-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NLPW8Hqu40Eo+OWfbbp+hrm4nPazHoBugT6krIiiaTOI8F67MS3kgPR47icaA4RL 4NLoHxdozi4FA2TOVbD26A== 0000355019-98-000018.txt : 19981104 0000355019-98-000018.hdr.sgml : 19981104 ACCESSION NUMBER: 0000355019-98-000018 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980820 ITEM INFORMATION: FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FONAR CORP CENTRAL INDEX KEY: 0000355019 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 112464137 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-10248 FILM NUMBER: 98737066 BUSINESS ADDRESS: STREET 1: 110 MARCUS DR CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5166942929 MAIL ADDRESS: STREET 1: 110 MARCUS DRIVE CITY: MELVILLE STATE: NY ZIP: 11747 8-K/A 1 FORM 8 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT TO APPLICATION OR REPORT Filed pursuant to Section 12, 13, or 15 (d) of THE SECURITIES EXCHANGE ACT OF 1934 FONAR CORPORATION (Exact name of registrant as specified in charter) Commission File No. 0-10248 AMENDMENT NO. 1 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K (Date of Earliest Event Reported: August 20, 1998) as set forth in the pages attached hereto: Item 7 (Financial Statements and Exhibits). Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. FONAR CORPORATION (Registrant) By: /s/ Raymond V. Damadian Raymond V. Damadian President Date: November 3, 1998 Item 7. FINANCIAL STATEMENTS AND EXHIBITS Financial Statements. Separate financial statements of the acquired business, Dynamic Healthcare Management, Inc. and affiliates, are filed under this amendment to the aforementioned Current Report on Form 8-K of the Company. Exhibits. Previously filed. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES FINANCIAL REPORT DECEMBER 31, 1996 AND 1997 (AUDITED) AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) Item 7. FINANCIAL STATEMENTS AND EXHIBITS Financial Statements. Separate financial statements of the acquired business, Dynamic Healthcare Management, Inc. and affiliates, are filed under this amendment to the aforementioned Current Report on Form 8-K of the Company. Exhibits. Previously filed. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES FINANCIAL REPORT DECEMBER 31, 1996 AND 1997 (AUDITED) AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) DYNAMIC HEALTHCARE MANAGEMENT INC. AND AFFILIATES INDEX TO FINANCIAL REPORT REPORT OF INDEPENDENT ACCOUNTANTS COMBINED BALANCE SHEETS At December 31, 1996 and 1997 (Audited) And At June 30, 1998 (Unaudited) COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1996 and 1997 (Audited) And For The Six Months Ended June 30, 1998 (Unaudited) COMBINED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996 and 1997 (Audited) And For The Six Months Ended June 30, 1998 (Unaudited) NOTES TO COMBINED FINANCIAL STATEMENTS To the Board of Directors and Owners of Dynamic Healthcare Management, Inc. and Affiliates REPORT OF INDEPENDENT ACCOUNTANTS We have audited the accompanying combined balance sheets of Dynamic Healthcare Management, Inc. and Affiliates (the "Company") as of December 31, 1997 and 1996 and the related combined statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Dynamic Healthcare Management, Inc. and Affiliates as of December 31, 1997 and 1996 and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. As more fully discussed in Note 7 to the financial statements, Dynamic Healthcare Management, Inc. and Affiliates was acquired by a subsidiary of Fonar Corporation pursuant to a stock purchase agreement on August 20, 1998. /s/ TABB, CONIGLIARO & McGANN, P.C. TABB, CONIGLIARO & McGANN, P.C. New York, New York October 30, 1998 DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES COMBINED BALANCE SHEETS
ASSETS At December 31, ----------------------- 1996 1997 At June 30, 1998 (Unaudited) ---------- ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 36,685 $ 99,231 $ 48,170 Accounts receivable - net of billing adjustments and allowance for uncollectible accounts of (Notes 2 and 3) 528,330 1,522,611 1,790,814 Prepaid expenses and other 4,000 4,000 2,264 --------- ---------- --------- 569,015 1,625,842 1,841,248 TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT - Net of accumulated depreciation and amortization (Notes 2 and 4) 106,040 115,814 112,007 TOTAL ASSETS $ 675,055 $1,741,656 $1,953,255 --------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 33,199 $ 60,825 $ 24,862 Due to officer/Shareholder 88,019 18,519 12,519 Deferred Taxes Payable 20,000 48,000 48,000 --------- ---------- ---------- TOTAL LIABILITIES 141,218 127,344 85,381 --------- ---------- ---------- COMMITMENTS AND OTHER MATTERS (Notes 2, 3, 6 and 7) STOCKHOLDERS' EQUITY: (Note 5) Common stock - No par value 4,000 4,000 4,000 Retained earnings 529,837 1,610,312 1,863,874 --------- ---------- ------------ TOTAL STOCKHOLDERS' EQUITY 533,837 1,614,312 1,867,874 --------- ---------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 675,055 $1,741,656 $1,953,255 ========= ========== ============
The accompanying notes are an integral part of the combined financial statements DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For The Years Ended December 31 For The Six Months 1996 1997 ended June 30, 1998 ----------- ----------- -------------- (Unaudited) NET PATIENT SERVICE REVENUE $ 3,646,866 $ 6,577,818 $ 3,318,911 ----------- ----------- ----------- COSTS AND EXPENSES: Operating expenses of medical practices 2,524,763 3,561,521 1,557,806 Officers and Physicians compensation 570,000 760,499 734,707 Depreciation and amortization 36,887 48,542 29,793 ---------- ---------- ----------- TOTAL COSTS AND EXPENSES 3,131,650 4,370,562 2,322,306 ---------- ---------- ----------- INCOME BEFORE INCOME TAXES 515,216 2,207,256 996,605 INCOME TAXES (Note 2) 11,592 34,781 18,043 ---------- ---------- ----------- NET INCOME 503,624 2,172,475 978,562 RETAINED EARNINGS - BEGINNING 483,213 529837 1,610,312 LESS: DISTRIBUTIONS (457,000) (1,092,000) (725,000) ----------- ----------- ----------- RETAINED EARNINGS - ENDING $ 529,837 $ 1,610,312 $ 1,863,874 =========== =========== ===========
The accompanying notes are an integral part of the combined financial statements DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31 ------------------- For The Six Months 1996 1997 Ended June 30, 1998 --------- --------- ----------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 503,624 $2,172,475 $ 978,562 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 36,887 48,542 29,793 --------- ---------- ---------- 540,511 2,221,017 1,008,355 Changes in operating assets and liabilities: Accounts receivable, net (182,632) (994,281) (268,203) Other assets (3,000) (1,000) 1,736 Accounts payable and accrued liabilities 55,450 13,626 (35,963) Due to officer/Shareholder 10,500 (54,500) (6,000) Deferred Tax Payables 10,000 28,000 - --------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 430,829 1,212,862 699,925 --------- ---------- ---------- CASH USED IN INVESTING ACTIVITIES Purchase of property and equipment (21,592) (58,316) (25,986) --------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 4,000 - - Dividends paid (457,000) (1,092,000) (725,000) --------- ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES (453,000) (1,092,500) (725,000) --------- ---------- ---------- NET(DECREASE) INCREASE IN CASH (43,763) 62,546 (51,061) --------- ---------- ---------- CASH - BEGINNING OF THE PERIOD 80,448 36,685 99,231 --------- ---------- ---------- CASH - END OF THE PERIOD $ 36,685 $ 99,231 $ 48,170 ========= ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ - $ - $ - ======== ========== ========== Income taxes $ 1,592 $ 6,781 $ 18,718 ======== ========== ==========
The accompanying notes are an integral part of the combined financial statements DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 1 - DESCRIPTION OF BUSINESS Dynamic Healthcare Management, Inc., a New York corporation, was incorporated on January 7, 1994, herein referred to as Dynamic and, collectively, with its affiliated companies as the Company. The Company operates and manages three physical therapy practices and provides management services, which include administration, accounting, billing and collections and payroll. As discussed further in Note 7, Dynamic Healthcare Management, Inc. was acquired by a subsidiary of FONAR Corporation pursuant to a stock purchase agreement dated August 20, 1998. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The combined financial statements include the accounts of Dynamic and the following companies (the PCs) affiliated through common ownership: Company Location Bellmore Medical Office, P.C. Bellmore, New York Alliance Physical Medicine and Rehab, P.C. Hempstead, New York Chiropractic Associates of Deer Park, P.C. Deer Park, New York Unaudited Interim Financial Statements -------------------------------------- The unaudited interim financial statements for the six months ended June 30, 1998 included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Financial Accounting Standard Board (FASB) and, in the opinion of the Company, reflect all adjustments (consisting only of normal recurring adjustments) and disclosures which are necessary for a fair presentation. The results of operations for the six-month period are not necessarily indicative of the results that may be expected for the full year ending December 31, 1998 Net patient service revenue --------------------------- Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered. Net patient service revenue is recognized at the time the service is performed. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit Risk ---------------------------- Financial instruments, which potentially subject the Company to concentration of credit risk is principally cash investments and accounts receivable. The Company provides medical services mostly to injuries due to no fault and worker compensations claims principally in the New York metropolitan area. A significant portion of the accounts receivable is billable to third party medical reimbursement organizations, mainly insurance carriers and health management organizations ('HMO'). The Company grants credit without collateral to its patients, most of whom are residents and are insured under third-party payor agreements. Repayment is dependent upon future financial stability of the disbursing companies, which are subject to numerous regulations by the federal, state and local governments. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. Property and Equipment ---------------------- Equipment is depreciated on the straight-line basis over the estimated useful lives of the assets (5 to 7 years). Leasehold improvements are amortized over the shorter of the term of the lease or the life of the asset. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Impairment of Assets -------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ('SFAS 121'), 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of', which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted SFAS 121 on January 1, 1996 and there was no effect to the Company. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates ---------------- The preparation of the combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Furthermore, healthcare industry reforms and reimbursement practices will continue to impact on the Company's revenues and operations. Actual results could differ from those estimates. Fair Value of Financial Instruments ----------------------------------- Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying balance sheets at amounts considered by management to reasonably approximate fair value. Advertising costs ----------------- Dynamic and Chiropractic Associate of Deer Park, P.C. have expenses all advertising costs, including direct response advertising costs, as they are incurred. Total advertising costs for the years ended December 31, 1996, 1997 and for the six months ended June 30, 1998 were $40,028, $25,188 and $36,343 respectively. Income Taxes ------------ Dynamic and Chiropractic Associates of Deer Park, P.C. have elected to be taxed under the provisions of subchapter 'S' of the Internal Revenue Code and comparable state regulations. Under these provisions, the Company does not pay federal or state corporate income taxes on its taxable income (nor is it allowed a net operating loss carryback or carryover as a deduction). Instead, the stockholders report their proportionate share of the Company's taxable income (or loss) and tax credits on their personal income tax returns. However, New York State taxes continue to be provided. The New York State taxes are equal to the corporate tax computed as if the Company was not an 'S' corporation, reduced by the tax that would be payable on the Company's net income if taxed at the highest personal income tax rate. Deferred income taxes have been provided under the liability method. Deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities, as measured by the current enacted tax rates. Deferred tax expense is the result of changes in the deferred tax asset and liability. Deferred income taxes reflected on the balance sheet resulted primarily from the timing difference of reporting on the cash basis for tax purposes and the accrual basis for financial statement purposes. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 3 - ACCOUNTS RECEIVABLE ------------------- The majority of the Company's accounts receivable and related revenues are derived from third party payors, mainly insurance carriers and HMO's. The third party payors are constantly revising their reimbursements to healthcare providers, which has a direct effect on the realization of the accounts receivable. The Company has given effect to these reimbursement practices through provisions in the allowance for billing adjustments and uncollectible accounts. The allowance at December 31, 1996 and 1997 aggregated $792,400, $2,283,900 respectively and $2,686,300 at June 30, 1998 (unaudited). NOTE 4 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS ------------------------------------ Equipment and leasehold improvements at December 31, 1996, 1997 and June 30, 1998 consist of the following: December 31, June 30, 1996 1997 1998 --------- -------- --------- (Unaudited) Equipment 164,598 221,913 248,114 Leasehold improvements 36,029 37,029 37,029 --------- -------- --------- 200,627 258,942 285,143 Less: Accumulated depreciation and amortization 94,587 143,273 173,066 --------- -------- --------- $ 106,040 $115,669 $ 112,077 ========= ======== ========= For the years ended December 31, 1996 and 1997 and for the six months ended June 30, 1998, depreciation and amortization amounted to $36,887, $48,542 and $22,235 respectively. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 5 - STOCKHOLDERS EQUITY Common stock - no par value - at December 31, 1996, 1997 and June 30, 1998 consisted of the following: At December 31, At June 30, 1996 1997 1998 --------- -------- ------- (unaudited) Dynamic Healthcare Management, Inc. 20 shares authorized, issued and outstanding $1,000 $1,000 $1,000 Bellmore Medical Office, P.C. 10 shares authorized, issued and outstanding 1,000 1,000 1,000 Alliance Physical Medicine and Rehab, P.C. 10 shares authorized, issued and outstanding 1,000 1,000 1,000 Chiropractic Associates of Deer Park, P.C. 10 shares authorized, issued and outstanding 1,000 1,000 1,000 ------ ------ ------ Total $4,000 $4,000 $4,000 ====== ====== ====== NOTE 6 - COMMITMENTS AND OTHER MATTERS Operating Leases ---------------- The Company leases its medical office properties and various equipment under noncancellable operating lease agreements, which expire between January 2000 and January 2007, and require various minimum annual rentals. One of the leases provide for renewal options to extend the lease for an additional five years. Certain property leases require additional payment for property taxes, normal maintenance and insurance. Rent expense under the operating leases approximated $125,640, $168,240 and $86,950 for the years ended December 31, 1996, 1997 and the six months ended June 30, 1998 respectively. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 6 - COMMITMENTS AND OTHER MATTERS (Continued) Operating Leases (Continued) ---------------------------- At December 31, 1997, the aggregate future minimum lease payments due under these noncancellable operating leases are as follows: Year Ending December 31, Operating Leases ------------------------ ---------------- 1998 $ 158,676 1999 159,098 2000 145,208 2001 124,857 2002 126,779 2003 and thereafter 392,820 ----------- $ 1,107,438 =========== Government Regulations ---------------------- The healthcare industry is highly regulated by numerous laws, regulations, approvals and licensing requirements at the federal, state and local levels. Regulatory authorities have very broad discretion to interpret and enforce these laws and promulgate corresponding regulation. The Company believes that its operations under agreements pursuant to which it is currently providing services are in material compliance with these laws and regulations. However, there can be no assurance that a court or regulatory authority will not determine that the Company's operations (including arrangements with new or existing clients) violate applicable laws or regulations. If the Company's interpretation of the relevant laws and regulations is inaccurate, the Company's business and its prospects could be materially and adversely affected. The following are among the laws and regulations that affect the Company's operations and development activities; corporate practice of medicine; fee splitting; anti-referral laws; anti-kickback laws; certificates of need; and proposed healthcare reform legislation. DYNAMIC HEALTHCARE MANAGEMENT, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1998) NOTE 7 - SUBSEQUENT EVENTS Sale of Dynamic Healthcare Management, Inc. ------------------------------------------- On August 20, 1998, Health Management Corporation of America. ('HMCA') consummated the acquisition of the common stock of the Company. HMCA is a wholly-owned subsidiary of FONAR Corporation, a publicly traded company listed on the NASDAQ Stock Exchange. Pursuant to the purchase agreements, HMCA acquired all of the common stock of the Company for $2,000,000 in cash, a note payable for $2,870,000, bearing interest at 7.5% per annum, payable in three annual installments, commencing one year from closing, a note payable for $1,216,230.92, bearing interest at 7.5% per annum, payable in sixty monthly installments of principal and interest, commencing September 20, 1998, $5,490,000 in convertible notes which maybe converted into shares of HMCA common stock at the HMCA IPO price. If the IPO is not consummated within two year of the closing date, the notes are payable in 36 monthly installments bearing interest at 7.5% per annum, commencing two years from the closing date. -----END PRIVACY-ENHANCED MESSAGE-----