FONAR CORP

FONAR Corporation operates in two industry segments: the manufacturing and servicing of medical equipment, specifically magnetic resonance imaging (MRI) scanners, and the management of diagnostic imaging centers. The medical equipment segment is conducted directly through FONAR, while the physician management and diagnostic services segment is conducted through its subsidiary Health Management Corporation of America (HMCA). HMCA provides comprehensive non-medical management services, including administrative services, billing and collection, credentialing, contract negotiations, compliance consulting, purchasing, IT services, and staffing to medical providers engaged in diagnostic imaging. As of June 30, 2025, HMCA managed a total of 44 MRI scanners, with 26 located in New York and 18 located in Florida, and six of the facilities in Florida are owned and operated by HMCA subsidiaries.

The physician and diagnostic management services field is highly competitive, with a number of large health systems having acquired medical practices. HMCA faces competition from hospitals and independent or management company-owned imaging centers, with competitive factors including quality and timeliness of test results, relationships with managed care organizations and referring physicians, type and quality of equipment, and facility location. For MRI product sales, FONAR faces competition from companies such as Siemens, General Electric, Philips, Fujifilm, Canon, and United Imaging, most of which have significantly greater financial resources and production capacity. FONAR believes its competitive advantage lies in its Upright MRI scanner, which is unique in its ability to scan patients in weight-bearing positions, and its robust patent portfolio, which as of June 30, 2025, totaled 245 patents issued to FONAR.

FONAR generates revenue through two primary business segments. In the medical equipment segment, revenue is derived from product sales of MRI scanners and major upgrades, recognized under the percentage-of-completion method, and from service and maintenance revenues from its installed base of scanners. In the physician and diagnostic services management segment, HMCA generates revenues from flat monthly management fees under contracts with diagnostic imaging facilities, and from patient fees net of contractual allowances and discounts at the six Florida facilities it owns and operates directly. Revenues from HMCA have been the principal reason for the Company's profitability.

In the medical equipment segment, FONAR's primary product is the Upright MRI scanner, a whole-body MRI that can scan patients while sitting, standing, bending, or lying down, operating at a mid-field strength of 0.6 Tesla. Service and maintenance revenues from the external installed base were approximately $8.4 million in fiscal 2025 and $7.6 million in fiscal 2024. The Company also generates income from upgrades and has engaged with AIRS Medical USA, Inc. to distribute their SwiftMR product to its installed base. In 2024, FONAR formed a new subsidiary, Opus Diagnostic Management, LLC, focused on providing service for MRI scanners sold by other manufacturers. Research and development expenditures were $1,576,086 in fiscal 2025, none of which were capitalized, compared to $1,735,949 in fiscal 2024, with activities focused on software improvements to the user interface and development of new clinical protocols.

In the physician and diagnostic services management segment, HMCA managed a total of 44 MRI scanners as of June 30, 2025, with 26 in New York and 18 in Florida. For fiscal 2025, the revenues HMCA recognized from the MRI facilities increased to $95.4 million from $94.6 million in fiscal 2024. The aggregate amount of active management fees was $5,160,735 per month in fiscal 2025, compared to $4,960,733 per month in fiscal 2024. Patient fees net of contractual allowances and discounts from the six Florida subsidiaries were $33,179,446 in fiscal 2025 as compared to $33,815,796 in fiscal 2024. During fiscal 2025, two additional high field magnets were installed at existing facilities in Naples, FL and Melville, NY.

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, to acquire all outstanding common stock and other securities not currently owned by the group. The Board of Directors established a Special Committee of independent and disinterested directors to consider the proposal. During fiscal 2025, the Company repurchased 114,588 shares for $1.8 million under its stock repurchase plan, and since the adoption of the plan, the Company has repurchased 373,942 shares for $6.1 million. The Company also sold non-controlling interests to a minority shareholder for $132,000 during the fiscal year.

For fiscal 2025, FONAR recognized net income of $10.7 million on revenues of $104.4 million, compared to net income of $14.1 million on revenues of $102.9 million for fiscal 2024, representing an increase in revenues of 1.4%. Total costs and expenses increased by 7.4%, and consolidated operating income decreased by 29.7% to $11.6 million for fiscal 2025 from $16.5 million for fiscal 2024. Selling, general and administrative expenses increased by 10.7% to $29.7 million in fiscal 2025 from $26.9 million in fiscal 2024, largely due to a $2,300,000 increase in reserves for credit losses for a single payer, American Transit Insurance Company. Cash and cash equivalents remained constant at $56.3 million at June 30, 2025 and June 30, 2024.

HMCA's growth strategy focuses on upgrading and expanding existing facilities it manages and expanding the number of facilities it either owns or manages for its clients, including new sites. In connection with improving performance, the Company has added high field MRI scanners, extremity scanners, and x-ray machines to the Upright MRI scanners at certain sites. During fiscal year 2026, the Company expects to complete installation of an additional high field magnet in Lynbrook, NY, to supplement the existing FONAR Upright MRI scanning systems at that facility along with a new location in Nassau County, NY. The Company also intends to open an additional location in New York, hoping to have that center operational before the end of the fiscal year.

In the medical equipment segment, FONAR is investing in developing the capacity to service MRI equipment manufactured by third manufacturers through its Opus Diagnostic Services, LLC subsidiary, and making additional investments into sales and marketing of image enhancement software SwiftMR pursuant to its distribution agreement with AIRS Medical USA, Inc. The Company hopes these ventures will develop into a viable source of new revenue in the future. FONAR also anticipates that its installed base of scanners will generate income from upgrades in future fiscal years, and hopes to maintain service revenues at present levels based on the demonstrated longevity of the Upright MRI scanner and continued customer satisfaction.

Cost of revenues as a percentage of related revenues for the physician and diagnostic services management segment increased from 56.0% for the year ended June 30, 2024 to 58.3% for the year ended June 30, 2025. The Company has experienced increased expenses in the form of staffing costs, equipment repair costs, and helium replacement costs. Inflation has drastically increased costs for both materials and labor, making it more difficult to achieve organic growth and extending the time that a new center takes to achieve profitability. The Company maintains an aggressive program of cost containment, including consolidating office space and reducing workforce size, compensation, and benefits, despite significant increases in the cost of labor and materials as the result of inflation.

The Company has committed to making material capital expenditures in the 2026 fiscal year. Capital expenditures for the installation of an additional high field scanner in Lynbrook, New York in the first quarter of fiscal 2026 will approximate $1.5 million for the purchase of a new scanner. The expected cost of opening an additional location in New York will approximate $400,000 for the purchase of a new scanner and related buildout costs to be approximately $500,000. 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.

Research and development expenditures were $1,576,086 in fiscal 2025, none of which were capitalized, compared to $1,735,949 in fiscal 2024. Capital expenditures for fiscal 2025 approximated $3.8 million, and capitalized patent costs were approximately $25,000. During fiscal 2025, the Company repurchased 114,588 shares for $1.8 million under the stock repurchase plan, which has a remaining authorization of $2,928,000 as of June 30, 2025. The Company currently has a policy of retaining earnings to finance the development and expansion of its business and expects to continue this policy for the foreseeable future.

The Company faces several headwinds, including reduced reimbursement rates from Medicare, other government programs, and private insurance companies, which have a negative effect on sales of MRI scanners. Inflation has drastically increased costs for both materials and labor, and the Company expects recent changes to Florida insurance laws to result in fewer patients being reimbursed through no-fault auto insurance, leading to lower reimbursement rates and a higher rate of uncollectible billings. The Company also expects that the passage of New York Public Health Law Article 49A will have a significant negative impact on its collection rates.

The Company has identified a material weakness in its internal controls over information technology systems during the fiscal year ending June 30, 2025, specifically in logical access within its systems supporting accounting and reporting processes. While management has enacted a plan for remediation, there is no guarantee these remediation efforts will be adequate. The cost of maintaining and improving security technologies to protect against cybersecurity threats has increased substantially in the most recent fiscal year and will continue to increase in the future.

The Company faces significant risk from reduced reimbursement rates, as most revenues are derived from the scanning center business, and clients are experiencing lower rates from Medicare, other government programs, and private insurance companies. Inflation has drastically increased costs for both materials and labor, making it more difficult to achieve organic growth and threatening profitability. A material risk exists from the potential insolvency of American Transit Insurance Company (ATIC), a New York based motor vehicle insurer that posted over $750 million in net losses during fiscal 2025, for which the Company recorded an additional reserve of approximately $2,300,000. Changes in Florida insurance law, including the 2023 Tort Reform Act, have negatively impacted Florida diagnostic imaging facilities with more unpaid bills, higher administrative costs, and lower reimbursement rates, and an annual proposal to repeal Florida's no-fault insurance law could result in significant delays in payment. The Company has identified a material weakness in internal controls over information technology systems related to user access management, which could lead to a material misstatement of financial statements if not remediated.

Management's message emphasizes the Company's tradition as the originator of MRI and its commitment to maintaining its position as the leading innovator of the industry through investing in research and development, with an investment of $1,576,086 in fiscal 2025. Management highlights that revenues from HMCA have been the principal reason for profitability, and that efforts to expand and improve the operation of the physician and diagnostic services management segment are directly responsible for the profitability of the Company as a whole. The strategic priorities for the period ahead include continuing to take steps to improve HMCA revenues through marketing efforts focusing on the unique capability of the Upright MRI scanners, increasing the number of health insurance plans in which clients participate, and investing in technology to reduce scan times and improve operational efficiency in the centers managed.