHOLDERS EQUITY

Common Stock

During the nine months ended March 31, 2019, the Company issued 70 shares of common stock for costs and expenses of $1,955.

Page 21

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 9 - SEGMENT AND RELATED INFORMATION

The Company operates in two industry segments - manufacturing and the servicing of medical equipment and management of diagnostic imaging centers.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies as disclosed in the Company’s 10-K as of June 30, 2018. All inter-segment sales are market-based. The Company evaluates performance based on income or loss from operations.

Summarized financial information concerning the Company's reportable segments is shown in the following table:

	Medical Equipment			Management Of Diagnostic Imaging Centers		Totals
For the three months ended March 31, 2019
Net revenues from external customers	$	2,788		$	19,991	$	22,779
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(27	)	$	6,635	$	6,608
Depreciation and amortization	$	92		$	886	$	978
Capital expenditures	$	661		$	213	$	874
For the three months ended March 31, 2018
Net revenues from external customers	$	2,411		$	18,568	$	20,979
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(457	)	$	4,859	$	4,402
Depreciation and amortization	$	93		$	899	$	992
Capital expenditures	$	80		$	727	$	807
For the nine months ended March 31, 2019
Net revenues from external customers	$	7,440		$	57,269	$	64,709
Inter-segment net revenues	$	683		$	—	$	683
(Loss) income from operations	$	(665	)	$	18,791	$	18,126
Depreciation and amortization	$	276		$	2,576	$	2,852
Capital expenditures	$	706		$	2,451	$	3,157
For the nine months ended March 31, 2018
Net revenues from external customers	$	7,520		$	52,960	$	60,480
Inter-segment net revenues	$	674		$	—	$	674
(Loss) income from operations	$	(490	)	$	15,488	$	14,998
Depreciation and amortization	$	259		$	2,690	$	2,949
Capital expenditures	$	259		$	2,410	$	2,669

Page 22

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 10– SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended March 31, 2019 and March 31, 2018, the Company paid $158 and $37 for interest, respectively.

During the nine months ended March 31, 2019 and March 31, 2018, the Company paid $305 and $345 for income taxes, respectively.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such actions, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

There were no material changes in litigation from that reported in our Form 10-K for the fiscal year ended June 30, 2018 and our form 10-Q for the first and second quarters of fiscal 2019.

Other Matters

The Company is also delinquent in filing sales tax returns for certain states, for which the Company has transacted business. As of March 31, 2019, the Company has recorded tax obligations of approximately $1,695 plus interest and penalties of approximately $1,207. The Company is in the process of determining the regulatory requirements in order to become compliant.

The Company maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum potential liability for individual claims to $100 per person and for a maximum potential claim liability based on member enrollment. With respect to this program, the Company considers historical and projected medical utilization data when estimating its health insurance program liability and related expense. As of March 31, 2019 and June 30, 2018, the Company had approximately $0 and $79, respectively, in reserve for its self-funded health insurance programs. The reserves are included in “Other current liabilities” in the condensed consolidated balance sheets.

The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsurance and self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known. There were no significant adjustments recorded in the periods covered by this report

Page 23

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 12 - INCOME TAXES

In accordance with ASC 740-270, Income Taxes – Interim Reporting, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and apply that rate to year-to-date ordinary income or loss. The resulting tax expense (or benefit) is adjusted for the tax effect of specific events, if any, required to be discretely recognized in the interim period as they occur.  For the nine months ended March 31, 2019 and 2018, the Company recorded income tax expense of $3,701 in 2019 as compared to $920 in 2018.  The 2019 provision is comprised of a current income tax component of $2,901 and a deferred income tax component of $800. Obligations for any liability associated with the current income tax provision, has been reduced, primarily resulting from the benefits and utilization of net operating loss carryforwards.

ASC topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a corporate tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as unrecognized benefits. A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC topic 740. The Company believes there are no uncertain tax positions in prior years tax filings and therefore it has not recorded a liability for unrecognized tax benefits.

In accordance with ASC topic 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net”. Penalties if incurred would be recognized as a component of “Selling, general and administrative” expenses.

The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2014.

The Company recorded a deferred tax asset of $18,989 and a deferred tax liability of $239 as of March 31, 2019, primarily relating to net operating loss carryforwards of approximately $76,611 available to offset future taxable income through 2030. The net operating losses begin to expire in 2021 for federal tax and state income tax purposes.

Future ownership changes as determined under Section 382 of the Internal Revenue code could further limit the utilization of net operating loss carryforwards. As of March 31, 2019, no such changes in ownership have occurred.

The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible or when such net operating losses can be utilized. The Company considers projected future taxable income, the regulatory environment of the industry and tax planning strategies in making this assessment. At present, the Company believes that it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial value of the deferred tax asset, (principally related to research and development tax credits and allowance for doubtful accounts).

Page 24

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 12 - INCOME TAXES (CONTINUED)

A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the valuation.

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018.

Under ASC topic 740, Accounting for Income Taxes, the enactment of the Tax Act also requires companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets and liabilities were revalued from 35% to 21%.

NOTE 13- SUBSEQUENT EVENTS

The Company has evaluated events that occurred subsequent to March 31, 2019 and through the date the condensed consolidated financial statements were issued.

Item 2. -  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

For the nine month period ended March 31, 2019, we reported a net income of $14.6 million on revenues of $64.7 million as compared to net income of $14.1 million on revenues of $60.5 million for the nine month period ended March 31, 2018. Operating income increased from $15.0 million for the nine month period ended March 31, 2018 to $18.4 million for the nine month period ended March 31, 2019.

For the three month period ended March 31, 2019, we reported a net income of $5.2 million on revenues of $22.8 million as compared to net income of $4.3 million on revenues of $21.0 million for the three month period ended March 31, 2018.

The revenue increase of 7.0%, from $60.5 million for the first nine months of fiscal 2018 to $64.7 million for the first nine months of fiscal 2019, was primarily due to increases in net management fees of $1.9 million, from $37.5 million for the first nine months of fiscal 2018 to $39.4 million for the first nine months of fiscal 2019. Revenues from product sales and service and repair fees decreased by $80,000 from $7.5 million for the first nine months of fiscal 2018 to $7.4 million for the first nine months of fiscal 2019.

While our revenues increased, our costs and expenses increased by a lower amount , resulting in our operating income increasing to $18.1 million for the nine months ended March 31, 2019 as compared to $15.0 million for the nine months ended March 31, 2018. In terms of percentages, costs and expenses increased 2.4% from $45.5 million for the first nine months of fiscal 2018 to $46.6 million for the first nine months of fiscal 2019, while revenues increased 7.0%, from $60.5 million for the first nine months of fiscal 2018 to $64.7 million for the first nine months of fiscal 2019.

Page 25

FONAR CORPORATION AND SUBSIDIARIES

Fonar’s wholly-owned subsidiary, Health Management Corporation of America (“HMCA”), is the controlling, but not sole owner of two limited liability companies, Imperial Management Services, LLC (“Imperial”) and Health Diagnostics Management, LLC (“HDM”). Effective July 1, 2015, the Company restructured the corporate organization of the management of diagnostic imaging centers segment of the business. HMCA presently has a direct ownership interest of 70.0% in HDM, and the investors in HDM have a 30.0% ownership interest. HMCA has a 100% ownership interest in Imperial. Imperial is presently inactive. The entire management of the diagnostic imaging centers business segment is being conducted by HDM, operating under the name “Health Management Company of America”. For the sake of simplicity, HMCA, Imperial and HDM are referred to as “HMCA”, unless otherwise indicated.

Forward Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of Management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statement included herein, 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.

Results of Operations

We operate in two industry segments: the manufacture and servicing of medical (MRI) equipment, which is conducted by Fonar, and diagnostic facilities management services, which is conducted through HMCA and its subsidiaries.

Manufacturing and Service of MRI Equipment

Revenues from MRI product sales increased to $1.2 million for the first nine months of fiscal 2019 from $508,000 for the first nine months of fiscal 2018. Costs related to product sales decreased, from $562,000 for the nine month period ended March 31, 2018 to $ 539,000 for the nine month period ended March 31, 2019. Economic uncertainty and lower reimbursement rates for MRI scans, have depressed the market for our MRI scanner products, notwithstanding our scanners’ unique technological capabilities (e.g. multi positional scanning).

Service revenues decreased 11.6% from $7.0 million for the nine month period ended March 31, 2018 to $6.2 million for the nine month period ended March 31, 2019. Continuing lower sales volumes have been a factor ultimately contributing to the decrease in service revenues, as the revenue from new scanners being placed under service agreements, following the expiration of their warranties, is insufficient to replace the revenue lost as a result of older scanners being taken out of service.

Page 26

FONAR CORPORATION AND SUBSIDIARIES

Costs relating to providing service remained steady at $2.3 million in the first nine months of fiscal 2018 and the first nine months of fiscal 2019. Because of our ability to monitor the performance of customers’ scanners from our facilities in Melville, New York on a daily basis and to detect and repair any irregularities before more serious and costly problems result, we have been able to control our costs of providing service.

There were approximately $393,000 in foreign revenues for the first nine months of fiscal 2019 as compared to approximately $574,000 in foreign revenues for the first nine months of fiscal 2018, representing a decrease in foreign revenues of 31.5%. We do not regard this as a material trend, but as part of a normal although sometimes volatile variation resulting from low volumes of foreign sales.

We recognize MRI scanner sales revenues on the “percentage of completion” basis, which means the revenues are recognized as the scanner is manufactured. Revenues recognized in a particular quarter do not necessarily reflect new orders or progress payments made by customers in that quarter. We build the scanner as the customer meets certain benchmarks in its site preparation in order to minimize the time lag between incurring costs of manufacturing and our receipt of the cash progress payments from the customer which are due upon delivery. Consequently, there can be a disparity between the revenues recognized in a fiscal period and the number of product sales. Generally, the revenues from a scanner sale are recognized in a fiscal quarter or quarters following the quarter in which the sale was made.

Revenues for the medical equipment segment decreased to $7.4 million for the nine months of fiscal 2019 from $7.5 million for the nine months of fiscal 2018. Operating results for our medical equipment segment increased to an operating loss of $665,000 for the first nine months of fiscal 2019 as compared to an operating loss of $490,000 for the first nine months of fiscal 2018.

Diagnostic Facilities Management Services

HMCA revenues increased in the first nine months of fiscal 2019 by 8.1% to $57.3 million from $53.0 million for the first nine months of fiscal 2018. The percentage of our revenues derived from our diagnostic facilities management segment relative to the percentage of our revenues derived from our medical equipment segment increased slightly to 88.5% for the first nine months of fiscal 2019, from 87.5% for the first nine months of fiscal 2018.

The increase in HMCA revenues is principally due to HMCA’s success in marketing the scanning services of the facilities managed or owned by HMCA, notwithstanding the decrease in reimbursement rates paid for MRI scans by insurers, Medicare and other government programs. The reductions in reimbursement rates are not unique to HMCA or HMCA’s clients but are being experienced by the industry in general.

HMCA is countering the effects of lower reimbursement rates by increasing the scan volume of the facilities it owns or manages. As a result of our vigorous marketing efforts, the number of scans performed at our centers and at our client’s centers increased from 129,469 in the first nine months of fiscal 2018 to 136,321 in the first nine months of fiscal 2019.

HMCA experienced an operating income of $18.8 million for the first nine months of fiscal 2019 compared to operating income of $15.5 million for the first nine months of fiscal 2018. HMCA’s cost of revenues for the first nine months of fiscal 2019 as compared to the first nine months of fiscal 2018 increased by 5.3% from $28.4 million to $29.9 million primarily as a result of the higher volume of scans performed.

Page 27

FONAR CORPORATION AND SUBSIDIARIES

Consolidated

For the first nine months of fiscal 2019, our consolidated net revenues increased by 7.0% to $64.7 million from $60.5 million for the first nine months of fiscal 2018, and total costs and expenses increased by 2.4% to $46.6 million from $45.5 million for the first nine months of fiscal 2019 and for the first nine months of fiscal 2018 respectively. As a result, our operating income increased to $18.1 million in the first nine months of fiscal 2019 as compared to $15.0 million in the first nine months of fiscal 2018.

Selling, general and administrative expenses decreased to $12.5 million in the first nine months of fiscal 2019 from $12.9 million in the first nine months of fiscal 2018. The compensatory element of stock issuances, which is included in selling, general and administrative expenses, remained constant at $0 for the first nine months of fiscal 2019 and 2018.

Research and development expenses increased by 8.7% to $ 1.4 million for the first nine months of fiscal 2019 from $1.3 million for the first nine months of fiscal 2018.

Interest expense in the first nine months of fiscal 2019 decreased by 43.5% to $78,000 from $138,000 in the first nine months of fiscal 2018. The decrease was due to the repayment of debt.

Inventories increased to $1.8 million at March 31, 2019 from $1.4 million at June 30, 2018.

Net management fee and medical receivables increased by 14.1% to $46.5 million at March 31, 2019 from $40.7 million at June 30, 2018 as a result of slower collections. The slower collections were primarily due to an increase in no-fault and workers’ compensation revenue, which typically takes longer to collect and the additional site which was opened in April 2017.

The results of operations for the first nine months of fiscal 2019 reflect an increase in revenues from management, patient and other fees, as compared to the first nine months of fiscal 2018 ($57.3 million for the first nine months of fiscal 2019 as compared to $53.0 million for the first nine months of fiscal 2018), and a decrease in MRI equipment segment revenues ($7.4 million as compared to $7.5 million). Revenues were 11.5% from the MRI equipment segment as compared to 88.5% from HMCA, for the first nine months of fiscal 2019, as compared to 12.5% from the MRI equipment segment and 87.5% from HMCA for the first nine months of fiscal 2018.

The implementation of the Patient Protection and Affordable Care Act (PPACA) has had a profound impact on the healthcare industry. We are experiencing some of the impact of the Act on our business in the reduction of reimbursement rates and fewer sales of our MRI equipment. Efforts to repeal and replace, or modify the PPACA may result in further significant changes in the healthcare industry and our business.

We are committed to improving our operating results and dealing with the challenges posed by legislative and regulatory requirements. Nevertheless, factors beyond our control, such as the timing and rate of market growth, economic conditions, the availability of credit and payor reimbursement rates, or unexpected expenditures and the timing of such expenditures, make it difficult to forecast future operating results.

As mentioned, one of the effects of the PPACA on our business has been the reduction in Medicare reimbursement rates for MRI scans. This also has resulted in a reduction in the reimbursement rates by commercial insurers and government programs which tie their reimbursement rates to the Medicare rates. Nevertheless, the increased patient volume of the scanning centers we manage or own has enabled us to maintain a healthy profitability in spite of these challenges. We believe we are pursuing the correct policies to cope with these problems and to improve the Company’s operating results. However, our future revenues and results of operations may be adversely impacted by future reductions in reimbursement rates.

Page 28

FONAR CORPORATION AND SUBSIDIARIES

Our Upright® MRI (also referred to as the Stand-Up® MRI), together with our works-in-progress, are intended to significantly improve our competitive position.

The Upright® MRI scanner, which operates at 6000 gauss (.6 Tesla) field strength, allows patients to be scanned while standing, sitting, reclining and in multiple flexion and extension positions. It is common in visualizing the spine that abnormalities are visualized in some positions and not others. This enables surgical corrections that heretofore would be unaddressable for lack of visualizing the symptom causing the pathology and therefore, in general enables the treating physician to achieve a better treatment outcome for his patient. A floor-recessed elevator brings the patient to the height appropriate for the targeted image region. A custom-built multi-position adjustable bed will allow patients to sit or lie on their backs, sides or stomachs at any angle. This allows the MRI technologist to ask the patient to position himself/herself in the exact position that generates his/her pain so that images of the patient in the position that explicitly generates the patient’s pain can be nailed down. Full-range-of-motion studies of the joints in virtually any direction are possible, a particularly promising feature for sports injuries.

In addition FONAR has announced the publication of a book “THE CRANIOCERVICAL SYNDROME and MRI” that highlights the unique attributes of FONAR UPRIGHT® MRI Imaging (S. Karger, A.G. based in Basel, Switzerland- www.karger.com/Book/Home/261956) which has been published by S. Karger, an approximately 125 year old company and an academic publisher of scientific and medical journals and books. The seven chapter monograph examines the rapid advances in MRI made possible by the FONAR UPRIGHT® Multi-Position MRI that are transforming the treatment of patients suffering from the craniocervical syndrome (CCS). It is written by leading international experts in the field to practitioners with a better understanding of the subtle anatomy and MRI appearances at the craniocervical junction, along with insight into the clinical significance of cerebrospinal fluid (CSF) flow measurements and its potential role in generating the devastating impairments of the neurodegenerative diseases: Alzheimer’s (5.1 million patients in the United States), childhood and adult Autism (3.0 million), Parkinson’s (1.0 million), Multiple Sclerosis (250,000-350,000) and Amyotrophic Lateral Sclerosis (ALS) (30,000). It calls attention to the revolutionary importance of FONAR’s UPRIGHT® MRI imaging technology and the prospect of significantly relieving the suffering of the above totaled 9.38 million patients afflicted with these disorders.

Fonar also announced a major diagnostic breakthrough in multiple sclerosis achieved with advanced Upright® MRI. Medical researchers at FONAR published a paper reporting a diagnostic breakthrough in multiple sclerosis (MS), based on observations made possible by the Company’s unique Upright® Multi-Position™ MRI scanner. The findings reveal that the cause of multiple sclerosis may be biomechanical and related to earlier trauma to the neck, which can result in obstruction of the flow of cerebrospinal fluid (CSF), which is produced and stored in the central anatomic structures of the brain known as the ventricles. Since the ventricles produce a large net volume of CSF each day (500 cc), the obstruction can result in a build up of pressure within the ventricles, resulting in leakage of the CSF and the antigenic polypeptides it contains into the surrounding brain tissue. This leakage could be responsible for generating the brain lesions of multiple sclerosis.

The paper, titled “The Possible Role of Cranio-Cervical Trauma and Abnormal CSF Hydrodynamics in the Genesis of Multiple Sclerosis," appears in the of the journal Physiological Chemistry and Physics and Medical NMR (Sept. 20, 2011).

This capability of the Fonar Upright® technology has demonstrated its key value on patients with the Arnold-Chiari syndrome [Cerebellar Tonsil Extopia (CTE)], which is believed to affect 200,000 to 500,000 Americans. In this syndrome, brain stem compression and subsequent severe neurological symptoms occur in these patients, because the brain stem descends and is compressed at the base of the skull in the foramen magnum, which is the circular bony opening at the base of the skull where the spinal cord exits the skull. Conventional lie-down MRI scanners cannot make an adequate evaluation of this pathology since the patient's pathology is most visible and the symptoms most acute when the patient is scanned in the upright fully weight-bearing position.

Page 29

 FONAR CORPORATION AND SUBSIDIARIES

A combined study of 1,200 neck pain patients published in “Brain Injury” (July 2010) by eight university medical centers reported that cerebellar tonsil ectopia (CTE) of 1mm or greater was found and visualized 2.5 times (250%) more frequently when patients who had sustained automobile whiplash injuries were scanned upright rather than lying down.

The Upright® MRI has also demonstrated its value for patients suffering from scoliosis. Scoliosis patients have been typically 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 a complete evaluation of the extent of the patient’s scoliosis, an x-ray machine has been the only modality that could provide that service. The Upright® MRI is the only MRI scanner which allows the patient to stand during the MRI exam. Fonar has developed an 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. 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 the average in the course of their scoliosis treatment. The Upright® MRI examination of scoliosis enables the needed imaging evaluation of the degree of spine scoliosis without exposing the patient to the risk of breast cancer from x-radiation. Currently scoliosis affects more than 3,000,000 American women.

In addition, the University of California, Los Angeles (UCLA) reported their results of their study of 1,302 patients utilizing the Fonar Upright® MRI at the 22nd Annual Meeting of the North American Spine Society on October 23, 2007. The UCLA study showed the superior ability of the Fonar Upright® MRI to detect spine pathology, including spondylolisthesis, disc herniations and disc degeneration, as compared to visualizations of the spine produced by traditional single position static MRIs.

The UCLA study by MRI of 1,302 back pain patients when they were in the Fonar Upright® MRI and examined in a full range of flexion and extension positions made possible by Fonar’s new Upright® technology established that significant “misses” of pathology were occurring with static single position MRI imaging. At L4-5, the vertebral level responsible for 49.8% of lumbar disc herniations, 35.1% of the spondylolistheses (vertebral instabilities) visualized by the Upright® MRI, were being missed by static single position MRI (510 patients). Since this vertebral segment is responsible for the majority of all disc herniations, the finding may reveal a significant cause of failed back surgeries. The UCLA study further showed the “miss-rate” of vertebral instabilities by static only MRI was even higher, 38.7%, at the L3-4 vertebral segment. Additionally, the UCLA study showed that MRI examinations of the cervical spine that did not perform extension images of the neck “missed” disc bulges 23.75% of the time (163 patients).

The UCLA study further reported that they were able to quantitatively measure the dimensions of the central spinal canal with the “highest accuracy” using the FONAR Upright® MRI thereby enabling the extent of spinal canal stenosis that existed in patients to be measured. Spinal canal stenosis gives rise to the symptom complex intermittent neurogenic claudication manifest as debilitating pain in the back and lower extremities, weakness and difficulties in ambulation and leg paresthesias. Spinal canal stenosis is a spinal compression syndrome separate and distinct from the more common nerve compression syndrome of the spinal nerves as they exit the vertebral column through the bony neural foramen.

The Fonar Upright® MRI can also be useful for MRI directed emergency neuro-surgical procedures as the surgeon would have unhindered access to the patient’s head when the patient is supine with no restrictions in the vertical direction. This easy-entry, mid-field-strength scanner could prove ideal for trauma centers where a quick MRI-screening within the first critical hour of treatment will greatly improve patients’ chances for survival and optimize the extent of recovery.

Page 30

FONAR CORPORATION AND SUBSIDIARIES

Liquidity and Capital Resources

Cash and cash equivalents increased by 26.2% from $19.6 million at June 30, 2018 to $24.8 million at March 31, 2019.

Cash provided by operating activities for the first nine months of fiscal 2019 was $13.1 million. Cash provided by operating activities was attributable principally to net income of $14.6 million, depreciation and amortization of $2.9 million and deferred income of $3.7 million, offset by an increase in accounts, management fee receivables and medical receivables of $5.0 million and a decrease in other current liabilities of $3.6 million.

Cash used in investing activities for the first nine months of fiscal 2019 was $3.2 million. The principal uses of cash used in investing activities during the first nine months of fiscal 2019 consisted of patent costs of $88,000 and the purchase of property and equipment of $3.1 million.

Cash used in financing activities for the first nine months of fiscal 2019 was $4.8 million. The principal uses of cash in financing activities during the first nine months of fiscal 2019 were the repayment of principal on long-term debt and capital lease obligations of $23,000 and distributions to non-controlling interests of $4.8 million.

Total liabilities decreased by 21.3% to $12.7 million at March 31, 2019 from $16.1 million at June 30, 2018. “Other” current liabilities decreased by 39.2% to $5.0 million at March 31, 2019 from $8.2 million at June 30, 2018. Long-term debt and capital lease obligations decreased from $306,000 to $282,000. The current portion of our unearned revenue on service contracts decreased from $4.2 million to $3.8 million. Customer deposits increased from $858,000 at June 30, 2018 to $834,000 at March 31, 2019 as a result of an increase in services performed.

As of March 31, 2019, the total of $5.0 million in “other” current liabilities included accrued salaries and payroll taxes of $1.1 million, and sales taxes of $1.7 million plus accrued interest and penalties of $1.3 million.

Our working capital increased to $67.5 million at March 31, 2019 from $52.5 million at June 30, 2018. This resulted from an increase in current assets ($67.1 million at June 30, 2018 as compared to $78.8 million at March 31, 2019), and a decrease in current liabilities from $14.6 million at June 30, 2018 to $11.3 million at March 31, 2019.

The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible or when such net operating losses can be utilized. The Company considers projected future taxable income, the regulatory environment of the industry, and tax planning strategies in making this assessment. At the present, the Company believes that it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial value of the deferred tax asset, (principally related to research and development tax credits and allowance for doubtful accounts). A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance.

The Company’s effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year’s taxable income on a periodic basis as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and made numerous changes to the Internal Revenue Code. Among other changes, the Act reduced the US corporate income tax rate to 21% effective January 1, 2018.

Page 31

FONAR CORPORATION AND SUBSIDIARIES

Under ASC Topic 740, Accounting for Income Taxes, the enactment of the Tax Act also required companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation in enacted. The Company’s gross deferred tax assets and liabilities were revalued form 35% to 21%. Deferred tax assets of approximately $46.2 million (as of the enactment effective date) were revalued to approximately $30.2 million with a corresponding decrease to the Company’s valuation allowance.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize as revenue the amount that reflects the consideration which it expects to be entitled in exchange for goods and services as it transfers control to its customers. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company earns revenue from the sale of scanners, maintenance contracts, product upgrades, patient services and management fees. Under the new guidance, the reporting for patient services revenue is now reported differently. All other streams of revenue were not impacted by the new guidance. The primary change for healthcare providers under the new guidance relates to revenue generated from patient services, with patient responsibility for payment. Under the new guidance, the Company is required to report an implicit price concession (both initially and for the subsequent changes in estimates) as a reduction of revenues as opposed to bad debt expense as a component of operating expenses. The Company now records any changes in expectation of collection amounts due to patient specific events that suggests that the patient no longer has the ability and intent to pay the amount due through the bad debt expense, as that is more indicative of a change in the customer’s credit worthiness as opposed to change in the transaction price.

The new standard supersedes most current revenue guidance, including industry-specific guidance. The guidance became effective for the Company on July 1, 2018 and as part of adopting the standard, the Company identified revenue streams of like contracts to allow for ease of implementation. The Company used primarily a portfolio approach to apply the new model to classes of customers with similar characteristics. The impact of adopting the new standard on our total revenue; and income from operations was not material. While the adoption of ASU 2014-09 did impact the presentation of net operating revenues in our Consolidated Statements of Operations and impacts certain disclosures, it did not materially impact our financial position, results of operations or cash flows. There was no cumulative effect of a change in accounting principle recorded related to the adoption of ASU 2014-09 on July 1, 2018.

Fonar has not committed to making any significant capital expenditures for the remainder of the 2019 fiscal year with the exception of placing a deposit for an additional scanner which will be placed in an existing facility in New York.

Critical to our business plan are the improvement and expansion of the MRI facilities managed or owned by HMCA, and increasing the number of scans performed at those facilities. In addition, our business plan calls for a continuing commitment to providing our customers with enhanced equipment service and maintenance capabilities and delivering state-of-the-art, innovative and high quality equipment and upgrades at competitive prices.

Management is seeking to promote wider market recognition of Fonar’s scanner products, and to increase demand for Upright® scanning at the facilities HMCA owns or manages. Given the liquidity and credit constraints in the markets, and the uncertainty resulting from the Patient Protection and Affordable Care Act or its repeal and replacement, the sale of medical equipment has and may continue to suffer.

The Company believes that its business plan has been responsible for the past six consecutive fiscal years and past fiscal quarter of profitability and that its capital resources will be adequate to support operations at current levels through at least March 31, 2020. The future effects on our business of healthcare legislation, the Deficit Reduction Act, the 2.3% excise tax on sales of medical equipment, reimbursement rates and the general economic and business climate are not known at the present time. Nevertheless, there is a possibility of adverse consequences to our business operations from these causes.

Page 32

FONAR CORPORATION AND SUBSIDIARIES

Item 3. - Quantitative and Qualitative Disclosures About Market Risk

The Company maintains its funds in liquid accounts. None of our investments are in fixed rate instruments.

All of our revenue, expense and capital purchasing activities are transacted in United States dollars.

Item 4. - Controls and Procedures.

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of March 31, 2019, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our system of internal control over financial reporting during the nine months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings:  There were no material changes in litigation from that reported in our Form 10-K for the fiscal year ended June 30, 2018 or the fiscal quarters ended September 30, 2018 and December 31, 2018.

Item 1A - Risk Factors: An investment in the securities of the Company 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. 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 date, the impact of these reductions has been countered by increasing scanning volume 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.

Page 33

FONAR CORPORATION AND SUBSIDIARIES

2. Demand for MRI Scanners. The reduced reimbursement rates also affects our sales of MRI scanners negatively. With lower revenue projections, fewer prospective customers will be able to operate, and others are likely to 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. Many if not most of our competing scanner manufacturers have significantly greater financial resources, production capacity, and other resources than we do. Such competitors would include General Electric, Siemens, Hitachi and Phillips. Although Fonar is the only company which can manufacture and sell the unique Stand-Up® (Upright®) MRI scanner, potential customers must be convinced that the purchase of a Fonar scanner is their best choice. 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 depend on referrals of patients from unaffiliated physicians and other third parties to the facilities we manage or own for the MRI scanning services performed. 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 have the effect of reducing our net revenue, from both management and scanning fees, and operating margins.

5. Pressure to Control Healthcare Costs. One of the principal objectives of health maintenance organizations and preferred provider organizations is to control the cost of healthcare services. Healthcare providers participating in managed care plans may be required to refer diagnostic imaging tests to certain providers depending on the plan in which a covered patient is enrolled. In addition, managed care contracting has become very competitive. 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. 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. 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, subject to any changes which may result from efforts to repeal and replace the PPACA. A shift in payor mix from managed care and other private payors to government payors or an increase in the number of uninsured patients may result in a reduction in the rates of reimbursement or an increase in uncollectible receivables or uncompensated care, with a corresponding decrease in net revenue. Policies now being offered under various insurance plans are expected to reduce demand for MRI scans as they become less affordable. Changes in the eligibility requirements for governmental programs such as the Medicaid program and state decisions on whether to participate in the expansion of such programs also could increase the number of patients who participate in such programs and the number of uninsured patients. 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.

Page 34

FONAR CORPORATION AND SUBSIDIARIES

8. Proposed Changes to New York Workers’ Compensation Benefits. A proposal was published by the New York State Workers’ Compensation Board (“NYSWCB”) in 2014 to change the fee schedule for Workers’ Compensation payments. Initially, the fees proposed would be set at approximately 130% of the Medicare fees. This would reduce fees for the most commonly billed radiology procedures by approximately 60%. Further, since the Workers’ Compensation fees are coupled with the New York State No Fault Program, radiology providers would suffer similar reductions for No-Fault fees. We and the HMCA clients wrote to the NYSWCB to argue against this proposal, and other affected parties commented as well. Since then, no further action has been taken by the NYSWCB to advance the 2014 proposal. On the contrary, the NYSWCB recently established an overall statewide fee increase for all provider types for services performed on or after October 1, 2018. There can be no assurance, however, that the NYSWCB will not modify their present position, or if they elect to do so, the extent to which the NYSWCB would do so. A significant reduction in Workers’ Compensation and No-Fault fees could have a material adverse impact on our business while an increase would further improve financial results.

9. Possible changes in Florida Insurance Law. A bill has been introduced into the Florida legislature, whose goal is to eliminate the no-fault system and the requirement that motorists carry personal injury protection, commonly referred to a “PIP”. In March 2018, however, a Florida senate subcommittee rejected a bill to repeal PIP. Future efforts to repeal PIP, however, may be successful. 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. The insurance industry is pushing to scrap PIP and instead mandate all motorists to carry coverage that includes a minimum of $25,000 bodily injury if they are at fault. 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. This would negatively impact our seven diagnostic imaging facilities (both those we own and those we manage) with more unpaid bills, lower reimbursement rates and elongated waiting times. 

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 and collectively referred to as HIPAA. If we fail to comply with applicable privacy and security laws, regulations and standards, properly maintain the integrity of our data, protect our proprietary rights to our systems, or defend against cybersecurity attacks, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected. Information security risks have significantly increased in recent years in part 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. Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks.

11. 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. 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 2 – Unregistered Sales of Equity Securities and Use of Proceeds: None

Item 3 - Defaults Upon Senior Securities: None

Item 4 - Mine Safety Disclosure: Not Applicable

Page 35

FONAR CORPORATION AND SUBSIDIARIES

Item 5 - Other Information: None 

Item 6 - Exhibits and Reports on Form 8-K:

a)        Exhibit 31.1 Certification. See Exhibits

b)       Exhibit 32.1 Certification. See Exhibits

c)       Report on Form 8-K filed on February 11, 2019, Item 2.02: Results of

Operations and Financial Condition for the fiscal quarter ended December

31, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FONAR CORPORATION

(Registrant)

By: /s/ Timothy Damadian

Timothy Damadian

President and Principal Executive Officer

/s/ Raymond V. Damadian

Raymond V. Damadian

Chairman of the Board, Treasurer and

Acting Principal Financial Officer

 Dated: May 10, 2019 

Page 36 

EX-31

FONAR CORPORATION AND SUBSIDIARIES

Exhibit 31.1

CERTIFICATION

Timothy Damadian, and Raymond V. Damadian each certify that:

1. I have reviewed this report on Form 10-Q of Fonar Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures or caused such disclosure controls over procedures to be designed under my supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2019

/s/ Timothy Damadian

Timothy Damadian

President and Principal Executive Officer

/s/ Raymond V. Damadian

Raymond V. Damadian

Chairman of the Board, Treasurer and

Acting Principal Financial Officer

EX-32

FONAR CORPORATION AND SUBSIDIARIES 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of FONAR Corporation and Subsidiaries (the “Company”) on Form 10Q for the fiscal quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy Damadian, President and Chief Executive Officer, and I, Raymond V. Damadian, Chairman of the Board, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Timothy Damadian

----------------------------------

Timothy Damadian

President and Chief Executive Officer

/s/ Raymond V. Damadian

-----------------------------------

Raymond V. Damadian

Chairman of the Board, Treasurer and

Chief Financial Officer

May 10, 2019

A signed original of this written statement required by Section 906 has been provided to Fonar Corporation and will be retained by Fonar Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
Entity Registrant Name	FONAR CORP
Entity Central Index Key	0000355019
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019
emerging growth company	false
small business	true
Common Shares
Entity Common Stock, Shares Outstanding		6,357,482
Class B Common Stock
Entity Common Stock, Shares Outstanding		146
Class C Common Stock
Entity Common Stock, Shares Outstanding		382,513
Preferred Stock Class A
Entity Common Stock, Shares Outstanding		313,438

XML

Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Current Assets:
Cash and cash equivalents	$ 24,780	$ 19,634
Accounts receivable - net	3,709	3,814
Accounts receivable - Related party	30
Medical receivables -net	15,318	13,351
Management and other fees receivable -net	24,979	21,863
Management and other fees receivable - related medical practices -net	6,204	5,535
Inventories	1,810	1,431
Costs and estimated earnings in excess of billings on uncompleted contracts	335	87
Prepaid expenses and other current assets	1,647	1,350
Total Current Assets	78,812	67,065
Income taxes receivable	1,200	1,200
Deferred income tax asset	18,989	22,689
Property and equipment - net	17,440	16,492
Goodwill	3,985	3,985
Other intangible assets - net	4,959	5,602
Other assets	1,207	1,278
Total Assets	126,592	118,311
Current Liabilities:
Current portion of long-term debt and capital leases	40	39
Accounts payable	1,631	1,300
Other current liabilities	4,973	8,178
Unearned revenue on service contracts	3,777	4,192
Unearned revenue on service contracts - related parties	27
Customer deposits	834	858
Total Current Liabilities	11,282	14,567
Long-Term Liabilities:
Deferred income tax liability	239	239
Due to related medical practices	93	227
Long-term debt and capital leases, less current portion	282	306
Other liabilities	755	737
Total Long-Term Liabilities	1,369	1,509
Total Liabilities	12,651	16,076
STOCKHOLDERS' EQUITY:
Common Stock	1	1
Paid-in capital in excess of par value	181,086	179,132
Accumulated deficit	(69,039)	(79,773)
Notes receivable from employee stockholders		(9)
Treasury stock, at cost - 12 shares of common stock at March 31, 2019 and June 30, 2018	(675)	(675)
Total Fonar Corporation's Stockholders' Equity	111,373	98,676
Noncontrolling interests	2,568	3,559
Total Stockholders' Equity	113,941	102,235
Total Liabilities and Stockholders' Equity	$ 126,592	$ 118,311

XML

Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2019	Jun. 30, 2018
Class A Non-Voting Preferred
Preferred Stock, Par Value	$ 0.0001	$ 0.0001
Preferred Stock, Authorized	453,000	453,000
Preferred Stock, Issued	313,000	313,000
Preferred Stock, Outstanding	313,000	313,000
Preferred Stock
Preferred Stock, Par Value	$ 0.001	$ 0.001
Preferred Stock, Authorized	567,000	567,000
Preferred Stock, Issued	0	0
Preferred Stock, Outstanding	0	0
Common Shares
Common Stock, Par Value	$ 0.0001	$ 0.0001
Common Stock, Authorized	8,500,000	8,500,000
Common Stock, Issued	6,369,000	6,299,000
Common Stock, Outstanding	6,357,000	6,288,000
Class B Common Stock
Common Stock, Par Value	$ 0.0001	$ 0.0001
Common Stock, Authorized	227,000	227,000
Common Stock, Issued	146	146
Common Stock, Outstanding	146	146
Class C Common Stock
Common Stock, Par Value	$ 0.0001	$ 0.0001
Common Stock, Authorized	567,000	567,000
Common Stock, Issued	383,000	383,000
Common Stock, Outstanding	383,000	383,000

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
REVENUES
Patient fee revenue, net of contractual allowances and discounts	$ 6,410	$ 10,163	$ 17,856	$ 28,353
Provision for bad debts for patient fee		(4,552)		(12,873)
Patient fee revenue - net	6,410	5,611	17,856	15,480
Product sales - net	796	69	1,241	508
Service and repair fees - net	1,964	2,314	6,116	6,929
Service and repair fees - related parties - net	28	28	83	83
Management and other fees - net	11,191	10,670	32,448	30,781
Management and other fees - related medical practices - net	2,390	2,287	6,965	6,699
Total Revenues - net	22,779	20,979	64,709	60,480
COSTS AND EXPENSES
Costs related to patient fee revenue	2,740	2,570	8,016	7,619
Costs related to product sales	216	173	539	562
Costs related to service and repair fees	752	775	2,242	2,309
Costs related to service and repair fees - related parties	10	9	30	27
Costs related to management and other fees	5,834	5,733	17,493	17,116
Costs related to management and other fees - related medical practices	1,634	1,281	4,421	3,692
Research and development	381	503	1,368	1,258
Selling, general and administrative	4,604	5,533	12,474	12,899
Total Costs and Expenses	16,171	16,577	46,583	45,482
INCOME
Income From Operations	6,608	4,402	18,126	14,998
Interest Expense	(27)	(46)	(78)	(138)
Investment Income	104	74	336	179
Other Expense		(8)		(15)
Income Before Provision for Income Taxes and Noncontrolling Interests	6,685	4,422	18,384	15,024
Provision for Income Taxes	(1,484)	(160)	(3,826)	(920)
Net Income	5,201	4,262	14,558	14,104
Net Income - Noncontrolling Interests	1,338	781	3,824	2,715
Net Income - Controlling Interests	$ 3,863	$ 3,481	$ 10,734	$ 11,389
Basic Net Income Per Common Share	$ 0.61	$ 0.55	$ 1.69	$ 1.81
Weighted Average Basic Shares Outstanding - Common Shareholders	6,357,000	6,287,000	6,353,000	6,287,000
Common Shares
INCOME
Net Income - Controlling Interests	$ 3,623	$ 3,263	$ 10,067	$ 10,675
Basic Net Income Per Common Share	$ 0.57	$ 0.52	$ 1.58	$ 1.7
Diluted Net Income Per Common Share	$ 0.56	$ 0.51	$ 1.55	$ 1.66
Weighted Average Basic Shares Outstanding - Common Shareholders	6,357,000	6,287,000	6,353,000	6,287,000
Weighted Average Diluted Shares Outstanding - Common Shareholders	6,485,000	6,415,000	6,481,000	6,415,000
Preferred Stock Class A
INCOME
Net Income - Controlling Interests	$ 179	$ 163	$ 496	$ 532
Class C Common Stock
INCOME
Net Income - Controlling Interests	$ 61	$ 55	$ 170	$ 182
Basic Net Income Per Common Share	$ 0.16	$ 0.15	$ 0.44	$ 0.48
Diluted Net Income Per Common Share	$ 0.16	$ 0.15	$ 0.44	$ 0.48
Weighted Average Basic Shares Outstanding - Common Shareholders	383,000	383,000	383,000	383,000
Weighted Average Diluted Shares Outstanding - Common Shareholders	383,000	383,000	383,000	383,000
Weighted Average Basic and Diluted Shares Outstanding - Class C Common	383,000	383,000	383,000	383,000

XML

Shareholders Equity and Comprehensive Income - USD ($) $ in Thousands	Common Shares	Paid-in Capital in Excess of Par Value	Accumulated Deficit	Notes Receivable from Employee Stockholders	Treasury Stock	Noncontrolling Interests	Total
Balance - Beginning, Value at Jun. 30, 2017	$ 1	$ 179,131	$ (101,003)	$ (17)	$ (675)	$ 5,473	$ 82,910
Issuance of stock (value)
Net Income - Controlling Interests			11,389				11,389
Repayment of notes receivable				6			6
Distributions - noncontrolling						(4,456)	(4,456)
Net Income - Noncontrolling Interests						2,715	2,715
Balance - Ending, Value at Mar. 31, 2018	1	179,131	(89,614)	(11)	(675)	3,732	92,564
Balance - Beginning, Value at Dec. 31, 2017	1	179,131	(93,095)	(13)	(675)	4,646	89,995
Issuance of stock (value)
Net Income - Controlling Interests			3,481				3,481
Repayment of notes receivable				2			2
Distributions - noncontrolling						(1,695)	(1,695)
Net Income - Noncontrolling Interests						781	781
Balance - Ending, Value at Mar. 31, 2018	1	179,131	(89,614)	(11)	(675)	3,732	92,564
Balance - Beginning, Value at Jun. 30, 2018	1	179,132	(79,773)	(9)	(675)	3,559	102,235
Issuance of stock (value)		1,954					1,954
Net Income - Controlling Interests			10,734				10,734
Repayment of notes receivable				9			9
Distributions - noncontrolling						(4,815)	(4,815)
Net Income - Noncontrolling Interests						3,824	3,824
Balance - Ending, Value at Mar. 31, 2019	1	181,086	(69,039)		(675)	2,568	113,941
Balance - Beginning, Value at Dec. 31, 2018	1	181,086	(72,902)	(9)	(675)	2,355	109,856
Issuance of stock (value)
Net Income - Controlling Interests			3,863				3,863
Repayment of notes receivable				9			9
Distributions - noncontrolling						(1,125)	(1,125)
Net Income - Noncontrolling Interests						1,338	1,338
Balance - Ending, Value at Mar. 31, 2019	$ 1	$ 181,086	$ (69,039)		$ (675)	$ 2,568	$ 113,941

XML

Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash Flows from Operating Activities:
Net income	$ 14,558	$ 14,104
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,852	2,949
Deferred income tax	3,701	575
Provision for bad debts	(652)	122
Stock issued for costs and expenses	1,955
(Increase) decrease in operating assets, net:
Accounts, medical receivable and management fee(s)	(5,025)	(3,005)
Notes receivable	(13)
Costs and estimated earnings in excess of Billings on uncompleted contracts	(248)	649
Inventories	(378)	(13)
Prepaid expenses and other current assets	(214)	(132)
Other assets		(883)
Increase (decrease) in operating liabilities, net:
Accounts payable	331	(164)
Other current liabilities	(3,593)	(1,681)
Customer advances	(24)	79
Other liabilities	18	1
Due to related medical practices	(135)
Net cash provided by operating activities	13,132	12,601
Cash Flows from Investing Activities:
Purchases of property and equipment	(3,069)	(2,594)
Cost of patents	(88)	(75)
Net cash used in investing activities	(3,157)	(2,669)
Cash Flows from Financing Activities:
Repayment of borrowings and capital lease obligations	(23)	(150)
Additional acquisition costs		(58)
Distributions to noncontrolling interests	(4,815)	(4,455)
Repayment of notes receivable from employee stockholders	9	5
Net cash used in financing activities	(4,829)	(4,658)
Net Increase in Cash and Cash Equivalents	5,146	5,274
Cash and Cash Equivalents - Beginning of Period	19,634	10,140
Cash and Cash Equivalents - End of Period	$ 24,780	$ 15,414

XML

NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (USD $)

9 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Effective July 1, 2015, the Company restructured the corporate organization of the management of diagnostic imaging centers segment of our business. The reorganization was structured to more completely integrate the operations of Health Management Corporation of America and HDM. Imperial contributed all of its assets (which were utilized in the business of Health Management Corporation of America) to HDM and received a 24.2% interest in HDM. Health Management Corporation of America retained a direct ownership interest of 45.8% in HDM, and the original investors in HDM retained a 30.0% ownership interest in the newly expanded HDM. The entire management of diagnostic imaging centers business segment is now being conducted by HDM, operating under the name “Health Management Company of America”.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed on September 21, 2018 for the fiscal year ended June 30, 2018.

XML

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (USD $)

9 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenues

On July 1, 2018, the Company adopted the new revenue recognition accounting standard issued by the Financial Accounting Standards Board (“FASB”) and codified in the ASC as topic 606 (“ASC 606”). The revenue recognition standard in ASC 606 outlines a single comprehensive model for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s revenue recognition policies and significant judgments employed in the determination of revenue. 

The Company applied the modified retrospective approach to all contracts when adopting ASC 606. As a result, at the adoption of ASC 606 the majority of what was previously classified as the provision for bad debts in the statement of operations is now reflected as implicit price concessions (as defined in ASC 606) and therefore included as a reduction to net operating revenues in 2019. For changes in credit issues not assessed at the date of service, the Company will prospectively recognize those amounts in other operating expenses on the statement of operations. For periods prior to the adoption of ASC 606, the provision for bad debts has been presented consistent with the previous revenue recognition standards that required it to be presented separately as a component of net operating revenues. Additionally, upon adoption of ASC 606 the allowance for doubtful accounts of approximately $22.7 million as of July 1, 2018 was reclassified as a component of net patient accounts receivable. Other than these changes in presentation on the condensed consolidated statement of operations and condensed consolidated balance sheet, the adoption of ASC 606 did not have a material impact on the consolidated results of operations for the three months and nine months ended March 31, 2019, and the Company does not expect it to have a material impact on its consolidated results of operations for the remainder of 2019 and on a prospective basis.

Our revenues generally relate to net patient fees received from various payers and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Earnings Per Share

Basic earnings per share (“EPS”) is computed based on weighted average number of shares common stock and stock equivalents outstanding, net of common stock. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used the Two-Class method for calculating basic earnings per share and applied the if converted method in calculating diluted earnings per share for the three and nine months ended March 31, 2019 and 2018.

Diluted EPS reflects the potential dilution from the exercise or conversion of all dilutive securities into common stock based on the average market price of common shares outstanding during the period. For the three and nine months ended March 31, 2019 and 2018, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.

	Three months ended March 31, 2019						Three months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	3,863	$	3,623	$	61	$	3,481	$	3,263	$	55
Denominator:
Weighted average shares  outstanding		6,357		6,357		383		6,287		6,287		383
Basic income per common  share	$	0.61	$	0.57	$	0.16	$	0.55	$	0.52	$	0.15
Diluted Denominator:
Weighted average shares outstanding				6,357		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,485		383				6,415		383
Diluted income per common share			$	0.56	$	0.16			$	0.51	$	0.15

	Nine months ended March 31, 2019						Nine months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	10,733	$	10,067	$	170	$	11,389	$	10,675	$	182
Denominator:
Weighted average shares outstanding		6,353		6,353		383		6,287		6,287		383
Basic income per common share	$	1.69	$	1.58	$	0.44	$	1.81	$	1.70	$	0.48
Diluted Denominator:
Weighted average shares outstanding				6,353		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,481		383				6,415		383
Diluted income per common share			$	1.55	$	0.44			$	1.66	$	0.48

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize as revenue the amount that reflects the consideration which it expects to be entitled in exchange for goods and services as it transfers control to its customers. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company earns revenue from the sale of scanners, maintenance contracts, product upgrades, patient services and management fees. Under the new guidance, the reporting for patient services revenue is now reported differently. All other streams of revenue were not impacted by the new guidance. The primary change for healthcare providers under the new guidance relates to revenue generated from patient services, with patient responsibility for payment. Under the new guidance, the Company is required to report an implicit price concession (both initially and for the subsequent changes in estimates) as a reduction of revenues as opposed to bad debt expense as a component of operating expenses. The Company now records any changes in expectation of collection amounts due to patient specific events that suggests that the patient no longer has the ability and intent to pay the amount due through the bad debt expense, as that is more indicative of a change in the customer’s credit worthiness as opposed to change in the transaction price.

The new standard supersedes most current revenue guidance, including industry-specific guidance. The guidance became effective for the Company on July 1, 2018 and as part of adopting the standard, the Company identified revenue streams of like contracts to allow for ease of implementation. The Company used primarily a portfolio approach to apply the new model to classes of customers with similar characteristics. The impact of adopting the new standard on our total revenue; and income from operations was not material. While the adoption of ASU 2014-09 did impact the presentation of net operating revenues in our Consolidated Statements of Operations and will impact certain disclosures, it did not materially impact our financial position, results of operations or cash flows. There was no cumulative effect of a change in accounting principle recorded related to the adoption of ASU 2014-09 on July 1, 2018.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance on our consolidated condensed financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company has adopted this guidance on our consolidated condensed financial statements and it has no impact on the Company’s financial statements.

During February 2016, FAS issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact the adoption of this guidance will have on the Company’s consolidated condensed financial statements.

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2019 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2019 or 2018, and it does not believe that any of those pronouncements will have a significant impact on our condensed consolidated financial statements at the time they become effective.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifcations did not have any effect on reported consolidated net income for any periods presented.

XML

NOTE 3 - ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (USD $)

9 Months Ended

Mar. 31, 2019

Receivables [Abstract]

NOTE 3 - ACCOUNTS RECEIVABLE. MEDICAL RECEIVABLES AND MANAGEMENT AND OTHER FEES RECEIVABLE (USD $)

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE

Receivables, net is comprised of the following at March 31, 2019:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	3,899	$	190	$	3,709
Accounts receivable - related party	$	30		—	$	30
Medical receivable – net	$	15,318		—	$	15,318
Management and other fees receivable	$	34,479	$	9,500	$	24,979
Management and other fees receivable from related medical practices ("PC’s")	$	8,746	$	2,542	$	6,204

Receivables, net is comprised of the following at June 30, 2018:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	4,004	$	190	$	3,814
Accounts receivable - related party	$	—		—	$	—
Medical receivable	$	36,079	$	22,728	$	13,351
Management and other fees receivable	$	32,846	$	10,983	$	21,863
Management and other fees receivable from related medical practices ("PC’s")	$	7,246	$	1,711	$	5,535

The Company's customers are concentrated in the healthcare industry.

Accounts Receivable

Credit risk with respect to the Company’s accounts receivable related to product sales and service and repair fees is limited due to the customer advances received prior to the commencement of work performed and the billing of amounts to customers as sub-assemblies are completed. Service and repair fees are billed on a monthly or quarterly basis and the Company does not continue providing these services if accounts receivable become past due. The Company controls credit risk with respect to accounts receivable from service and repair fees through its credit evaluation process, credit limits, monitoring procedures and reasonably short collection terms. The Company performs ongoing credit authorizations before a product sales contract is entered into or service and repair fees are provided.

Medical Receivables

Medical receivables are due under fee-for-service contracts from third party payors, such as hospitals, government sponsored healthcare programs, patient’s legal counsel and directly from patients. Substantially all the revenue relates to patients residing in Florida. The carrying amount of the medical receivable is reduced by allowances for contractual adjustments and subsequent changes in credit worthiness based on specific payor class and historical experience at each site.

Management and Other Fees Receivable

The Company's receivables from the related and non-related professional corporations (PC's) substantially consist of fees outstanding under management agreements. Payment of the outstanding fees is dependent on collection by the PC's of fees from third party medical reimbursement organizations, principally insurance companies and health management organizations.

Payment of the management fee receivables from the PC’s may be impaired by the inability of the PC’s to collect in a timely manner their medical fees from the third party payors, particularly insurance carriers covering automobile no-fault and workers compensation claims due to longer payment cycles and rigorous informational requirements and certain other disallowed claims. Approximately 67% and 66% of the PCs’ net revenues for the three months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. Approximately 67% and 66% of the PCs’ net revenues for the nine months ended March 31, 2019 and 2018, respectively, were derived from no-fault and personal injury protection claims. The Company considers the aging of its accounts receivable in determining the amount of allowance for doubtful accounts. The Company generally takes all legally available steps to collect its receivables. Credit losses associated with the receivables are provided for in the condensed consolidated financial statements and have historically been within management's expectations.

Net revenues from management and other fees charged to the related PCs accounted for approximately 10.5% and 10.9% of the consolidated net revenues for the three months ended March 31, 2019 and 2018, respectively. Net revenues from management and other fees charged to the related PCs accounted for approximately 10.8% and 11.1% of the consolidated net revenues for the nine months ended March 31, 2019 and 2018, respectively.

Tallahassee Magnetic Resonance Imaging, PA, Stand Up MRI of Boca Raton, PA and Stand Up MRI & Diagnostic Center, PA (all related medical practices) entered into a guaranty agreement, pursuant to which they cross guaranteed all management fees which are payable to the Company, which have arisen under each individual management agreement. Additional Company managed entities also operate under a guaranty agreement, pursuant to which management fees are payable to the Company.

The Company’s patient fee revenue, net of contractual allowances and discounts less the provision for bad debts for the three and nine months ended March 31, 2019 and 2018 are summarized in the following tables.

	For the Three Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	1,345	$	1,238
Medicare/Medicaid		315		337
Workers' Compensation/Personal Injury		4,569		6,577
Other		181		2,011
Patient Fee Revenue, net of contractual allowances and discounts		6,410		10,163
Provision for Bad Debts and bad debt expense		—		(4,552	)
Net Patient Fee for Revenue	$	6,410	$	5,611

	For the Nine Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	3,860	$	3,452
Medicare/Medicaid		876		903
Workers' Compensation/Personal Injury		12,227		18,685
Other		893		5,313
Patient Fee Revenue, net of contractual allowances and discounts		17,856		28,353
Provision for Bad Debts and bad debt expense		—		(12,873	)
Net Patient Fee for Revenue	$	17,856	$	15,480

XML

NOTE 4 - INVENTORIES

9 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

NOTE 4 - INVENTORIES

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 4 - INVENTORIES

Inventories included in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Purchased parts, components   and supplies	$	1,686	$	1,312
Work-in-process		124		119
Total Inventories	$	1,810	$	1,431

XML

NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

9 Months Ended

Mar. 31, 2019

Notes to Financial Statements

NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 5 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information relating to uncompleted contracts is as follows:

	March 31, 2019		June 30, 2018
Costs incurred on uncompleted contracts	$	449	$	449
Estimated earnings		742		309
Subtotal		1,191		758
Less: Billings to date		856		671
Total Costs and estimated earnings in excess of billings on uncompleted contracts	$	335	$	87

XML

NOTE 6 - OTHER INTANGIBLE ASSETS

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 6 - OTHER INTANGIBLE ASSETS

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 6 – OTHER INTANGIBLE ASSETS

Other intangible assets, net of accumulated amortization, in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Capitalized software development costs	$	7,005	$	7,005
Patents and copyrights		4,924		4,836
Non-compete		4,100		4,100
Customer relationships		3,800		3,800
Gross Other intangible assets		19,829		19,741
Less: Accumulated amortization		14,870		14,139
Other Intangible Assets – net	$	4,959	$	5,602

Amortization of patents and copyrights for the three months ended March 31, 2019 and 2018 amounted to $50 and $50, respectively.

Amortization of capitalized software development costs for the three months ended March 31, 2019 and 2018 amounted to $0 and $43, respectively.

Amortization of non-compete for the three months ended March 31, 2019 and 2018 amounted to $146 and $146, respectively.

Amortization of customer relationships for the three months ended March 31, 2019 and 2018 amounted to $48 and $48, respectively.

Amortization of patents and copyrights for the nine months ended March 31, 2019 and 2018 amounted to $149 and $152, respectively.

Amortization of capitalized software development costs for the nine months ended March 31, 2019 and 2018 amounted to $0 and $173 respectively.

Amortization of non-compete for the nine months ended March 31, 2019 and 2018 amounted to $439 and $439, respectively.

Amortization of customer relationships for the nine months ended March 31, 2019 and 2018 amounted to $143 and $143, respectively.

XML

NOTE 7 - OTHER CURRENT LIABILITIES

9 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

NOTE 7 - OTHER CURRENT LIABILITIES

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 7 – OTHER CURRENT LIABILITIES

Other current liabilities in the accompanying condensed consolidated balance sheet consist of the following:

	March 31, 2019		June 30, 2018
Accrued salaries, commissions and payroll taxes	$	1,096	$	3,438
Litigation accruals		145		145
Sales tax payable		1,695		2,092
Legal and other professional fees		132		119
Accounting fees		90		125
Self-funded health insurance reserve		—		79
Accrued interest and penalty		1,253		1,498
Other		562		682
Total Other Current Liabilities	$	4,973	$	8,178

XML

NOTE 8 - STOCKHOLDERS EQUITY

9 Months Ended

Mar. 31, 2019

STOCKHOLDERS' EQUITY:

NOTE 8 - STOCKHOLDERS EQUITY

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 8 – STOCKHOLDERS EQUITY

Common Stock

During the nine months ended March 31, 2019, the Company issued 70 shares of common stock for costs and expenses of $1,955.

XML

NOTE 9 - SEGMENT AND RELATED INFORMATION

9 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

NOTE 9 - SEGMENT AND RELATED INFORMATION

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 9 - SEGMENT AND RELATED INFORMATION

The Company operates in two industry segments - manufacturing and the servicing of medical equipment and management of diagnostic imaging centers.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies as disclosed in the Company’s 10-K as of June 30, 2018. All inter-segment sales are market-based. The Company evaluates performance based on income or loss from operations.

Summarized financial information concerning the Company's reportable segments is shown in the following table:

	Medical Equipment			Management Of Diagnostic Imaging Centers		Totals
For the three months ended March 31, 2019
Net revenues from external customers	$	2,788		$	19,991	$	22,779
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(27	)	$	6,635	$	6,608
Depreciation and amortization	$	92		$	886	$	978
Capital expenditures	$	661		$	213	$	874
For the three months ended March 31, 2018
Net revenues from external customers	$	2,411		$	18,568	$	20,979
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(457	)	$	4,859	$	4,402
Depreciation and amortization	$	93		$	899	$	992
Capital expenditures	$	80		$	727	$	807
For the nine months ended March 31, 2019
Net revenues from external customers	$	7,440		$	57,269	$	64,709
Inter-segment net revenues	$	683		$	—	$	683
(Loss) income from operations	$	(665	)	$	18,791	$	18,126
Depreciation and amortization	$	276		$	2,576	$	2,852
Capital expenditures	$	706		$	2,451	$	3,157
For the nine months ended March 31, 2018
Net revenues from external customers	$	7,520		$	52,960	$	60,480
Inter-segment net revenues	$	674		$	—	$	674
(Loss) income from operations	$	(490	)	$	15,488	$	14,998
Depreciation and amortization	$	259		$	2,690	$	2,949
Capital expenditures	$	259		$	2,410	$	2,669

XML

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

9 Months Ended

Mar. 31, 2019

Supplemental Cash Flow Elements [Abstract]

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 10– SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended March 31, 2019 and March 31, 2018, the Company paid $158 and $37 for interest, respectively.

During the nine months ended March 31, 2019 and March 31, 2018, the Company paid $305 and $345 for income taxes, respectively.

XML

NOTE 11 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

NOTE 11 - COMMITMENTS AND CONTINGENCIES

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract and employment claims. In the opinion of management, the aggregate liability, if any, with respect to such actions, will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

There were no material changes in litigation from that reported in our Form 10-K for the fiscal year ended June 30, 2018 and our form 10-Q for the first and second quarters of fiscal 2019.

Other Matters

The Company is also delinquent in filing sales tax returns for certain states, for which the Company has transacted business. As of March 31, 2019, the Company has recorded tax obligations of approximately $1,695 plus interest and penalties of approximately $1,207. The Company is in the process of determining the regulatory requirements in order to become compliant.

The Company maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum potential liability for individual claims to $100 per person and for a maximum potential claim liability based on member enrollment. With respect to this program, the Company considers historical and projected medical utilization data when estimating its health insurance program liability and related expense. As of March 31, 2019 and June 30, 2018, the Company had approximately $0 and $79, respectively, in reserve for its self-funded health insurance programs. The reserves are included in “Other current liabilities” in the condensed consolidated balance sheets.

The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsurance and self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known. There were no significant adjustments recorded in the periods covered by this report

XML

NOTE 12 - INCOME TAXES

9 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

NOTE 12 - INCOME TAXES

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 12 - INCOME TAXES

In accordance with ASC 740-270, Income Taxes – Interim Reporting, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and apply that rate to year-to-date ordinary income or loss. The resulting tax expense (or benefit) is adjusted for the tax effect of specific events, if any, required to be discretely recognized in the interim period as they occur.  For the nine months ended March 31, 2019 and 2018, the Company recorded income tax expense of $3,826 in 2019 as compared to $920 in 2018.  The 2019 provision is comprised of a current income tax component of $2,901 and a deferred income tax component of $925. Obligations for any liability associated with the current income tax provision, has been reduced, primarily resulting from the benefits and utilization of net operating loss carryforwards.

ASC topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a corporate tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as unrecognized benefits. A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC topic 740. The Company believes there are no uncertain tax positions in prior years tax filings and therefore it has not recorded a liability for unrecognized tax benefits.

In accordance with ASC topic 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net”. Penalties if incurred would be recognized as a component of “Selling, general and administrative” expenses.

The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2014.

The Company recorded a deferred tax asset of $18,989 and a deferred tax liability of $239 as of March 31, 2019, primarily relating to net operating loss carryforwards of approximately $76,611 available to offset future taxable income through 2030. The net operating losses begin to expire in 2021 for federal tax and state income tax purposes.

Future ownership changes as determined under Section 382 of the Internal Revenue code could further limit the utilization of net operating loss carryforwards. As of December 31, 2018, no such changes in ownership have occurred.

The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible or when such net operating losses can be utilized. The Company considers projected future taxable income, the regulatory environment of the industry and tax planning strategies in making this assessment. At present, the Company believes that it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial value of the deferred tax asset, (principally related to research and development tax credits and allowance for doubtful accounts).

A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the valuation.

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018.

Under ASC topic 740, Accounting for Income Taxes, the enactment of the Tax Act also requires companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets and liabilities were revalued from 35% to 21%. Deferred tax assets of $46.2 million (as of the enactment effective date –the quarter ended December 31, 2017) were revalued to approximately $30.2 million with a corresponding decrease to the Company’s valuation allowance.

XML

NOTE 13 - SUBSEQUENT EVENTS

9 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

NOTE 13 - SUBSEQUENT EVENTS

FONAR CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 and 2018

(Amounts and shares in thousands, except per share amounts)

(UNAUDITED)

NOTE 13- SUBSEQUENT EVENTS

The Company has evaluated events that occurred subsequent to March 31, 2019 and through the date the condensed consolidated financial statements were issued.

XML

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Mar. 31, 2019

Note 2 - Summary Of Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue

Revenues

On July 1, 2018, the Company adopted the new revenue recognition accounting standard issued by the Financial Accounting Standards Board (“FASB”) and codified in the ASC as topic 606 (“ASC 606”). The revenue recognition standard in ASC 606 outlines a single comprehensive model for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s revenue recognition policies and significant judgments employed in the determination of revenue. 

The Company applied the modified retrospective approach to all contracts when adopting ASC 606. As a result, at the adoption of ASC 606 the majority of what was previously classified as the provision for bad debts in the statement of operations is now reflected as implicit price concessions (as defined in ASC 606) and therefore included as a reduction to net operating revenues in 2019. For changes in credit issues not assessed at the date of service, the Company will prospectively recognize those amounts in other operating expenses on the statement of operations. For periods prior to the adoption of ASC 606, the provision for bad debts has been presented consistent with the previous revenue recognition standards that required it to be presented separately as a component of net operating revenues. Additionally, upon adoption of ASC 606 the allowance for doubtful accounts of approximately $22.7 million as of July 1, 2018 was reclassified as a component of net patient accounts receivable. Other than these changes in presentation on the condensed consolidated statement of operations and condensed consolidated balance sheet, the adoption of ASC 606 did not have a material impact on the consolidated results of operations for the three months and nine months ended March 31, 2019, and the Company does not expect it to have a material impact on its consolidated results of operations for the remainder of 2019 and on a prospective basis.

Our revenues generally relate to net patient fees received from various payers and patients themselves under contracts in which our performance obligations are to provide diagnostic services to the patients. Revenues are recorded during the period our obligations to provide diagnostic services are satisfied. Our performance obligations for diagnostic services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Earnings Per Share

Earnings Per Share

Basic earnings per share (“EPS”) is computed based on weighted average number of shares common stock and stock equivalents outstanding, net of common stock. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used the Two-Class method for calculating basic earnings per share and applied the if converted method in calculating diluted earnings per share for the three and nine months ended March 31, 2019 and 2018.

Diluted EPS reflects the potential dilution from the exercise or conversion of all dilutive securities into common stock based on the average market price of common shares outstanding during the period. For the three and nine months ended March 31, 2019 and 2018, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.

	Three months ended March 31, 2019						Three months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	3,863	$	3,623	$	61	$	3,481	$	3,263	$	55
Denominator:
Weighted average shares  outstanding		6,357		6,357		383		6,287		6,287		383
Basic income per common  share	$	0.61	$	0.57	$	0.16	$	0.55	$	0.52	$	0.15
Diluted Denominator:
Weighted average shares outstanding				6,357		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,485		383				6,415		383
Diluted income per common share			$	0.56	$	0.16			$	0.51	$	0.15

	Nine months ended March 31, 2019						Nine months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	10,733	$	10,067	$	170	$	11,389	$	10,675	$	182
Denominator:
Weighted average shares outstanding		6,353		6,353		383		6,287		6,287		383
Basic income per common share	$	1.69	$	1.58	$	0.44	$	1.81	$	1.70	$	0.48
Diluted Denominator:
Weighted average shares outstanding				6,353		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,481		383				6,415		383
Diluted income per common share			$	1.55	$	0.44			$	1.66	$	0.48

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, (Topic 606). ASU 2014-09 requires an entity to recognize as revenue the amount that reflects the consideration which it expects to be entitled in exchange for goods and services as it transfers control to its customers. It also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company earns revenue from the sale of scanners, maintenance contracts, product upgrades, patient services and management fees. Under the new guidance, the reporting for patient services revenue is now reported differently. All other streams of revenue were not impacted by the new guidance. The primary change for healthcare providers under the new guidance relates to revenue generated from patient services, with patient responsibility for payment. Under the new guidance, the Company is required to report an implicit price concession (both initially and for the subsequent changes in estimates) as a reduction of revenues as opposed to bad debt expense as a component of operating expenses. The Company now records any changes in expectation of collection amounts due to patient specific events that suggests that the patient no longer has the ability and intent to pay the amount due through the bad debt expense, as that is more indicative of a change in the customer’s credit worthiness as opposed to change in the transaction price.

The new standard supersedes most current revenue guidance, including industry-specific guidance. The guidance became effective for the Company on July 1, 2018 and as part of adopting the standard, the Company identified revenue streams of like contracts to allow for ease of implementation. The Company used primarily a portfolio approach to apply the new model to classes of customers with similar characteristics. The impact of adopting the new standard on our total revenue; and income from operations was not material. While the adoption of ASU 2014-09 did impact the presentation of net operating revenues in our Consolidated Statements of Operations and will impact certain disclosures, it did not materially impact our financial position, results of operations or cash flows. There was no cumulative effect of a change in accounting principle recorded related to the adoption of ASU 2014-09 on July 1, 2018.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance on our consolidated condensed financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company has adopted this guidance on our consolidated condensed financial statements and it has no impact on the Company’s financial statements.

During February 2016, FAS issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact the adoption of this guidance will have on the Company’s consolidated condensed financial statements.

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of March 31, 2019 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2019 or 2018, and it does not believe that any of those pronouncements will have a significant impact on our condensed consolidated financial statements at the time they become effective.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifcations did not have any effect on reported consolidated net income for any periods presented.

XML

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share

Earnings Per Share

	Three months ended March 31, 2019						Three months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	3,863	$	3,623	$	61	$	3,481	$	3,263	$	55
Denominator:
Weighted average shares  outstanding		6,357		6,357		383		6,287		6,287		383
Basic income per common  share	$	0.61	$	0.57	$	0.16	$	0.55	$	0.52	$	0.15
Diluted Denominator:
Weighted average shares outstanding				6,357		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,485		383				6,415		383
Diluted income per common share			$	0.56	$	0.16			$	0.51	$	0.15

	Nine months ended March 31, 2019						Nine months ended March 31, 2018
Basic	Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to common stockholders	$	10,733	$	10,067	$	170	$	11,389	$	10,675	$	182
Denominator:
Weighted average shares outstanding		6,353		6,353		383		6,287		6,287		383
Basic income per common share	$	1.69	$	1.58	$	0.44	$	1.81	$	1.70	$	0.48
Diluted Denominator:
Weighted average shares outstanding				6,353		383				6,287		383
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted earnings per share				6,481		383				6,415		383
Diluted income per common share			$	1.55	$	0.44			$	1.66	$	0.48

XML

NOTE 3 - ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (USD $) (Tables)

9 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Receivables - net

Receivables, net at March 31, 2019:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	3,899	$	190	$	3,709
Accounts receivable - related party	$	30		—	$	30
Medical receivable – net	$	15,318		—	$	15,318
Management and other fees receivable	$	34,479	$	9,500	$	24,979
Management and other fees receivable from related medical practices ("PC’s")	$	8,746	$	2,542	$	6,204

Receivables, net at June 30, 2018:

	Gross Receivable		Allowance for doubtful accounts		Net
Accounts receivable	$	4,004	$	190	$	3,814
Accounts receivable - related party	$	—		—	$	—
Medical receivable	$	36,079	$	22,728	$	13,351
Management and other fees receivable	$	32,846	$	10,983	$	21,863
Management and other fees receivable from related medical practices ("PC’s")	$	7,246	$	1,711	$	5,535

Patient fee revenue - net

Patient fee revenue

	For the Three Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	1,345	$	1,238
Medicare/Medicaid		315		337
Workers' Compensation/Personal Injury		4,569		6,577
Other		181		2,011
Patient Fee Revenue, net of contractual allowances and discounts		6,410		10,163
Provision for Bad Debts and bad debt expense		—		(4,552	)
Net Patient Fee for Revenue	$	6,410	$	5,611

	For the Nine Months Ended March 31,
	2019		2018
Commercial Insurance/ Managed Care	$	3,860	$	3,452
Medicare/Medicaid		876		903
Workers' Compensation/Personal Injury		12,227		18,685
Other		893		5,313
Patient Fee Revenue, net of contractual allowances and discounts		17,856		28,353
Provision for Bad Debts and bad debt expense		—		(12,873	)
Net Patient Fee for Revenue	$	17,856	$	15,480

XML

NOTE 4 - INVENTORIES (Tables)

9 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories

	March 31, 2019		June 30, 2018
Purchased parts, components   and supplies	$	1,686	$	1,312
Work-in-process		124		119
Total Inventories	$	1,810	$	1,431

XML

NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Tables)

9 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Information relating to uncompleted contracts

Information relating to uncompleted contracts is as follows:

	March 31, 2019		June 30, 2018
Costs incurred on uncompleted contracts	$	449	$	449
Estimated earnings		742		309
Subtotal		1,191		758
Less: Billings to date		856		671
Total Costs and estimated earnings in excess of billings on uncompleted contracts	$	335	$	87

XML

NOTE 6 - OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Other intangible assets - net

Other intangible assets - net

	March 31, 2019		June 30, 2018
Capitalized software development costs	$	7,005	$	7,005
Patents and copyrights		4,924		4,836
Non-compete		4,100		4,100
Customer relationships		3,800		3,800
Gross Other intangible assets		19,829		19,741
Less: Accumulated amortization		14,870		14,139
Other Intangible Assets – net	$	4,959	$	5,602

XML

NOTE 7 - OTHER CURRENT LIABILITIES (Tables)

9 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Other current liabilities

Other current liabilities  

	March 31, 2019		June 30, 2018
Accrued salaries, commissions and payroll taxes	$	1,096	$	3,438
Litigation accruals		145		145
Sales tax payable		1,695		2,092
Legal and other professional fees		132		119
Accounting fees		90		125
Self-funded health insurance reserve		—		79
Accrued interest and penalty		1,253		1,498
Other		562		682
Total Other Current Liabilities	$	4,973	$	8,178

XML

NOTE 9 - SEGMENT AND RELATED INFORMATION (Tables)

9 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment information

Summarized segment and related information

	Medical Equipment			Management Of Diagnostic Imaging Centers		Totals
For the three months ended March 31, 2019
Net revenues from external customers	$	2,788		$	19,991	$	22,779
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(27	)	$	6,635	$	6,608
Depreciation and amortization	$	92		$	886	$	978
Capital expenditures	$	661		$	213	$	874
For the three months ended March 31, 2018
Net revenues from external customers	$	2,411		$	18,568	$	20,979
Inter-segment net revenues	$	228		$	—	$	228
(Loss) income from operations	$	(457	)	$	4,859	$	4,402
Depreciation and amortization	$	93		$	899	$	992
Capital expenditures	$	80		$	727	$	807
For the nine months ended March 31, 2019
Net revenues from external customers	$	7,440		$	57,269	$	64,709
Inter-segment net revenues	$	683		$	—	$	683
(Loss) income from operations	$	(665	)	$	18,791	$	18,126
Depreciation and amortization	$	276		$	2,576	$	2,852
Capital expenditures	$	706		$	2,451	$	3,157
For the nine months ended March 31, 2018
Net revenues from external customers	$	7,520		$	52,960	$	60,480
Inter-segment net revenues	$	674		$	—	$	674
(Loss) income from operations	$	(490	)	$	15,488	$	14,998
Depreciation and amortization	$	259		$	2,690	$	2,949
Capital expenditures	$	259		$	2,410	$	2,669

XML

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Basic Numerator: Net income available to common stockholders	$ 3,863	$ 3,481	$ 10,734	$ 11,389
Basic Denominator: Weighted average shares outstanding	6,357,000	6,287,000	6,353,000	6,287,000
Basic income per common share	$ 0.61	$ 0.55	$ 1.69	$ 1.81
Common Shares
Basic Numerator: Net income available to common stockholders	$ 3,623	$ 3,263	$ 10,067	$ 10,675
Basic Denominator: Weighted average shares outstanding	6,357,000	6,287,000	6,353,000	6,287,000
Basic income per common share	$ 0.57	$ 0.52	$ 1.58	$ 1.7
Shares included upon conversion of Class C Common to calculate a diluted EPS	128,000	128,000	128,000	128,000
Total Denominator for diluted earnings per share	6,485,000	6,415,000	6,481,000	6,415,000
Diluted income per common share	$ 0.56	$ 0.51	$ 1.55	$ 1.66
Class C Common Stock
Basic Numerator: Net income available to common stockholders	$ 61	$ 55	$ 170	$ 182
Basic Denominator: Weighted average shares outstanding	383,000	383,000	383,000	383,000
Basic income per common share	$ 0.16	$ 0.15	$ 0.44	$ 0.48
Shares included upon conversion of Class C Common to calculate a diluted EPS
Total Denominator for diluted earnings per share	383,000	383,000	383,000	383,000
Diluted income per common share	$ 0.16	$ 0.15	$ 0.44	$ 0.48

XML

NOTE 3 - ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE - Receivables, Net - (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Accounts receivable	$ 3,709	$ 3,814
Accounts receivable - Related party	30
Medical Receivables	15,318	13,351
Management and other fees receivable	24,979	21,863
Management and other fees receivable from related medical practices ("PC's")	6,204	5,535
Gross Receivable
Accounts receivable	3,899	4,004
Accounts receivable - Related party	30
Medical Receivables	15,318	36,079
Management and other fees receivable	34,479	32,846
Management and other fees receivable from related medical practices ("PC's")	8,746	7,246
Allowance for Doubtful Accounts
Accounts receivable	190	190
Accounts receivable - Related party
Medical Receivables		22,728
Management and other fees receivable	9,500	10,983
Management and other fees receivable from related medical practices ("PC's")	$ 2,542	$ 1,711

XML

NOTE 3 - ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE - Patient Fees Revenue - (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Patient fee revenue, net of contractual allowances and discounts	$ 6,410	$ 10,163	$ 17,856	$ 28,353
Provision for bad debts for patient fee and bad debt expense		(4,552)		(12,873)
Net patient fee revenue	6,410	5,611	17,856	15,480
Commercial Insurance / Managed Care
Patient fee revenue, net of contractual allowances and discounts	1,345	1,238	3,860	3,452
Medicare/Medicaid
Patient fee revenue, net of contractual allowances and discounts	315	337	876	903
Workers Compensation/Personal Injury
Patient fee revenue, net of contractual allowances and discounts	4,569	6,577	12,227	18,685
Other
Patient fee revenue, net of contractual allowances and discounts	$ 181	$ 2,011	$ 893	$ 5,313

XML

NOTE 4 - INVENTORIES (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Inventory Disclosure [Abstract]
Purchased parts, components and supplies	$ 1,686	$ 1,312
Work-in-process	124	119
Total inventories	$ 1,810	$ 1,431

XML

NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS - Information relating to uncompleted contracts - (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Notes to Financial Statements
Costs incurred on uncompleted contracts	$ 449	$ 449
Estimated earnings	742	309
Costs and estimated earnings on uncompleted contracts	1,191	758
Less: Billings to date	856	671
Net billings in excess of costs and estimated earnings on uncompleted contracts	$ 335	$ 87

XML

NOTE 6 - OTHER INTANGIBLE ASSETS - (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Gross other intangible assets	$ 19,829	$ 19,741
Accumulated amortization	14,870	14,139
Other Intangible Assets - net	4,959	5,602
Capitalized software development costs
Gross other intangible assets	7,005	7,005
Patents and copyrights
Gross other intangible assets	4,924	4,836
Non-compete
Gross other intangible assets	4,100	4,100
Customer relationships
Gross other intangible assets	$ 3,800	$ 3,800

XML

NOTE 7 - OTHER CURRENT LIABILITIES - (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Payables and Accruals [Abstract]
Accrued salaries, commissions and payroll taxes	$ 1,096	$ 3,438
Litigation accruals	145	145
Sales tax payable	1,695	2,092
Legal and other professional fees	132	119
Accounting fees	90	125
Self-funded health insurance reserve	0	79
Accrued interest and penalty - sales tax	1,253	1,498
Other	562	682
Total other current liabilities	$ 4,973	$ 8,178

XML

NOTE 9 - SEGMENT AND RELATED INFORMATION - Segment Information - (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Net revenues from external customers	$ 22,779	$ 20,979	$ 64,709	$ 60,480
Inter-segment net revenues	228	228	683	674
Income from operations	6,608	4,402	18,126	14,998
Depreciation and amortization	978	992	2,852	2,949
Capital expenditures	874	807	3,157	2,669
Medical Equipment
Net revenues from external customers	2,788	2,411	7,440	7,520
Inter-segment net revenues	228	228	683	674
Income from operations	(27)	(457)	(665)	(490)
Depreciation and amortization	92	93	276	259
Capital expenditures	661	80	706	259
Management Of Diagnostic Imaging Centers
Net revenues from external customers	19,991	18,568	57,269	52,960
Inter-segment net revenues
Income from operations	6,635	4,859	18,791	15,488
Depreciation and amortization	886	899	2,576	2,690
Capital expenditures	$ 213	$ 727	$ 2,451	$ 2,410

XML

NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION - (Details Narrative)	Jul. 01, 2015
Note 1 - Description Of Business And Basis Of Presentation -
The ownership interest of Imperial Management Services after reorganization of newly expanded HDM (percent).	24.20%
The ownership interest of Health Management Corporation of America after reorganization of newly expanded HDM (percent).	45.80%
The ownership interest of the original investors of HDM after reorganization of newly expanded HDM (percent).	30.00%

XML

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Common Shares
Shares included upon conversion of Class C Common to calculate a diluted EPS	128,000	128,000	128,000	128,000

XML

NOTE 3 - ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE - (Details Narrative)	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Note 3 - Accounts Receivable Medical Receivable And Management And Other Fees Receivable -
Net revenues derived from no-fault and personal injury protection claims	67.00%	66.00%	67.00%	66.00%
Net revenues from management and other fees charged to related PCs	10.50%	10.90%	10.80%	11.10%

XML

NOTE 6 - OTHER INTANGIBLE ASSETS - (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Patents and copyrights
Amortization of intangible assets	$ 50	$ 50	$ 149	$ 152
Capitalized software development costs
Amortization of intangible assets	0	43	0	173
Non-compete
Amortization of intangible assets	146	146	439	439
Customer relationships
Amortization of intangible assets	$ 48	$ 48	$ 143	$ 143

XML

Note 8 - STOCKHOLDERS EQUITY - (Details Narrative) (USD $) $ in Thousands	9 Months Ended
	Mar. 31, 2019 USD ($) shares
STOCKHOLDERS' EQUITY:
Issuance of stock for goods and services, Value | $	$ 1,955
Issuance of stock for goods and services, Shares | shares	70,000

XML

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION ($)- (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Note 10 - Supplemental Cash Flow Information -
Interest paid	$ 158	$ 37
Income taxes paid	$ 305	$ 345

XML

NOTE 11 - COMMITMENTS AND CONTINGENCIES - (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2019	Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]
Recorded tax obligations	$ 1,695
Tax interest and penalties	1,207
Maximum limit for individual claims under stop-loss umbrella policy for health insurance	100
Self-funded health insurance reserve	$ 0	$ 79

XML

NOTE 12 - INCOME TAXES - (Details Narrative) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2017
Note 12 - Income Taxes -
Income tax expense	$ 3,826	$ 920
Income tax component - current	2,901
Income tax component - deferred	925
Deferred tax assets	18,989			$ 22,689
Deferred tax liability	239
Net operating loss (NOL) carryforwards available to offset future taxable income	$ 76,611
Effective income tax rate continuing operations			21.00%
Deferred tax asset before revaluation for Tax Cut and Jobs Act					$ 46,200
Revalued deferred tax assets after accounting for Tax Cut and Jobs Act					$ 30,200