NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(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 six months ended December
31, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. 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 October 1, 2020 for the fiscal year ended June 30, 2020.
During
March 2020 the global pandemic of COVID-19 has caused turbulence and uncertainty in the United States and international markets
and economies which has adversely effected our workforce, liquidity, financial conditions, revenues, profitability and business
operations. Generally COVID-19 had caused us to require that much of our workforce work from home and has restricted the ability
of our personnel to travel for marketing purposes or to service our customers. The Company experienced a sudden drop in scan volume
for a short term period and while the Company is not back to pre-COVID-19 levels, the volume has risen. At the end of fiscal year
ending June 30, 2020, the Company was able to enact certain decisions to allow the Company to survive during the global pandemic
and from further losses or additional decreases in scan volume. The Company immediately enacted wide scale furloughs, deferment
of up to 50% of management salaries, halted variable compensation plans and rent deferrals we negotiated with the majority of
all landlords. The Company also received some government stimulus funds from the Paycheck Protection Program (“PPP”)
and Medicare advances/stimulus payments. Although we are unable to predict if there will be additional consequences on our operations
from the continuing global pandemic of COVID-19, the Company believes with positive cash flows, low debt and cash on hand, it
will be able to continue operations going forward.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(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.
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 upon the weighted average number of shares of 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 income per share and applied the if converted method
in calculating diluted income per share for the three and six months ended December 31, 2020 and 2019.
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 six months ended December 31, 2020 and
2019, diluted EPS for common shareholders includes 128 shares upon conversion of Class C Common.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(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
December 31, 2020
|
|
Three
months ended
December 31, 2019
|
|
|
Total
|
|
Common
Stock
|
|
Class
C Common
Stock
|
|
Total
|
|
Common
Stock
|
|
Class
C Common
Stock
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
Net income available to common stockholders
|
|
$
|
3,111
|
|
|
$
|
2,923
|
|
|
$
|
48
|
|
|
$
|
3,104
|
|
|
$
|
2,914
|
|
|
$
|
48
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
6,465
|
|
|
|
6,465
|
|
|
|
383
|
|
|
|
6,447
|
|
|
|
6,447
|
|
|
|
383
|
|
Basic
income per common share
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
|
$
|
0.12
|
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
|
$
|
0.13
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
Weighted average shares outstanding
|
|
|
|
|
|
|
6,465
|
|
|
|
383
|
|
|
|
|
|
|
|
6,447
|
|
|
|
383
|
|
Convertible
Class C Stock
|
|
|
|
|
|
|
128
|
|
|
|
—
|
|
|
|
|
|
|
|
128
|
|
|
|
—
|
|
Total
Denominator for diluted earnings per share
|
|
|
|
|
|
|
6,593
|
|
|
|
383
|
|
|
|
|
|
|
|
6,575
|
|
|
|
383
|
|
Diluted
income per common share
|
|
|
|
|
|
$
|
0.44
|
|
|
$
|
0.12
|
|
|
|
|
|
|
$
|
0.44
|
|
|
$
|
0.13
|
|
|
|
Six
months ended
December 31, 2020
|
|
Six
months ended
December 31, 2019
|
|
|
Total
|
|
Common
Stock
|
|
Class
C Common
Stock
|
|
Total
|
|
Common
Stock
|
|
Class
C Common
Stock
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
Net income available to common stockholders
|
|
$
|
5,619
|
|
|
$
|
5,281
|
|
|
$
|
86
|
|
|
$
|
6,402
|
|
|
$
|
6,010
|
|
|
$
|
100
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
6,456
|
|
|
|
6,456
|
|
|
|
383
|
|
|
|
6,440
|
|
|
|
6,440
|
|
|
|
383
|
|
Basic
income per common share
|
|
$
|
0.87
|
|
|
$
|
0.82
|
|
|
$
|
0.23
|
|
|
$
|
0.99
|
|
|
$
|
0.93
|
|
|
$
|
0.26
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
Weighted average shares outstanding
|
|
|
|
|
|
|
6,456
|
|
|
|
383
|
|
|
|
|
|
|
|
6,440
|
|
|
|
383
|
|
Convertible
Class C Stock
|
|
|
|
|
|
|
128
|
|
|
|
—
|
|
|
|
|
|
|
|
128
|
|
|
|
—
|
|
Total
Denominator for diluted earnings per share
|
|
|
|
|
|
|
6,584
|
|
|
|
383
|
|
|
|
|
|
|
|
6,568
|
|
|
|
383
|
|
Diluted
income per common share
|
|
|
|
|
|
$
|
0.80
|
|
|
$
|
0.23
|
|
|
|
|
|
|
$
|
0.92
|
|
|
$
|
0.26
|
|
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent
Accounting Pronouncements
In
December 2019, the FASB issued ASU 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740). ASU 2019-12 removes certain
exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim
period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other
areas of the standard. ASU 2019-12 will be effective beginning in the first quarter of 2021. Early adoption is permitted. Certain
amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis,
and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit)
in the period of adoption. We are current evaluating the impact this ASU will have on our financial statements and related disclosures
as well as the timing of the adoption.
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 adopted the Standard on July 1, 2020 and the impact
of adopting this guidance will have no material impact on our Consolidated Financial Statements.
FASB,
the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of December
31, 2020 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 2020 or 2019, and
it does not believe that any of those pronouncements will have a significant impact on our consolidated condensed financial statements
at the time they become effective.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not have any
effect on reported consolidated net income for any periods presented.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
NOTE
3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE
Receivables,
net is comprised of the following at December 31, 2020, and June 30, 2020:
|
|
December
31, 2020
|
|
|
Gross
Receivable
|
|
Allowance
for doubtful accounts
|
|
Net
|
Accounts
receivable
|
|
$
|
4,686
|
|
|
$
|
515
|
|
|
$
|
4,171
|
|
Accounts
receivable - related party
|
|
$
|
72
|
|
|
|
—
|
|
|
$
|
72
|
|
Medical
receivable
|
|
$
|
16,373
|
|
|
$
|
—
|
|
|
$
|
16,373
|
|
Management
and other fees receivable
|
|
$
|
43,298
|
|
|
$
|
13,490
|
|
|
$
|
29,808
|
|
Management
and other fees receivable from related medical practices ("PC’s")
|
|
$
|
10,982
|
|
|
$
|
3,720
|
|
|
$
|
7,262
|
|
|
|
June
30, 2020
|
|
|
Gross
Receivable
|
|
Allowance
for doubtful accounts
|
|
Net
|
Accounts
receivable
|
|
$
|
4,828
|
|
|
$
|
515
|
|
|
$
|
4,313
|
|
Accounts
receivable - related party
|
|
$
|
6
|
|
|
|
—
|
|
|
$
|
6
|
|
Medical
receivable
|
|
$
|
16,172
|
|
|
$
|
—
|
|
|
$
|
16,172
|
|
Management
and other fees receivable
|
|
$
|
38,501
|
|
|
$
|
11,063
|
|
|
$
|
27,438
|
|
Management
and other fees receivable from related medical practices ("PC’s")
|
|
$
|
10,218
|
|
|
$
|
3,322
|
|
|
$
|
6,896
|
|
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.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (Continued)
Long
Term Accounts Receivable
The
Company will generate revenue from long-term, non-cancellable contracts to provide service and repair services. Future revenue
to be recognized over the following four years as of December 31, 2020 is as follows:
2022
|
|
|
$
|
853
|
2023
|
|
|
|
827
|
2024
|
|
|
|
752
|
2025
|
|
|
|
96
|
Total
|
|
|
$
|
2,528
|
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 an allowance that reflects management’s best estimate
of the amounts that will not be collected. The Company determines allowances for contractual adjustments and uncollectible accounts
based on specific agings, specific payor collection issues that have been identified and based on payor classifications 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 66% and 60% of the PCs’ net revenues for the three months ended December 31, 2020 and 2019, respectively,
were derived from no-fault and personal injury protection claims. Approximately 66% and 63% of the PCs’ net revenue for
the six months ended December 31, 2020 and 2019, 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.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)
Management
and Other Fees Receivable (Continued)
Net
revenues from management and other fees charged to the related PCs accounted for approximately 12.7% and 11.1% of the consolidated
net revenues for the three months ended December 31, 2020 and 2019, respectively. Net revenues from management and other fees
charged to the related PCs accounted for approximately 12.8% and 11.1% of the consolidated net revenues for the six months ended
December 31, 2020 and 2019, 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 for the three and six months ended December 31,
2020 and 2019 are summarized in the following table.
|
|
For
the Three Months Ended
December
31,
|
|
|
2020
|
|
2019
|
Commercial
Insurance/ Managed Care
|
|
$
|
966
|
|
|
$
|
1,335
|
|
Medicare/Medicaid
|
|
|
206
|
|
|
|
276
|
|
Workers'
Compensation/Personal Injury
|
|
|
3,543
|
|
|
|
4,112
|
|
Other
|
|
|
523
|
|
|
|
273
|
|
Patient
Fee Revenue, net of contractual allowances and discounts
|
|
$
|
5,238
|
|
|
$
|
5,996
|
|
|
|
For
the Six Months Ended
December
31,
|
|
|
2020
|
|
2019
|
Commercial
Insurance/ Managed Care
|
|
$
|
1,912
|
|
|
$
|
2,689
|
|
Medicare/Medicaid
|
|
|
404
|
|
|
|
542
|
|
Workers'
Compensation/Personal Injury
|
|
|
6,930
|
|
|
|
8,406
|
|
Other
|
|
|
1,084
|
|
|
|
404
|
|
Patient
Fee Revenue, net of contractual allowances and discounts
|
|
$
|
10,330
|
|
|
$
|
12,041
|
|
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
4 – OPERATING & FINANCING LEASES
During
February 2016, FASB 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 foOTr operating leases. The standard was effective for us beginning July 1,
2019. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not
apply the standard to the comparative periods presented in the consolidated financial statements. We have also elected the transition
package of the practical expedients permitted within the standard which eliminates the requirements to reassess prior conclusions
about lease identification, lease classification and indirect costs. The adoption of this guidance had a material impact on the
Company’s balance sheet by virtue of including the present value of its future operating lease payments as a liability of
$33.3 million and related right-to-use lease assets as of July 1, 2019. At the time of adoption of this guidance we had no significant
financing leases.
The
Company accounts for its various operating leases in accordance with Accounting Standards Codification (‘ASC’) 842
– Lease, as updated by ASU 2016-02. At the inception of a lease, the Company recognizes right-of-use lease assets and related
lease liabilities measured at present value of future lease payments on its balance sheet. Lease expense is recognized on a straight-line
basis over the term of the lease. Our most common initial term varies in length from 2 to 10 years. Including renewal options
negotiated with the landlord, we have a total span of 2 to 16 years at the facilities we lease. The Company reviewed its contracts
with vendors and customers, determining that its right-to-use lease assets consisted of only office space operating leases. In
determining the right-to-use lease assets and liabilities, the Company did recognize lease extension options which the Company
feels would be reasonably exercised. Also included in other current assets is a $202 receivable from a landlord for tenant
improvements. Our incremental borrowing rate (“IBR”) used to discount the stream of operating lease payments is closely
related to the interest rates available to the Company.
A
reconciliation of operating and financing lease payments undiscounted cash flows to lease
liabilities recognized as of December 31, 2020 is as follows:
Year
Ending
December
31,
|
|
Operating
Lease
Payments
|
|
Financing
Lease Payments
|
|
2021
|
|
|
$
|
4,960
|
|
|
$
|
244
|
|
|
2022
|
|
|
|
4,877
|
|
|
|
244
|
|
|
2023
|
|
|
|
4,599
|
|
|
|
244
|
|
|
2024
|
|
|
|
4,480
|
|
|
|
244
|
|
|
2025
|
|
|
|
4,301
|
|
|
|
244
|
|
|
Thereafter
|
|
|
|
17,505
|
|
|
|
287
|
|
|
Present
value discount
|
|
|
|
(8,904
|
)
|
|
|
(156
|
)
|
|
Total
lease liability
|
|
|
$
|
31,818
|
|
|
$
|
1,351
|
|
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
5 - INVENTORIES
Inventories
included in the accompanying condensed consolidated balance sheets consist of the following:
|
|
December
31,
2020
|
|
June
30,
2020
|
Purchased
parts, components and supplies
|
|
$
|
1,614
|
|
|
$
|
1,544
|
|
Work-in-process
|
|
|
230
|
|
|
|
105
|
|
Total
Inventories
|
|
$
|
1,844
|
|
|
$
|
1,649
|
|
NOTE
6 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information
relating to uncompleted contracts is as follows:
|
|
December
31,
2020
|
|
June
30,
2020
|
Costs
incurred on uncompleted contracts
|
|
$
|
448
|
|
|
$
|
448
|
|
Estimated
earnings
|
|
|
309
|
|
|
|
309
|
|
Subtotal
|
|
|
757
|
|
|
|
757
|
|
Less:
Billings to date
|
|
|
604
|
|
|
|
604
|
|
Total
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
153
|
|
|
$
|
153
|
|
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECMEBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
7 – OTHER INTANGIBLE ASSETS
Other
intangible assets, net of accumulated amortization, in the accompanying condensed consolidated balance sheets consist of the following:
|
|
December
31,
2020
|
|
June
30,
2020
|
Capitalized
software development costs
|
|
$
|
7,005
|
|
|
$
|
7,005
|
|
Patents
and copyrights
|
|
|
5,171
|
|
|
|
5,082
|
|
Non-compete
|
|
|
4,100
|
|
|
|
4,100
|
|
Customer
relationships
|
|
|
3,800
|
|
|
|
3,800
|
|
Gross
Other intangible assets
|
|
|
20,076
|
|
|
|
19,987
|
|
Less:
Accumulated amortization
|
|
|
16,062
|
|
|
|
15,878
|
|
Other
Intangible Assets
|
|
$
|
4,014
|
|
|
$
|
4,109
|
|
Amortization
of patents and copyrights for the three months ended December 31, 2020 and 2019 amounted to $44 and $47, respectively.
Amortization
of non-compete for the three months ended December 31, 2020 and 2019 amounted to $0 and $147, respectively.
Amortization
of customer relationships for the three months ended December 31, 2020 and 2019 amounted to $47 and $47, respectively.
Amortization
of patents and copyrights for the six months ended December 31, 2020 and 2019 amounted to $89 and $94, respectively.
Amortization
of non-compete for the six months ended December 31, 2020 and 2019 amounted to $0 and $293, respectively.
Amortization
of customer relationships for the six months ended December 31, 2020 and 2019 amounted to $95 and $95, respectively.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
8 – OTHER CURRENT LIABILITIES
Other
current liabilities in the accompanying condensed consolidated balance sheets consist of the following:
|
|
December
31,
2020
|
|
June
30,
2020
|
Accrued
salaries, commissions and payroll taxes
|
|
$
|
2,573
|
|
|
$
|
4,492
|
|
Litigation
accruals
|
|
|
9
|
|
|
|
443
|
|
Sales
tax payable
|
|
|
1,123
|
|
|
|
1,353
|
|
Legal
and other professional fees
|
|
|
276
|
|
|
|
113
|
|
Accounting
fees
|
|
|
180
|
|
|
|
120
|
|
Self-funded
health insurance reserve
|
|
|
123
|
|
|
|
87
|
|
Accrued
interest and penalty
|
|
|
511
|
|
|
|
877
|
|
Other
|
|
|
789
|
|
|
|
700
|
|
Other
Current Liabilities
|
|
$
|
5,584
|
|
|
$
|
8,185
|
|
NOTE
9 – STOCKHOLDERS EQUITY
Common
Stock
During
the six months ended December 31, 2020, the Company issued 102 shares of common stock for costs and expenses of $1,941 and 4 shares
of common stock to employees and consultants as compensation valued at $83.
During
the six months ended December 31, 2019, the Company issued 90 shares of common stock for costs and expenses of $1,990.
NOTE
10 - 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, 2020. All inter-segment sales are market-based. The Company evaluates performance based
on income or loss from operations.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
10 - SEGMENT AND RELATED INFORMATION (Continued)
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, 2020. 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 Dec. 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
1,893
|
|
|
$
|
19,271
|
|
|
$
|
21,164
|
|
Inter-segment
net revenues
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
219
|
|
(Loss)
Income from operations
|
|
$
|
(8
|
)
|
|
$
|
4,990
|
|
|
$
|
4,982
|
|
Depreciation
and amortization
|
|
$
|
65
|
|
|
$
|
977
|
|
|
$
|
1,042
|
|
Capital
expenditures
|
|
$
|
70
|
|
|
$
|
1,728
|
|
|
$
|
1,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended Dec. 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
2,069
|
|
|
$
|
19,382
|
|
|
$
|
21,451
|
|
Inter-segment
net revenues
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
219
|
|
(Loss)
Income from operations
|
|
$
|
(790
|
)
|
|
$
|
5,811
|
|
|
$
|
5,021
|
|
Depreciation
and amortization
|
|
$
|
94
|
|
|
$
|
914
|
|
|
$
|
1,008
|
|
Capital
expenditures
|
|
$
|
153
|
|
|
$
|
2,116
|
|
|
$
|
2,269
|
|
|
|
Medical
Equipment
|
|
Management
of Diagnostic
Imaging
Centers
|
|
Totals
|
For
the six months ended Dec. 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
3,874
|
|
|
$
|
38,270
|
|
|
$
|
42,144
|
|
Inter-segment
net revenues
|
|
$
|
438
|
|
|
$
|
—
|
|
|
$
|
438
|
|
(Loss)
Income from operations
|
|
$
|
(569
|
)
|
|
$
|
9,701
|
|
|
$
|
9,132
|
|
Depreciation
and amortization
|
|
$
|
132
|
|
|
$
|
1,878
|
|
|
$
|
2,010
|
|
Capital
expenditures
|
|
$
|
90
|
|
|
$
|
2,143
|
|
|
$
|
2,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended Dec. 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues from external customers
|
|
$
|
4,352
|
|
|
$
|
38,845
|
|
|
$
|
43,197
|
|
Inter-segment
net revenues
|
|
$
|
438
|
|
|
$
|
—
|
|
|
$
|
438
|
|
(Loss)
Income from operations
|
|
$
|
(1,526
|
)
|
|
$
|
12,033
|
|
|
$
|
10,507
|
|
Depreciation
and amortization
|
|
$
|
185
|
|
|
$
|
1,818
|
|
|
$
|
2,003
|
|
Capital
expenditures
|
|
$
|
1,754
|
|
|
$
|
2,964
|
|
|
$
|
4,718
|
|
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
11 – SUPPLEMENTAL CASH FLOW INFORMATION
During
the six months ended December 31, 2020 and December 31, 2019, the Company paid $35 and $14 for interest, respectively.
During
the six months ended December 31, 2020 and December 31, 2019, the Company paid $145 and $228 for income taxes, respectively.
NOTE
12 – 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, 2020.
Other
Matters
In
September 2020, the Company entered into a settlement agreement with an unrelated third party for a claim made during March 2018
which was scheduled for arbitration. The settlement was for $1.2 million of which $900 was paid by the Company’s insurance
in September 2020. The Company paid the remaining balance of $315 in September 2020.
The
Company is also delinquent in filing sales tax returns for certain states, for which the Company has transacted business. As of
December 31, 2020, the Company has recorded tax obligations of approximately $1.1 million plus interest and penalties of approximately
$466. 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 $110 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 December 31, 2020 and June 30, 2020, the Company
had approximately $123 and $87, 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.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
13 - 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 six months ended December 31, 2020 and 2019, the Company recorded income tax expense
of $1,962 in 2020 as compared to $2,039 in 2019. The 2020 provision is comprised of a current income tax component of $0 and a
deferred income tax component of $1,962. 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 2016.
The
Company recorded a deferred tax asset of $16,848 and a deferred tax liability of $234 as of December 31, 2020, primarily relating
to net operating loss carryforwards of approximately $47,208 available to offset future taxable income through 2031. The net operating
losses begin to expire in 2023 for federal tax and state income tax purposes.
FONAR
CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 and 2019
(Amounts
and shares in thousands, except per share amounts)
(UNAUDITED)
NOTE
13 - INCOME TAXES (Continued)
On
March 27, 2020 Congress enacted the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act provides numerous tax
provisions and other stimulus measures, including temporary changes regarding prior and future operation losses, temporary changes
to prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer
portion of Social Security taxes, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement
property and enhanced recoverability of AMT tax credits.
At
the present time, the only impact of the CARES Act to the Company is allowing a full reimbursement of $1,342 of tax credits relating
to the alternative minimum tax credits. The Company received the first half payment in June 2020. The balance of alternative minimum
tax credits of $671 was received in July 2020. Previously, these credits were to be refunded over a 3 year period.
As
we continue to monitor tax implications of the CARES Act and other state and federal stimulus tax legislation, we may make adjustments
to our estimates and record additional amounts for tax assets and liabilities.
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, 2020, 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, which principally related to research and development tax credits.
A
valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the
valuation.
NOTE
14 – SUBSEQUENT EVENTS
The
Company has evaluated events that occurred subsequent to December 31, 2020 and through the date the condensed consolidated financial
statements were issued.
FONAR
CORPORATION AND SUBSIDIARIES