ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION.
FONAR was formed in 1978 to engage in the business of designing, manufacturing and selling MRI scanners. HMCA, a subsidiary of FONAR, provides management services to diagnostic imaging facilities.
FONAR’s principal MRI product is its Upright® MRI (also called Stand-Up® MRI) scanner. The Upright® MRI allows patients to be scanned for the first time under weight-bearing conditions. The Stand-Up® MRI is the only MRI capable of producing images in the weight-bearing state.
At 0.6 Tesla field strength, the Upright® MRI is among the highest field open MRI scanners in the industry, offering non-claustrophobic MRI together with high-field image quality. FONAR’s open MRI scanners were the first high field strength open MRI scanners in the industry.
FONAR’s wholly owned subsidiary, Health Management Corporation of America (“HMCA”), has the controlling interest in Health Diagnostics Management, LLC (“HDM”). HMCA presently has a direct ownership interest of 70.6% in HDM, and the investors in HDM have a 29.4% ownership interest. During the fiscal year ended June 30, 2025, the Company sold non-controlling interests to a minority shareholder for $132,000. The 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, and HDM are referred to as “HMCA”, unless otherwise indicated .HMCA generates revenues from providing comprehensive management services, including development, administration, accounting, billing and collection services, together with office space, medical equipment, supplies and non-medical personnel to its clients. Revenues are in the form of fees which are earned under contracts with HMCA’s clients, except for its six Florida subsidiaries which bill and collect fees from patients, insurers and other third-party payors directly.
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FONAR CORPORATION AND SUBSIDIARIES
In February 2024, FONAR formed a wholly-owned subsidiary, Opus Diagnostic Management, LLC, to provide repair and maintenance of third party manufactured MRI equipment that HMCA operates.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Management makes estimates and assumptions when preparing financial statements. These estimates and assumptions affect various matters, including:
Our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements;
Our disclosure of contingent assets and liabilities at the dates of the financial statements; and
Our reported amounts of net revenue and expenses in our consolidated statements of operations during the reporting periods
These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ materially from these estimates.
We believe our critical accounting estimates in the following areas affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition and Receivable Allowances
The Company’s receivables from the related and non-related professional corporations, as well as those receivables due under fee-for-service contracts at the Florida subsidiaries, are largely dependent on collection of fees from various third-party payers. As described in greater detail in Note 2 to the Consolidated Financial Statements, we recognize revenue in accordance with Accounting Standards Codification 606, as the services are provided.
Medical receivables are due under fee-for-service contracts with third-party payors, such as hospitals, government sponsored healthcare programs, patients’ legal counsel and directly from patients. The carrying amount of the medical receivable is reduced by contractual allowances and discounts based on the historical experience with each payor class on a per location basis.
Management fee receivable is related to the management fees outstanding from the related and non-related professional corporations (“PCs”) under management agreements. The Company establishes a current expected credit loss (“CECL”) to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be paid. The PCs may be limited in their ability to pay the full management fees receivable if they do not collect sufficient expected fees from third-party payers and patients. The Company’s management fees are collateralized, individually and collectively, by the assets of the PCs. The CECL is determined based upon the difference between the management fee receivable and the current amount of outstanding fees estimated to be collected by the PCs. The Company’s considerations into the estimate of the PCs fee collection included historical loss rates to pools of receivables with similar risks and characteristics, current and forward looking economic conditions, and the financial condition of each PC.
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FONAR CORPORATION AND SUBSIDIARIES
We recognize revenue and related costs of revenue from sales contracts for our MRI scanners and major upgrades, under the percentage-of-completion method. Under this method, we recognize revenue and related costs of revenue, as each sub-assembly is completed. Amounts received in advance of our commencement of production are recorded as customer advances.
RESULTS OF OPERATIONS. FISCAL 2025 COMPARED TO FISCAL 2024
In fiscal 2025, we recognized net income of $10.7 million on revenues of $104.4 million, as compared to net income of $14.1 million on revenues of $102.9 million for fiscal 2024. This represents an increase in revenues of 1.4%. Total costs and expenses increased by 7.4%. Our consolidated operating results decreased by 29.7% to an operating income of $11.6 million for fiscal 2025 as compared to operating income of $16.5 million for fiscal 2024.
Discussion of Consolidated Results of Operations
Fiscal 2025 Compared to Fiscal 2024
While revenue increased by 1.4% selling, general and administrative expenses increased by 10.7% to $29.7 million in fiscal 2025 from $26.9 million in fiscal 2024. This difference in selling, general and administrative expenses was largely due to a $2,300,000 increase on reserves for credit loses for a single payer – American Transit Insurance Company. American Transit Insurance Company (ATIC) is a New York based motor vehicle insurer primarily focused on for-hire automobile insurance. During Fiscal 2025, ATIC posted over $750 million in net losses and has indicated that they are approaching insolvency. ATIC continues to operate and is working with the New York Department of Financial Services to resolve its issues. We are monitoring the situation for new developments. If ATIC enters receivership or suffers additional adverse consequences, we may need to take additional reserves in the future.
Interest and investment income remained constant in 2025 compared to 2024. We recognized investment income of $2.1 million in fiscal 2025 and 2024. This is due to the Company placing cash in interest bearing accounts and purchasing short term treasury bills.
Interest expense of $25,611 was recognized in fiscal 2025, as compared to interest expense of $76,997 in fiscal 2024. The Company repaid the outstanding debt for a building located in Florida during fiscal 2025.
The 29.4% non-controlling interest allocations of $2,339,000 and $3,530,000 for fiscal 2025 and fiscal 2024, respectively, have been calculated by Income from operations, and adding depreciation and amortization net of miscellaneous losses and other income from the Physician and Diagnostic Service Management segment (See Note 15).
We incurred some unusual one-time expenses during Fiscal Year 2025. We settled an outstanding tax debt related to New York City Commercial Rent Tax in the amount of $172,000. We also incurred a significant expense from Consolidated Edison Company in the amount of $206,000 for unreported electricity bills at our Midtown Manhattan location, due to faulty meter reading over a period of years. These one-time expenses have been resolved.
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FONAR CORPORATION AND SUBSIDIARIES
Continuing our tradition as the originator of MRI, we remain committed to maintaining our position as the leading innovator of the industry through investing in research and development. In fiscal 2025 we continued our investment in the development of various upgrades for the UPRIGHT® MRI, with an investment of $1,576,086 in research and development, none of which was capitalized, as compared to $1,735,949, none of which was capitalized, in fiscal 2024. The research and development expenditures were approximately 17.6% of revenues attributable to our medical equipment segment and 1.5% of total revenues in 2025, and 20.8% of medical equipment segment revenues and 1.7% of total revenues in fiscal 2024. This represented a 9.2% decrease in research and development expenditures in fiscal 2025 as compared to fiscal 2024.
For the fiscal year 2025 the Company recorded an income tax expense of $3.1 million compared with an income tax expense of $5.2 million for 2024. The Company has recorded a deferred tax asset of $6.3 million as of June 30, 2025, primarily relating to the tax benefits from the net allowance for credit losses and tax credits available to offset future taxable income. The income tax benefits are attributable to the expected tax benefits associated with the projected realization and utilization of our net state operating losses in future periods. The utilization of these tax benefits is dependent on the Company generating future taxable income and other factors. A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed, (principally related to unrealizable state operating losses). Although the Company is expecting to generate taxable income in future periods, we cannot accurately measure the full impact of the adoption of healthcare regulations, including the impact of continuing changes in MRI scanning reimbursement rates, which could materially impact operations. A partial valuation allowance will be maintained until evidence exists to support that it is no longer needed. As of June 30, 2025, the valuation allowance was $252,000.
We have been taking steps to improve HMCA revenues by our marketing efforts, which focus on the unique capability of our Upright® MRI scanners to scan patients in different positions. We have also been increasing the number of health insurance plans in which our clients participate. Operationally, we have invested in technology that we believe will reduce scan times and improve operational efficiency in the centers that we manage.
Our management fees are dependent on collection by our clients of fees from reimbursements from Medicare, Medicaid, private insurance, no fault and workers’ compensation carriers, self–pay and other third-party payers. The health care industry is experiencing the effects of the federal and state governments’ trend toward cost containment, as governments and other third-party payers seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with providers. The cost-containment measures, consolidated with the increasing influence of managed-care payers and competition for patients, have resulted in reduced rates of reimbursement for services provided by our clients from time to time. Our future revenues and results of operations may be adversely impacted by future reductions in reimbursement rates.
Certain third-party payers have proposed and implemented changes in the methods and rates of reimbursement that have had the effect of substantially decreasing reimbursement for diagnostic imaging services that HMCA’s clients provide. To the extent reimbursement from third-party payers is reduced, it will likely have an adverse impact on the rates they pay us, as they would need to reduce the management fees they pay HMCA to offset such decreased reimbursement rates. Furthermore, many commercial health care insurance arrangements are changing, so that individuals bear greater financial responsibility through high deductible plans, co-insurance and higher co-payments, which may result in patients delaying or foregoing medical procedures. More frequently, however, patients are scanned and we experience difficulty in collecting deductibles and co-payments. We expect recent changes to the Florida insurance laws to result in less patients being reimbursed through no-fault auto insurance, resulting in both lower reimbursement rates and a higher rate of uncollectible billings. Further, we believe that the passage of New York Public Health Law Article 49A will have a significant negative impact on our collection rates. We expect that any further changes to the rates or methods of reimbursement for services, which reduce the reimbursement per scan of our clients may partially offset the increases in scan volume we are working to for our clients, and indirectly will result in a in our revenues.
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FONAR CORPORATION AND SUBSIDIARIES
In addition, the use of radiology benefit managers, or RBM’s has increased in recent years. It is common practice for health insurance carriers to contract with RBMs to manage utilization of diagnostic imaging procedures for their insureds. In many cases, this leads to lower utilization of imaging procedures based on a determination of medical necessity. The efficacy of RBMs is still a highly controversial topic. We cannot predict whether the use of RBMs will negatively impact our business, but it is possible that our financial position and results of operations could be negatively affected.
Discussion of Operating Results of Management of Diagnostic Imaging Centers
Fiscal 2025 Compared to Fiscal 2024
Revenues attributable to the Company’s physician and diagnostic services management segment, HMCA, increased to $95.4 million in fiscal 2025 as compared to $94.6 million in fiscal 2024. The increase in revenues was due to an increase of $1.5 million of management and other fees which was offset from a decrease of patient fees (net of contractual allowances and discounts) from patient and third-party payers recognized by six of the facilities in Florida of approximately $636,000. The decrease in patient fees at our Florida locations is a consequence of Florida’s 2023 Tort Reform Act. We have seen a decrease in both volume and average reimbursement rate since the act took effect, and we expect that trend to continue for the immediate future.
Cost of revenues as a percentage of the related revenues for our physician and diagnostic services management segment increased from $53.0 million or 56.0% of related revenues for the year ended June 30, 2024 to $55.6 million, or 58.3% of related revenues for the year ended June 30, 2025.
Operating results of this segment decreased from operating income of $23.5 million in fiscal 2024 to operating income of $19.2 million in fiscal 2025. The decrease is due mainly to taking a large reserve for the American Transit Insurance Company business along with increased expenses in the form of staffing costs, equipment repair costs and helium replacement costs. We believe that our efforts to expand and improve the operation of our physician and diagnostic services management segment are directly responsible for the profitability of this segment and our company as a whole.
For the fiscal year ended June 30, 2025, 11.5% of total revenues were derived from contracts with facilities that are currently owned by Timothy Damadian, the Chief Executive Officer of FONAR as compared to 11.6% of total revenues were derived from these contracts for the 2024 fiscal year. The agreements with these MRI facilities are for one-year terms which renew automatically on an annual basis, unless terminated. The fees for these sites, which are located in Florida, are flat monthly fees.
Discussion of Operating Results of Medical Equipment - Manufacturing and Service of MRI Equipment
Fiscal 2025 Compared to Fiscal 2024
Revenues attributable to our medical equipment segment increased to $9.0 million in fiscal 2025 as compared to $8.4 million in fiscal 2024, with product sales revenues decreasing by 23.6% from $738,000 in fiscal 2024 to $563,000 in fiscal 2025. Service revenue increased by 10.8% from $7.6 million in fiscal 2024 to $8.4 million in fiscal 2025.
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FONAR CORPORATION AND SUBSIDIARIES
Lower reimbursement rates have reduced the demand for our MRI products, resulting in lower sales volumes. As a result of fewer sales, service revenues have decreased since as older scanners are taken out of service, there are fewer new scanners available to sign service contracts.
The operating loss for the medical equipment segment increased from an operating loss of $7.0 million in fiscal 2024 to an operating loss of $7.6 million in fiscal 2025. The losses are attributable most significantly to the fact that costs increased by a greater amount than revenues.
The increase in costs was the result of several factors. We made a significant investment into developing the capacity to service MRI equipment manufactured by third manufacturers through our Opus Diagnostic Services, LLC subsidiary. We made additional investments into sales and marketing of image enhancement software SwiftMR TM pursuant to our distribution agreement with AIRS Medical USA, Inc. We hope these ventures will develop into a viable source of new revenue in the future.
Research and development expenses decreased to $1.6 million in fiscal 2025 from $1.7 million in fiscal 2024. Our expenses for fiscal 2025 represented continued research and development of various upgrades for the Upright® MRI scanner.
LIQUIDITY AND CAPITAL RESOURCES
Cash, and cash equivalents remained constant at $56.3 million at June 30, 2025 and June 30, 2024.
Cash provided by operating activities for fiscal 2025 was approximately $11.3 million. Cash provided by operating activities was attributable to the consolidated net income of $10.7 million, adjusted primarily for depreciation and amortization of $4.7 million, provision for credit losses of $3.2 million, and an increase in other current liabilities of $2.7 million which was offset by the increase in accounts, and medical and management fee receivables of $9.0 million and an increase in prepaid expenses and other current assets of $1.2 million.
Cash used in investing activities for fiscal 2025 was approximately $3.8 million. The cash used in investing activities was attributable to purchases of property and equipment of $3.8 million, costs of patents of $25,325, offset by proceeds from short term investments of $15,608. The majority of the purchases of property and equipment was due to the addition of an additional high field scanners at two existing centers.
Cash used in financing activities for fiscal 2025 approximated $7.5 million. The principal uses of cash used in financing activities included the repayment of borrowings and capital lease obligations of $113,940, purchase of treasury stock of $1.8 million and distributions to non-controlling interests of $5.7 million which was offset by the sale of noncontrolling interests of $132,000.
Total liabilities decreased by 1.2% during fiscal 2025 from approximately $57.5 million at June 30, 2024 to approximately $56.8 million at June 30, 2025.
At June 30, 2025, we had working capital of approximately $127.5 million as compared to working capital of $122.5 million at June 30, 2024, and equity of $160.1 million at June 30, 2025 as compared to equity of $156.8 million at June 30, 2024. This resulted from an increase in current assets ($140.3 million at June 30, 2024 as compared to $144.7 million at June 30, 2025), and a decrease in current liabilities from $17.9 million at June 30, 2024 to $17.1 million at June 30, 2025.
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FONAR CORPORATION AND SUBSIDIARIES
Our principal sources of liquidity are derived from revenues.
Our business plan includes a program for manufacturing, selling, maintaining and repairing our Upright® MRI scanners. In addition, we generate the majority of our revenue by participating in the physician and diagnostic services management business through our subsidiary, HMCA. As of June 30, 2025, HMCA manages a total of 44 MRI scanners of which 26 MRI scanners are located in New York and 18 are located in Florida.
Our business plan also calls for a continuing emphasis on providing our customers with enhanced equipment service and maintenance capabilities and delivering state-of-the-art, innovative and high quality equipment upgrades at competitive prices. Fees for on-going service and maintenance from our installed base of scanners were $7.6 million for the year ended June 30, 2024 and $8.4 million for the year ended June 30, 2025.
In order to promote profitability and to reduce demands on our cash and other liquid reserves, we maintain an aggressive program of cost containment. Previously, these measures included consolidating HMCA’s office space with FONAR’s office space and reducing the size of our workforce, compensation and benefits. We continue to attempt to contain expenses across the board, despite significant increases in the cost of labor and materials as the result of inflation. The cost control efforts are intended to keep expenditures at levels which can be supported by service revenues and HMCA revenues. To this end, in February 2024, we have formed a subsidiary, Opus Diagnostic Management, LLC, to provide in-house repair and maintenance of third party manufactured MRI equipment that we operate. We hope this entity will contain the maintenance and repair costs of our equipment fleet, and eventually expand into providing service to outside entities, including third party equipment operated by FONAR’s existing installed base.
Current economic credit conditions have contributed to a slower than optimal business environment. As a result our business may suffer, should the credit markets not improve in the near future. The direct impact of these conditions is not fully known.
Revenues from HMCA have been the principal reason for our profitability, and we have so far been able to maintain such revenues by increasing the number of scans being performed by the sites we manage and those we own, notwithstanding reductions in reimbursement rates and increases in operating costs.
Capital expenditures for fiscal 2025 approximated $3.8 million and capitalized patent costs were approximately $25,000. Purchases of property and equipment were approximately $3.8 million.
We have committed to making material capital expenditures in the 2026 fiscal year. We expect to complete the installation of an additional high field scanner in Lynbrook, New York in the first quarter of fiscal 2026.The capital expenditures for this project will approximate $1.5 million for the purchase of a new scanner. We also intend to open an additional location in New York, and we hope to have that center operational before the end of the fiscal year. The expected cost of this project will approximate $400,000 for the purchase of a new scanner and related buildout costs to be approximately $500,000.
The Company believes that its business plan has been responsible for the past five consecutive fiscal years of profitability (fiscal 2025, fiscal 2024, fiscal 2023, fiscal 2022 and fiscal 2021), our current cash balance of $56. 3 million, along with a working capital of $127. 5 million and its capital resources will be adequate to support operations at current levels through September 30, 2026.
On September 13, 2022, the Company adopted a stock repurchase plan. On September 26, 2022, the Board of Directors has approved up to $9 million to be repurchased under the plan which will be purchased on the open market at prevailing prices. During fiscal 2025, we repurchased 114,588 shares for $1.8 million. Since the adoption of the repurchase plan, the Company has repurchased 373,942 shares for $6.1 million.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any significant investments in marketable securities, foreign currencies, mutual funds, certificates of deposit or other fixed rate instruments. The Company currently has 2 certificates of deposits totaling approximately $120,000 with maturities under 1 year. Most of our funds are in cash accounts or money market accounts which are liquid. The Company has been investing in short term Treasury bills with a maturity date of 90 days or less.
All of our revenue, expense and capital purchasing activities are transacted in United States dollars.
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ITEM 8. – FINANCIAL STATEMENTS AND FOOTNOTES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS As of June 30, 2025 and 2024
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended June 30, 2025 and 2024
CONSOLIDATED STATEMENTS OF EQUITY For the Years Ended June 30, 2025 and 2024
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2025 and 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
FONAR Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of FONAR Corporation and Subsidiaries (the “Company”) as of June 30, 2025 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated September 19, 2025 expressed an adverse opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Medical Receivable – Refer to Note 2 to the financial statements
Critical Audit Matter Description
Net realizable value of patient fee revenue and medical receivables are due under fee-for-service contracts from third-party payors, such as hospitals, government sponsored healthcare programs, patients legal counsel, and directly from patients. Medical receivables are recorded at net realizable value based on the estimated amounts the Company expects to receive from patients and third-party payors. The medical receivable is reduced by contractual adjustments estimated by management based on historical experience with each payor class at each location. Given these factors, the related audit effort in evaluating management’s judgments in determining the medical receivables was challenging, subjective, and complex and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the net realizable value of patient fee revenues and medical receivables included the following:
We tested the effectiveness of internal controls related to the measurement of patient fee revenue and medical receivables.
We evaluated management’s significant accounting policies related to patient fee revenue for reasonableness.
We tested information technology general controls around the Company’s billing system and associated database.
We tested the underlying data related to the recognition of patient level charges and the subsequent activities, including cash collections and non-cash adjustments.
We tested the estimated contractual adjustments set forth by the third-party payors.
We tested the mathematical accuracy of the estimates applied to patient fee revenue and medical receivables.
Management Fees Receivable – Refer to Note 2 to the financial statements.
Management fees receivable is related to management fees outstanding from the related and non-related professional corporations (“PCs”) under management agreements. The Company has established a current expected credit loss (“CECL”) to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be paid. The PCs may be limited in their ability to pay the full management fee receivable if they do not collect sufficient expected fees from third-party payors and patients. The Company’s management fees are collateralized, individually and collectively, by the assets of the PCs. The CECL is determined based on the difference between the management fee receivable and the current amount of outstanding fees estimated to be collected by the PCs. The Company’s considerations into the estimate of the PCs’ fee collection include historical loss rates to pools of receivables with similar risks characteristics, current and forward-looking economic conditions, and the financial condition of each PC. Given these factors, the related audit effort in evaluating management’s judgments in determining CECL was challenging, subjective, and complex and required a high degree of auditor judgment.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the CECL estimate of management fees receivable included the following:
We tested the effectiveness of internal controls that address the risk of material misstatement related to the measurement of the CECL estimate.
We evaluated management’s significant accounting policies related to CECL for reasonableness.
We tested that management fees for the year agreed with the executed management fee contracts with each PC.
We tested information technology general controls surrounding the billing system utilized by the PCs.
We tested the mathematical accuracy of the calculations used to determine the CECL estimate.
We have served as the auditors since 2025
/s/ CohnReznick LLP
Melville, NY
September 22, 2025
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of FONAR Corporation and Subsidiaries
Adverse Opinion on Internal Control over Financial Reporting
We have audited FONAR Corporation and Subsidiaries’ (the Company’s) internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in logical access within its systems supporting the Company’s accounting and reporting processes. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2025 consolidated financial statements, and this report does not affect our report dated September 19, 2025, on those consolidated financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet and the related consolidated statements of income, stockholders’ equity, and cash flows of the Company as of and for the year ended June 30, 2025, and our report dated September 19, 2025 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ CohnReznick LLP
Melville, NY
September 22, 2025
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Fonar Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited, before the effects of the retrospective adjustments to the disclosures for the adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) discussed in Notes 2 and 15 and before the effects of the retrospective adjustments to the disclosures for the adoption of ASU 2023-09, Improvements to Income Tax Disclosures discussed in Notes 2 and 10 to the consolidated financial statements, the accompanying consolidated balance sheet of Fonar Corporation and Subsidiaries (the “Company”) as of June 30, 2024, the related consolidated statements of income, stockholders’ equity and cash flows for the year ended June 30, 2024, and the related notes (collectively referred to as the “financial statements”) (the 2024 financial statements before the effects of the adjustments discussed in Notes 2 and 10 and 15 to the financial statements are not presented herein). In our opinion, the June 30, 2024 financial statements before the effects of the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 2 and 15 to the financial statements and before the effects of the retrospective adjustments to the disclosures for the adoption of ASU 2023-09 discussed in Notes 2 and 10 to the financial statements, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024, and the results of its operations and its cash flows for the year ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 2 and 15 and we were not engaged to audit, review, or apply any procedures to the retrospective adjustments to the disclosures for the adoption of ASU 2023-09 discussed in Notes 2 and 10.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. we believe that our audit provides a reasonable basis for our opinion.
/s/Marcum LLP
Marcum LLP
We served as the Company’s auditor from 1990, such date takes into account the merger of Tabb, Conigliaro, McGann, P.C. (“Tabb”) into another firm in approximately 2001 and the former partners of Tabb joining Marcum LLP in 2002 to 2024.
New York, NY
September 27, 2024
Page 42
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable – net of allowances for credit losses of $ 264,212 and $ 166,049 at June 30, 2025 and 2024, respectively
Medical receivables
Management and other fees receivable – net of allowances for credit losses of $ 14,295,988 and $ 12,369,921 at June 30, 2025 and 2024, respectively
Management and other fees receivable – related party medical practices – net of allowances for credit losses of $ 7,136,836 and $ 6,110,399 at June 30, 2025 and 2024, respectively
Inventories - net
Prepaid expenses and other current assets – related party
Prepaid expenses and other current assets
Total Current Assets
Accounts receivable – long term
Note receivable – related party
Deferred income tax asset
Property and equipment – net
Right-of-use-asset – operating leases
Right-of-use-asset – finance lease
Goodwill
Other intangible assets – net
Other assets
Total Assets
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
June 30,
Current Liabilities:
Current portion of long-term debt
Accounts payable
Other current liabilities
Operating lease liabilities – current portion
Finance lease liability – current portion
Unearned revenue on service contracts
Customer deposits
Total Current Liabilities
Long-Term Liabilities:
Unearned revenue on service contracts
Deferred income tax liability
Due to related party medical practices
Operating lease liabilities – net of current portion
Finance lease liability – net of current portion
Long-term debt, less current portion
Other liabilities
Total Long-Term Liabilities
Total Liabilities
Commitments and Contingencies
See accompanying notes to consolidated financial statements.
Page 44
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
EQUITY
June 30,
Equity:
Class A non-voting preferred stock $ .0001 par value; 453,000 shares authorized at June 30, 2025 and 2024, 313,438 issued and outstanding at June 30, 2025 and 2024
Preferred stock $ .001 par value; 567,000 shares authorized at June 30, 2025 and 2024, issued and outstanding – none
Common stock $ .0001 par value; 8,500,000 shares authorized at June 30, 2025 and 2024, 6,203,465 and 6,328,494 issued at June 30, 2025 and 2024, respectively 6,168,625 and 6,283,213 outstanding at June 30, 2025 and 2024, respectively
Class B convertible common stock (10 votes per share) $ .0001 par value; 227,000 shares authorized at June 30, 2025 and 2024, 146 issued and outstanding at June 30, 2025 and 2024
Class C common stock (25 votes per share) $ .0001 par value; 567,000 shares authorized at June 30, 2025 and 2024, 382,513 issued and outstanding at June 30, 2025 and 2024
Paid-in capital in excess of par value
Accumulated deficit
Treasury stock, at cost – 34,840 and 45,081 shares of common stock at June 30, 2025 and 2024, respectively
Total Fonar Corporation’s Stockholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
Page 45
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30,
Revenues
Patient fee revenue – net of contractual allowances and discounts
Product sales
Service and repair fees
Service and repair fees – related parties
Management and other fees
Management and other fees – related medical practices
Total Revenues – Net
Costs and Expenses
Costs related to product sales
Costs related to service and repair fees
Costs related to service and repair fees – related parties
Costs related to patient fee revenue
Costs related to management and other fees
Costs related to management and other fees – related medical practices
Research and development
Selling, general and administrative expenses
Total Costs and Expenses
Income from Operations
Other Income and (Expenses):
Interest expense
Interest income – related party
Investment income
Other income – related party
Other income
Income before Provision for Income Taxes and Noncontrolling Interests
Provision for Income Taxes
Consolidated Net Income
Net Income – Noncontrolling Interests
Net Income – Attributable to FONAR
See accompanying notes to consolidated financial statements.
Page 46
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
For the Years Ended June 30,
Net Income Available to Common Stockholders
Net Income Available to Class A Non –Voting Preferred Stockholders
Net Income Available to Class C Common Stockholders
Basic Net Income Per Common Share Available to Common Stockholders
Diluted Net Income Per Common Share Available to Common Stockholders
Basic and Diluted Income Per Share – Class C Common
Weighted Average Basic Shares Outstanding – Common Stockholders
Weighted Average Diluted Shares Outstanding – Common Stockholders
Weighted Average Basic and Diluted Shares Outstanding – Class C Common
See accompanying notes to consolidated financial statements.
Page 47
FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2025 AND 2024
Common Stock
Common Stock Issued (Shares)
Class A Preferred Stock (Shares)
Class A Preferred Stock
Class C Common Stock (Shares)
Balance – July 1,2023
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2024
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Sale – Non controlling interest
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2025
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2025 AND 2024
Class C Common Stock
Paid-in Capital in Excess of Par Value
Treasury Stock (Shares)
Treasury Stock
Balance – July 1, 2023
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2024
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Sale – Non controlling interest
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2025
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2025 AND 2024
Accumulated Deficit
Non Controlling Interests
Total
Balance – July 1, 2023
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2024
Net Income
Purchase of Treasury Stock
Cancellation of Treasury Stock
Sale – Non controlling interest
Distributions – Non controlling interest
Net Income – Non controlling interests
Balance – June 30, 2025
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated Net Income
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization
Provision for credit losses
Deferred income tax - net
Net change in operating right-of-use assets and lease liabilities
Gain on sale of equipment – related party
Gain on disposition of fixed assets
Abandoned patents
Changes in operating assets and liabilities, net:
Accounts, medical and management fee receivable(s)
Notes receivable
Notes receivable – related party
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Other current liabilities
Customer advances
Finance lease liabilities
Other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended June 30,
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds (Purchase) from short-term investment
Proceeds from sale of equipment
Cost of patents
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings and finance obligations
Sale of noncontrolling interest
Purchase of treasury stock
Distributions to noncontrolling interests
NET CASH USED IN FINANCING ACTIVITIES
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS - END OF YEAR
See accompanying notes to consolidated financial statements.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY AND CAPITAL RESOURCES
Description of Business
FONAR is a Delaware corporation, which was incorporated on July 17, 1978. FONAR is engaged in the research, development, production and marketing of medical scanning equipment, which uses principles of MRI for the detection and diagnosis of human diseases. In addition to deriving revenues from the direct sale of MRI equipment, revenue is also generated from our installed-base of customers through our service and upgrade programs.
FONAR, through its wholly-owned subsidiary Health Management Company of America (“HMCA”) provides comprehensive management services to diagnostic imaging facilities. The services provided by the Company include development, administration, leasing of office space, facilities and medical equipment, provision of supplies, staffing and supervision of non-medical personnel, legal services, accounting, billing and collection and the development and implementation of practice growth and marketing strategies.
On 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 Health Diagnostics Management (“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. As of June 30, 2024 the Company had direct ownership interest of 70.8 % and the investors’ a 29.2 % ownership interest. During the year ended June 30, 2025, the Company sold non-controlling interests to a minority shareholder for $ 132,000 . Currently, the Company has a direct ownership interest of 70.63 % and the investors have a 29.37 % ownership interest. The entire management of diagnostic imaging centers business segment is now being conducted by HDM, operating under the name “Health Management Company of America”.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of FONAR Corporation, its majority and wholly-owned subsidiaries and partnerships. The operating activities of subsidiaries are included in the accompanying consolidated statements from the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The most significant estimates relate to receivable allowances, and revenue recognition. In addition, healthcare industry reforms and reimbursement practices will continue to impact the Company’s operations and the determination of contractual and other allowance estimates. Actual results could differ from those estimates.
Inventories
Inventories consist of purchased parts, components and supplies, as well as work-in-process, and are stated at the lower of cost or net realizable value.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Property and equipment purchased in connection with an acquisition is stated at its estimated fair value, generally based on an appraisal. Property and equipment is being depreciated for financial accounting purposes using the straight-line method over their estimated useful lives. Leasehold improvements are being amortized over the shorter of the useful life or the remaining lease term. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation of these assets are removed from the accounts and the resulting gains or losses are reflected in the results of operations. Expenses for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Maintenance and repair expenses totaled approximately $ 2,751,000 and $ 2,948,000 for the years ended June 30, 2025 and 2024 respectively. The estimated useful lives in years are generally as follows:
Schedule of Estimated Useful Life in Years for Property and Equipment
Estimated Useful Life in Years for Property and Equipment
Diagnostic equipment
Research, development and demonstration equipment
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Building
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Intangible Assets
1) Patents and Copyrights
Patent and copyrights are professional costs incurred to acquire certain patent and copyrights. Amortization is calculated on the straight-line basis over 15 years.
2) Non-Competition Agreements
The non-competition agreements are agreements entered into with past principal owners of entities that the Company had acquired. The non-competition agreements are being amortized on the straight-line basis over the length of the agreement ( 7 years).
3) Customer Relationships
Customer relationships represents customer lists acquired in acquisition of prior entities. Amortization is calculated on the straight-line basis over 20 years.
4) Software License
Software license represents a license to improve the image quality and efficiency of the MRI scanners. Amortization is calculated on the straight-line basis over 3 years.
Goodwill
Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. Goodwill is not amortized and is reviewed for impairment annually, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, goodwill of the reporting unit is considered impaired, and that excess is recognized as a goodwill impairment loss.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue on sales contracts for scanners, included in “product sales” in the accompanying consolidated statements of operations, is recognized under the percentage-of-completion method in accordance with Financial Accounting Standards Board (“FASB”) ASC 606, “Revenue Recognition – Construction-Type and Production-Type Contracts”. The Company manufactures its scanners under specific contracts that provide for progress payments. Production and installation take approximately three to six months.
Revenue on scanner service contracts is recognized on the straight-line method over the related contract period, usually one year. As of June 30, 2024, the Company had unearned revenue on service contracts of $3,870,229 of which all was recognized as revenue in the fiscal year ending June 30, 2025.
Revenue from product sales (upgrades and supplies) is recognized upon shipment.
Revenue under management contracts is recognized based upon contractual agreements for management services rendered by the Company primarily under various long-term agreements with various medical providers (the “PCs”). As of June 30, 2025, the Company has 22 management agreements of which 3 were with PC’s owned by Timothy Damadian, Chairman of the Board, President, Chief Executive Officer and Treasurer (formerly owned by Raymond V. Damadian, M.D., Chairman of the Board of FONAR until his unexpected death in August 2022) (“the Related medical practices”) and 19 are with PC’s, which are all located in the state of New York (“the New York PC’s”), owned by four unrelated radiologists. The contractual fees for services rendered to the PCs consists of fixed monthly fees per diagnostic imaging facility ranging from approximately $ 70,000 to $ 460,000 . All fees are re-negotiable at the anniversary of the agreements and each year thereafter. The Company records a credit loss expense for estimated uncollectible fees, which is reflected in other operating expenses on the Consolidated Statement of Operations.
The Company currently recognizes revenue in accordance with the recognition accounting standard issued by the FASB and codified in the 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.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
The Company’s 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.
The Company’s patient fee revenues, net of contractual allowances and discounts for the years ended June 30, 2025 and 2024 are summarized in the following table.
Schedule of patient fee revenue - net
Patient Fee Revenue - Net
For the Years Ended June 30
Commercial Insurance/ Managed Care
Medicare/Medicaid
Workers’ Compensation/Personal Injury
Other
Net Patient Fee Revenue
Medical Receivable
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. Medical receivables are recorded at net realizable value based on the estimated amounts the Company expects to receive from patients and third-party payers. The medical receivable is reduced by an allowance for contractual adjustments based on the historical experience with each payor class at each location. The medical fee receivable as of July 1, 2023 was $ 21,259,262 .
For LLCs owned by the Company, approximately 57 % and 67 % of net revenues were derived from no-fault and personal injury protection for the years end June 30, 2025 and 2024.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management and Other Fees Receivable
Management fees receivable is related to management fees outstanding from the related and non related PCs under management agreements. The Company has established a current expected credit loss (“CECL”) reserve to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be collectible. The PC’s may be limited in their ability to pay the full management fee receivable if they do not collect sufficient expected fees from third-party payors and patients. The Company’s management fees are collateralized, individually and collectively, by the assets of the PCs. The CECL reserve is determined based on the difference between the management fee receivable and the current amount of outstanding fees estimated to be collected by the PCs.
The Company’s considerations into the estimate of the PC’s fee collection is based on a combination of factors. As each management agreement specifies the Company’s ultimate collateral for unpaid management fees are the patient fee receivables owned by each PC, the Company considers the historical loss rates to pools of receivables with similar risks characteristics, aging of the patient fee receivables, and the financial condition of each PC. In addition, the Company subjectively adjusts its estimated expected credit losses for current and forward-looking economic conditions which would include trends seen within the industry and newly enacted regulation. Specifically, insurance carriers covering automobile no-fault and workers compensation claims incur longer payment cycles and rigorous informational requirements and certain other disallowed claims.
The Company combines an objective and subjective loss-rate methodology to estimate expected credit losses based on the collateral owned by each PC. This involves objectively using historical loss rates to pools of receivables with similar risk characteristics (i.e., various insurance payors) and then subjectively adjusting for current and forward-looking economic conditions which would include trends seen within the industry and newly enacted regulation.
The provision for credit losses for the year ended June 30, 2025 was $3,079,261. The provision for credit losses is attributable to scan volume at all the PC’s and the nature of the payor classes, where there can be longer expected payment terms. Also, during the year ended June 30, 2025, the Company recorded an additional reserve of approximately $2,300,000 for a specific receivable that is attributable to a American Transit Insurance Company (ATIC). This reserve for credit losses relates specifically to ATIC, which owes no-fault insurance claims by the PCs to the PCs, which are collateral for the Company’s management and other fees receivable. ATIC is a New York based motor vehicle insurer primarily focused on for-hire automobile insurance. During Fiscal 2025, ATIC posted over $750 million in net losses and has indicated that they are approaching insolvency. ATIC continues to operate and is working with the New York Department of Financial Services (DFS) to resolve its issues. We continue to monitor the situation for new developments. However, at the time of this filing, DFS has not publicly announced approval of any plans for ATIC to its financial situation. In addition, Uber has filed a lawsuit ATIC they are not properly paying . Additional legislation in New York City to reduce coverage minimums and increase premiums may help to the , but there is no certainty these efforts will be . If ATIC enters receivership or additional consequences, we may need to take additional reserves in the future. The management fee receivable for unrelated and related parties as of July 1, 2023 was $ 35,888,253 and $ 9,161,870 , respectively.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The account receivable balance for scanner service contracts as of July 1, 2023 was $ 4,571,597 .
Research and Development Costs
Research and development costs are charged to expense as incurred. The costs of equipment that are acquired or constructed for research and development activities, and have alternative future uses (either in research and development, marketing or production), are classified as property and equipment and depreciated over their estimated useful lives.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense approximated $ 773,000 and $ 731,000 and for the years ended June 30, 2025 and 2024, respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which 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 certain state net operating losses. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the valuation.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
ASC 740, “Accounting for Income Taxes”, 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 740. The Company believes there are no uncertain tax positions in prior year’s tax filings and therefore it has not recorded a liability for unrecognized tax benefits.
In accordance with ASC 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. Penalties for the years ended June 30, 2025 and June 30, 2024 were $ 0 and $ 20,444 , respectively.
Customer Advances
Cash advances and progress payments received on sales orders are reflected as customer advances until such time as revenue recognition occurs.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. 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 years ended June 30, 2025 and 2024.
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 years ended June 30, 2025 and 2024, diluted EPS for common shareholders includes 127,504 shares upon conversion of Class C Common.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share (Continued)
Schedule of earnings per share
June 30, 2025
Basic
Total
Common Stock
Class C Common Stock
Class A Preferred
Stock
Numerator:
Net income available to common stockholders
Denominator:
Weighted average shares outstanding
Basic income per common share
Diluted
Denominator:
Weighted average shares outstanding
Class C Common Stock
Total Denominator for diluted earnings per share
Diluted income per common share
June 30, 2024
Basic
Total
Common Stock
Class C Common Stock
Class A Preferred
Stock
Numerator:
Net income available to common stockholders
Denominator:
Weighted average shares outstanding
Basic income per common share
Diluted
Denominator:
Weighted average shares outstanding
Class C Common Stock
Total Denominator for diluted earnings per share
Diluted income per common share
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, cash in banks, investments in certificates of deposit with original maturities of 90 days or less, and money market funds.
Short-Term Investments
Short-term investments include certificates of deposit with original maturities of greater than 90 days. Interest is recorded as earned.
Concentration of Credit Risk
Cash: The Company maintains its cash and cash equivalents with various financial institutions, which exceed federally insured limits throughout the year. At June 30, 2025, the Company had cash on deposit of approximately $ 53,676,000 in excess of federally insured limits of $ 250,000 .
Related Parties: Net revenues from related parties accounted for approximately 12 % of the consolidated net revenues for the years ended June 30, 2025 and 2024. Net management fee receivables from the related party medical practices accounted for approximately 12 % of the consolidated accounts receivable as of June 30, 2025 and 2024.
For the years ended June 30, 2025 and June 30, 2024, the Company made purchases from two vendors that accounted for 36 % and 0 % of total purchases, respectively.
See Note 3 regarding the Company’s concentrations in the healthcare industry.
Fair Value of Financial Instruments
The Company measures fair value in accordance with ASC 820-10, “Fair Value Measurements and Disclosures”. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions.
The standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring and revaluing fair value. These tiers include, Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount approximates fair value because of the short-term maturity of those instruments.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (Continued)
Short-term investments: The carrying amount approximates fair value because of the short-term maturity of those instruments. Such amounts include Certificates of Deposits with original maturities greater than 90 days. These securities are classified as Level 1.
Receivable and accounts payable: The carrying amounts approximate fair value because of the short maturity of those instruments.
Long-term debt and notes payable: The carrying amounts of debt and notes payable approximate fair value due to the length of the maturities, the interest rates being tied to market indices and/or due to the interest rates not being significantly different from the current market rates available to the Company.
All of the Company’s financial instruments are held for purposes other than trading.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Adopted Accounting Standards
In December 2023, The Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (740) “Improvements to Income Tax Disclosures”, which requires the annual financial statements to include consistent categories and great disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option. The Company recently adopted this ASU retrospectively for the year ended June 30, 2025 and 2024 and it impacts only our disclosures with no impacts to our financial condition and results of operations.
In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280)”, which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extended certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. The effective date for public entities is for fiscal years beginning after December 15, 2023 and interim periods with fiscal years beginning after December 15, 2024. The Company adopted ASU for the year ended June 30, 2025 and it impacts only our disclosures with no impacts to our financial condition and results of operations.
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures” (Subtopic 220-40): Disaggregation of Income Statement Expenses”. This ASU requires disaggregation of certain income statement expense captions into specified categories to be disclosed within the notes to the financial statements, but does not change the expense captions on the income statement. The amendments in this ASU are to be applied prospectively, although retrospective application is permitted, and is effective for annual financial statements starting in fiscal 2028 and interim periods starting in fiscal 2029, with early adoption permitted. The Company is currently evaluating the effect that the adoption of ASU 2024-03 will have on our disclosures.
FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of June 30, 2025 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2025 or 2024, and it does not believe that any of those standards will have a significant impact on the Company’s consolidated financial statements at the time they become effective.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE
Long Term Accounts Receivable
Long term accounts receivable balances at June 30, 2025 and June 30, 2024 amounted to $ 3,549,956 and $ 829,473 , respectively. 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 at June 30, 2025 is as follows:
Schedule of Long Term Accounts Receivable
Receivables - Non Current - net
Total
The following represents a summary of allowance for credit losses for the years ended June 30, 2025 and 2024, respectively:
Schedule of Summary of Allowance For Credit Losses
Summary of Allowance For Credit Losses
Description
Balance
June 30, 2024
Additions (1)
Deductions
Balance
June 30, 2025
Accounts receivable
Management and other fees receivable
Management and other fees receivable - related medical practices
Notes receivable
Balance
Balance
Description
June 30, 2023
Additions(Recovery)
Deductions
June 30, 2024
Accounts receivable
Management and other fees receivable
Management and other fees receivable - related medical practices
Notes receivable
Included in provision for credit losses.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 3 – ACCOUNTS RECEIVABLE, MEDICAL RECEIVABLE AND MANAGEMENT AND OTHER FEES RECEIVABLE (CONTINUED)
Net revenues from management and other fees charged to the related party medical practices accounted for approximately 11 % and 12 % of the consolidated net revenues for the years ended June 30, 2025 and 2024, respectively.
Tallahassee Magnetic Resonance Imaging, Inc., Stand Up MRI of Boca Raton, Inc. and Stand Up MRI & Diagnostic Center, Inc. (all related party 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.
The following table sets forth the number of our facilities for the years ended June 30, 2025 and 2024.
Total Facilities
Schedule of facilities
For the Year Ended June 30,
Total Facilities Owned or Managed (at Beginning of Year)
Facilities Added by:
Internal development
Managed Facilities Closed
Total Facilities Owned or Managed (at End of Year)
NOTE 4 – INVENTORIES
Inventories included in the accompanying consolidated balance sheets consist of:
Schedule of inventories
As of June 30,
Purchased parts and components
Work-in-process
Inventories
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, less accumulated depreciation and amortization, at June 30, 2025 and 2024, is comprised of:
Schedule of Property and equipment
As of June 30,
Diagnostic equipment
Research, development and demonstration equipment
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Building
Less: Accumulated depreciation and amortization
Depreciation of property and equipment for the years ended June 30, 2025 and 2024 was $ 3,968,582 and $ 4,227,414 , respectively.
NOTE 6 – OPERATING AND FINANCE 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 19 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. 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 finance lease payments undiscounted cash flows to lease liabilities recognized as of June 30, 2025 is as follows:
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 6 – OPERATING AND FINANCE LEASES (CONTINUED)
Schedule of Operating Lease and Finance Lease Payments
Year Ending June 30,
Operating Lease Payments
Finance Lease Payments
Thereafter
Present value discount
Total lease liability
Weighted Average Remaining Lease Term
Schedule of Weighted Average Remaining Lease Term
As of June 30,
Operating leases - years
Finance lease - years
Weighted Average Discount Rate
Operating leases
Finance lease
The components of lease expense were as follows:
Schedule of components of lease expense
Components of lease expense
For Year Ended June 30,
Operating lease cost
Finance lease cost:
Depreciation of leased equipment
Interest on lease liabilities
Total finance lease cost
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 6 – OPERATING AND FINANCE LEASES (CONTINUED)
Supplemental cash flow information related to leases was as follows:
Schedule of supplemental cash flow information related to leases
Supplemental cash flow information related to leases
For Year Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use and equipment assets obtained in exchange for lease obligations:
Operating leases
The Company rents its operating facilities and certain equipment, pursuant to operating lease agreements expiring at various dates through November 2033. The leases for certain facilities contain escalation clauses relating to increases in real property taxes as well as certain maintenance costs.
Rent expense for operating leases approximated $ 6,110,000 and $ 5,685,000 , for the years ended June 30, 2025 and 2024, respectively.
Rent expense for the finance lease approximated $ 216,000 and $ 225,000 for the years ended June 30, 2025 and 2024, respectively.
NOTE 7 - OTHER INTANGIBLE ASSETS
Other intangible assets, net of accumulated amortization, at June 30, 2025 and 2024, are comprised of:
Schedule of other intangible assets, net of accumulated amortization
Weighted average useful lives
Gross carrying amount – June 30, 2025
Accumulated amortization – June 30, 2025
Net carrying amount – June 30, 2025
Capitalized software development costs
5 years
Software License
3 years
Patents and copy rights
15 years
Non-compete
7 years
Customer relationships
20 years
Total
Weighted average useful lives
Gross carrying amount – June 30, 2024
Accumulated amortization – June 30, 2024
Net carrying amount – June 30, 2024
Capitalized software development costs
5 years
Patents and copy rights
15 years
Non-compete
7 years
Customer relationships
20 years
Total
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 7 - OTHER INTANGIBLE ASSETS (CONTINUED)
The estimated amortization of other intangible assets for the five years ending June 30, 2030 and thereafter is as follows:
Schedule of estimated amortization of other intangible assets
Schedule Of Other Intangible Assets For the Years Ending June 30,
Total
Software License
Patents and Copyrights
Customer Relationships
Thereafter
Other intangible assets - net
The weighted average amortization period for other intangible assets is 9.0 years and they have no expected residual value.
Information related to the above intangible assets for the years ended June 30, 2025 and 2024 is as follows:
Schedule of other intangible assets
Other Intangible Assets
For the Year-ended June 30,
Balance – Beginning of Year
Amounts capitalized
Patents written off
Correction of an error (Note 2)
Amortization
Balance – End of Year
Amortization of patents and copyrights for the years ended June 30, 2025 and 2024 amounted to $ 151,739 and $ 169,007 , respectively.
Amortization of customer relationships for the years ended June 30, 2025 and 2024 amounted to $ 200,000 and $ 200,000 , respectively.
Amortization of software licenses for the years ended June 30, 2025 and 2024 amounted to $ 378,000 and $ 0 , respectively.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 8 - CAPITAL STOCK
Common Stock
Cash dividends payable on the common stock shall, in all cases, be on a per share basis, one hundred twenty percent (120%) of the cash dividend payable on shares of Class B common stock and three hundred sixty percent (360%) of the cash dividend payable on a share of Class C common stock .
Class B Common Stock
Class B common stock is convertible into shares of common stock on a one-for-one basis . Class B common stock has 10 votes per share . There were 146 of such shares outstanding at June 30, 2025and 2024.
Class C Common Stock
The Class C common stock has 25 votes per share , as compared to 10 votes per share for the Class B common stock and one vote per share for the common stock . The Class C common stock was offered on a three-for-one basis to the holders of the Class B common stock . Although having greater voting power, each share of Class C common stock has only one-third of the rights of a share of Class B common stock to dividends and distributions. Class C common stock is convertible into shares of common stock on a three-for-one basis.
Class A Non-Voting Preferred Stock
On April 3, 1995, the stockholders ratified a proposal consisting of the creation of a new class of Class A non-voting preferred stock with special dividend rights and the declaration of a stock dividend on the Company’s common stock consisting of one share of Class A non-voting preferred stock for every five shares of common stock . The stock dividend was payable to holders of common stock on October 20, 1995. Class A non-voting preferred stock issued pursuant to such stock dividend approximates 313,000 shares .
The Class A non-voting preferred stock is entitled to a special dividend equal to 3-1/4% of the first $10 million, 4-1/2% of the next $20 million and 5-1/2% on amounts in excess of $30 million of the amount of any cash awards or settlements received by the Company in connection with the enforcement of five of the Company’s patents in its patent lawsuits, less the revised special dividend payable on the common stock with respect to one of the Company’s patents.
The Class A non-voting preferred stock participates on an equal per share basis with the common stock in any dividends declared and ranks equally with the common stock on distribution rights, liquidation rights and other rights and preferences (other than the voting rights).
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 8 - CAPITAL STOCK (CONTINUED)
Stock Bonus Plans
On April 23, 2010, the Board approved the 2010 Stock Bonus Plan. The plan entitles the Company to reserve 2,000,000 shares of common stock. On August 10, 2010, the Company filed Form S-8 to register the 2,000,000 shares. As of June 30, 2025, 450,177 shares of common stock of FONAR were available for future grant under this plan. For the years ended June 30, 2025 and 2024, no shares were issued.
Treasury Stock
On September 13, 2022, the Company adopted a stock repurchase plan. The plan has no expiration date and cannot determine the number of shares which will be repurchased. On September 26, 2022, the Board of Directors has approved up to $ 9 million to be repurchased under the plan which will be purchased on the publicly traded open market at prevailing prices.
The Company utilizes the cost method of accounting to value the treasury stock when repurchasing stock. Under this method, the shares are valued at the price paid and recorded to treasury stock. When the treasury stock is cancelled, the par value of the stock is reduced and the additional paid in capital is reduced for the remaining value based upon the original stock sale. For the year ended June 30, 2025, the Company purchased 114,588 shares at a cost of $ 1,806,646 and cancelled 124,829 shares valued at $ 1,963,385 . For the year ended June 30, 2024, the Company purchased 156,206 shares at a cost of $ 2,505,832 and cancelled 122,588 shares valued at $ 2,005,020 .
NOTE 9 – CONTROLLING AND NONCONTROLLING INTERESTS
On February 13, 2013, the Company entered into an agreement with outside investors to acquire a 50.5% controlling interest in a newly formed limited liability company, Health Diagnostics Management LLC (HDM). According to the February 13, 2013, LLC operating agreement of HDM there are two classes of members; Class A members and one Class B member. The Class A members have an ownership interest of 49.5 % of HDM. The Class B member (HMCA) has an ownership of 50.5 % of HDM. On all matters on which members may vote every member is entitled to cast the percentage of votes equal to their percentage of ownership interest. Profits and losses on all items of income, gain or loss, deductions or other allocations of the Company will be allocated among the members in the same proportions as their membership interests in the Company bear to all the Class A and Class B membership interests of the Company in the aggregate outstanding. All of the depreciation and amortization of the assets of the Company will be allocated solely to the Class A members, unless and until their interests have been redeemed by the Company in full pursuant to the provisions of the operating agreement. The Company contributed $ 20,200,000 to HDM and the group of outside investors contributed $ 19,800,000 for its non-controlling membership interest.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 9 – CONTROLLING AND NONCONTROLLING INTERESTS (CONTINUED)
On March 5, 2013, HDM purchased from Health Diagnostics, LLC (“HD”) and certain of its subsidiaries, a business managing twelve ( 12 ) Stand-Up MRI Centers and two ( 2 ) other scanning centers located in the States of New York and Florida for a total purchase price (including consideration of $ 1.5 million to outside investors) aggregating $ 35.9 million. Concurrently with the acquisition, HDM entered into several consulting and non-competition agreements for a consideration of $ 4.1 million. The acquisition was accounted for using the purchase method in accordance with ASC 805, “Business Combinations”. The Company recognized and measured goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
On January 8, 2015, the Company purchased 20 % of the Class A members ownership interest at a cost of $ 4,971,094 . The Company has a 60.4 % ownership interest in HDM after this transaction. During the year ended June 30, 2025, the Company sold non-controlling interests to a minority shareholder for $ 132,000 . Currently, the Company has a direct ownership interest of 70.63 % and the investors have a 29.37 % ownership interest.
The amount of each class of HDM members’ equity as of June 30, 2025 and 2024 is as follows:
Schedule of HDM members equity
June 30, 2025
June 30, 2024
Class A Members
Class B Member
Class A Members
Class B Member
Opening Members’ Equity
Share of Net Income
Buyout of noncontrolling interests
Distributions
Ending Members’ Equity
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 10 - INCOME TAXES
Income tax expense is computed using an asset and liability method using expected annual effective tax rates. Under this method, deferred income tax assets and liabilities result from temporary differences in the financial reporting basis and the income tax basis of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. When it appears more than likely than not that deferred taxes will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its realizable value. For net deferred tax assets we consider estimates of future taxable income in determining whether or net deferred tax assets are more likely than not to be realized.
The Company has recorded a deferred tax asset of $ 6,349,194 and a deferred tax liability of $ 321,159 as of June 30, 2025, primarily relating to its allowance for credit losses of $4,366,000, non deductible accruals of $ 759,000 and capitalized research and development costs of approximately $ 960,000 . During fiscal 2025, the Company utilized all tax credits pertaining to research and development costs. In addition the Company has state operating loss carryforwards of approximately $ 3,694,000 . The Company has also fully recorded a valuation allowance against all of the state operating losses since the Company doesn’t anticipate being able to utilize them.
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 2021.
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 June 30, 2025, no such changes in ownership have occurred.
On July 4, 2025, the One Big Beautiful Act (“OBBBA) was signed into law, which enacts significant changes to the U.S. tax and related laws. Some of the provisions of the new tax law that affect corporations include but are not limited to expensing of domestic specified research or experimental expenditures, increasing the limit of the deduction to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The Company is currently evaluating the impact that the new tax law will have on its financial condition and results of operations.
The valuation allowance for deferred tax assets decreased during the year ended June 30, 2025, by approximately $ 67,000 . The valuation allowance decreased by approximately $ 171,000 during the year ended June 30, 2024.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 10 - INCOME TAXES (CONTINUED)
Components of the provision for income taxes are as follows:
Schedule of Components of the provision for income taxes
Components Of The Provision For Income Taxes
Years Ended June 30,
Current:
Federal
State
Subtotal
Deferred:
Federal deferred taxes
State deferred taxes
Subtotal
Provision (Benefit) for Income Taxes - Net
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate as reported is as follows:
Schedule of reconciliation of federal statutory income tax rate to company’s effective tax rate
For the Year Ended
June 30, 2025
For the Year Ended
June 30, 2024
Amount
Percent
Amount
Percent
Taxes at federal statutory rate
State and local income taxes
Noncontrolling interests
Valuation Allowance
Permanent items – Meals and Entertainment
Other
Provision for income taxes
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 10 - INCOME TAXES (CONTINUED)
The Company has, for federal income tax purposes, research and development tax credits and investments tax credits carryforwards aggregating $ 1,323,000 as of June 30, 2024. The Company will utilize the full amount for the tax return for the year ended June 30, 2025. These credits can only be applied after all net operating losses have been used.
Significant components of the Company’s deferred tax assets and liabilities at June 30, 2025 and 2024 are as follows:
Schedule of deferred tax assets and liabilities
June 30,
Deferred tax assets:
Allowance for credit losses
Non-deductible accruals
Net operating carryforwards
Tax credits
Capitalized research and development
Right of use assets and lease liabilities
Inventories
Deferred Tax Assets - gross
Valuation allowance
Total deferred tax assets
Property and equipment and depreciation
Intangibles
Total deferred tax liabilities
Net deferred tax asset
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 11 - OTHER CURRENT LIABILITIES
Included in other current liabilities are the following:
Schedule of other current liabilities
June 30,
Accrued salaries, commissions and payroll taxes
Sales tax payable
State income taxes payable
Legal and other professional fees
Property taxes
Utilities
Accounting fees
Software Licenses
Recruiting fees
Self-funded health insurance reserve
Accrued interest and penalty
Other general and administrative expenses
Other Current Liabilities
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Employee Benefit Plans
The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employees who are at least 21 years of age with no minimum service requirements. There were no employer contributions to the Plan for the years ended June 30, 2025 and 2024.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The stockholders of the Company approved the 2000 Employee Stock Purchase Plan (“ESPP”) at the Company’s annual stockholders’ meeting in April 2000. The ESPP provides for eligible employees to acquire common stock of the Company at a discount, not to exceed 15%. This plan has not been put into effect as of June 30, 2025.
Other Matters
The Company is subject to other legal proceedings and claims arising from the ordinary course of its business, including personal injury, customer contract and employment claims besides the claim above. The Company is also subject to Cyber security threats that could lead to future litigation. In the opinion of management, and with consultation with legal counsel, 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. The company continuosly evaluates these actions to ensure they are not material, however, it is possible that management estimate may change in the near term and the effect could have a material impact on the consolidated financial statements.
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 $ 150,000 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 June 30, 2025 and 2024, the Company had approximately $ 260,000 and $ 121,000 , respectively, in reserve for its self-funded health insurance programs. The reserves are included in “Other current liabilities” in the 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 years covered by this report.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended June 30, 2025 and 2024 the Company paid $ 25,611 and $ 76,997 for interest, respectively.
During the years ended June 30, 2025 and 2024 the Company paid $ 4,664,984 and $ 507,139 for income taxes, respectively.
During the years ended June 30, 2025 and June 30, 2024, the Company obtained right-of-use and equipment assets in exchange for lease obligations of $ 2,319,913 and $ 9,471,883 respectively.
During the year ended June 30, 2025, the Company sold a 0.197 % interest in HDM to an employee. The interest was sold for $ 132,000 in a noncash transaction.
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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 14 – RELATED PARTY TRANSACTIONS
On December 31, 2023, the Company entered into an agreement with Magnetic Resonance Management, LLC (“MRM”) for the sale of a MRI scanner. MRM is owned by the CEO and President of the Company. The sales price of the equipment was $ 576,857 which is payable based upon a promissory note dated December 1, 2023. The note bears interest at a rate of 9 % and is payable in full at the maturity of the note in December 2028. The MRI scanner had zero basis, which resulted in a gain of $ 576,857 . The Company has the option but not the obligation to re-take possession of the scanner in lieu of payment upon maturity of the note. During fiscal year ended June 30, 2025, MRM paid $ 22,000 towards the principal balance.
Bensonhurst MRI Limited Partnership (“Bensonhurst”), in which the CEO and President of the Company holds an interest, is party to an agreement with the Company for the service and maintenance of its Upright MRI Scanner for a price of $110,000 per annum. On February 1, 2024, Bensonhurst entered into a second contract with the Company for the service and maintenance of a High-Field MRI Scanner for a price of $70,000 per annum. Also during fiscal year ended June 30, 2025 and 2024, the Company charged Bensonhurst MRI Limited Partnership $344,068 and $190,362, respectively, for reimbursable salaries and marketing expenses .
Integrity Healthcare Management, LLC, which is owned by the CEO and President of the Company owns a 7.1% interest in HMCA’s Class A membership and receives distributions from the Company.
Radian Healthcare Management, LLC (“Radian”), which is owned by the son-in-law of the CEO and President of the Company provided the Company with personnel recruitment of new employees at a fee of approximately $165,000 and $200,000 during the fiscal year ended June 30, 2025 and 2024, respectively .
There are two board of directors that own .04% and .02% interest in HMCA’s Class A membership, respectively. Each board member receives distributions from the Company with regards to these interests.
NOTE 15 - SEGMENT AND RELATED INFORMATION
The Company provides segment data in accordance with the provisions of ASC 280, “Disclosures about Segments of an Enterprise and Related Information” which was adopted during our fiscal ending June 30, 2025.
Our chief operating decision maker (“CODM”), who is also our CEO, evaluates the financial performance of our segments based upon their respective revenue and segmented internal profit and loss statements prepared on a basis not consistent with GAAP. The CODM considers actual to budget and current year actual to prior year actual for revenue and other profit and loss measures on a monthly basis for evaluating performance of each segment and making decisions about allocating capital and other resources to each segment.
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. All intersegment sales are market-based. The Company evaluates performance based on income or loss from operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 15 - SEGMENT AND RELATED INFORMATION (CONTINUED)
Summarized financial information concerning the Company’s reportable segments is shown in the following table:
Summarized Segment Financial Information
Schedule of Segment Financial Information
Manufacturing and Servicing of Medical
Management of Diagnostic Imaging
Fiscal 2025:
Equipment
Centers
Totals
Net revenues from external customers
Cost of Sales
Salaries and wages
Rent expense
Other Cost of sales expenses**
Total Cost of sales
Research and development
Salaries and wages
Other research and development costs**
Total Research and development costs
Selling, general and administrative expenses
Salaries and wages
Rent expense
Other selling, general and administrative expenses**
Total Selling, general and administrative expenses
Total costs and expenses
(Loss) Income from operations
Investment income
Other income
(Loss) Income before provision for income taxes
Provision for income taxes
Net (Loss) income
Intersegment net revenues *
Depreciation and amortization
Total identifiable assets
Capital expenditures
Fiscal 2024:
Net revenues from external customers
Cost of Sales
Salaries and wages
Rent expense
Other Cost of sales expenses**
Total Cost of sales
Research and development
Salaries and wages
Other research and development costs**
Total Research and development costs
Selling, general and administrative expenses
Salaries and wages
Rent expense
Other selling, general and administrative expenses**
Selling, general and administrative expenses
Total costs and expenses
(Loss) Income from operations
Investment income
Other income (expenses)
(Loss) Income before provision for income taxes
Provision for income taxes
Net (Loss) income
Intersegment net revenues *
Depreciation and amortization
Total identifiable assets
Capital expenditures
Amounts eliminated in consolidation
Other segment costs include supplies, professional fees, marketing expenses, repairs and maintenance and other operational costs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 15 - SEGMENT AND RELATED INFORMATION (CONTINUED)
Export Product Sales
The Company’s areas of operations are principally in the United States. The Company had export sales of medical equipment amounting to 1.4 % and 0.2 % of product sales revenues to third parties for the years ended June 30, 2025 and 2024, respectively.
The foreign product sales, as a percentage of product sales to unrelated parties, were made to customers in the following countries:
Schedule of export product sales
For the Years Ended June 30
Canada
Puerto Rico
Foreign Service and Repair Fees
The Company’s areas of service and repair are principally in the United States. The Company had foreign revenues of service and repair of medical equipment amounting to 7.7 % and 7.4 % of consolidated net service and repair fees for the years ended June 30, 2025 and 2024, respectively. Foreign service and repair fees, as a percentage of total service and repair fees, were provided principally to the following countries:
Foreign Service and Repair Fees
Schedule of Foreign Service and Repair Fees
For the Years Ended June 30,
Puerto Rico
Switzerland
Germany
England
United Arab Emirates
Dominican Republic
Canada
Greece
Australia
The Company does not have any material assets outside of the United States.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2025 and 2024
NOTE 16 – SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date, but before the consolidated financial statements are issued.
On July 7, 2025, the board of directors received a non-binding proposal from a group led by Timothy Damadian, the Company’s Chief Executive Officer, and Luciano Bonanni, the Company’s Chief Operating Officer, pursuant to which proposal the group would acquire all of the outstanding common stock and other securities of the Company not currently owned by the members of the group. Members of the group have voting control of the Company’s equity securities and the group advised the Company that it was unwilling to support any alternative transaction. As proposed, the transaction, if completed, would result in the Company no longer being a publicly held company, and its Common Stock would be de-listed from the NASDAQ Stock Market. The Board of Directors has established a Special Committee of independent and disinterested directors to consider the proposal and negotiate on behalf of the Company and its stockholders. The Special Committee has retained its own independent financial and legal advisors to assist it in this process. The group and the Special Committee are engaged in negotiations related to the proposed going private transaction. No definitive agreements or terms have been executed by the parties and there is no assurance that the transaction will be completed. Any definitive agreement and transaction will require approval by the Company’s common stock holders and will require the filing of definitive proxy materials in accordance with the SEC’s proxy rules to obtain such approval. In July 2025, the Company entered into a new 10 year lease for a property in New York where a new MRI is to be built .
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