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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Jun. 30, 2024
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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. 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, income taxes and related tax asset valuation allowances, contingencies, 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 procured in the normal course of business 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 $2,948,000 and $2,801,000 for the years ended June 30, 2024 and 2023 respectively. The estimated useful lives in years are generally as follows:
Schedule of estimated useful life in years for property and equipment
Diagnostic equipment | 5–13 |
Research, development and demonstration equipment | 3-7 |
Machinery and equipment | 2-7 |
Furniture and fixtures | 3-9 |
Leasehold improvements | 5–10 |
Building | 28 |
Long-Lived Assets The Company periodically assesses the recoverability of long-lived assets, including property and equipment and intangibles, other than goodwill, when events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable. If indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset group in question to its carrying amount. An impairment loss is recognized if it is determined that the long-lived asset group is not recoverable and is calculated by comparing the discounted future cash flows with the carrying value of the related asset group. In performing this analysis, management considers such factors as current results, trends, and future prospects, in addition to other economic factors. 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. 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. 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 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, 2023, the Company had unearned revenue on service contracts of $3,832,184 of which all was recognized as revenue in the fiscal year ending June 30, 2024. 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, 2024, 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 two unrelated radiologists. The contractual fees for services rendered to the PCs consists of fixed monthly fees per diagnostic imaging facility ranging from approximately $84,000 to $447,000. 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 Financial Accounting Standards Board (“FASB”) and codified in the ASC as topic 606 (“ASC 606”). The revenue recognition standard in ASC 606 outlines a single comprehensive model for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s revenue recognition policies and significant judgments employed in the determination of revenue. The Company’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, 2024 and 2023 are summarized in the following table.
Schedule of patient fee revenue - net |  |  |  |
|  | For the Years Ended June 30
|  | 2024 |  | 2023
Commercial Insurance/ Managed Care |  | $ | 4,952,712 |  |  | $ | 4,124,646 |
Medicare/Medicaid |  |  | 1,138,176 |  |  |  | 1,063,846 |
Workers’ Compensation/Personal Injury |  |  | 20,673,483 |  |  |  | 18,670,019 |
Other |  |  | 7,051,425 |  |  |  | 5,935,482 |
Net Patient Fee Revenue |  | $ | 33,815,796 |  |  | $ | 29,793,993 |
Medical Receivable and Management and Other Fees Receivable Medical 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”) to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be paid. 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 payers 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. 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”) to address the risk that a portion of the contractually obligated management fees receivable from the PCs may not be paid. 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 payers 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 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. The Company also incorporates qualitative factors, such as changes in the nature and volume of receivables, regulatory changes, and other relevant factors. Specifically, insurance carriers covering automobile no-fault and workers compensation claims incur longer payment cycles and rigorous informational requirements and certain other disallowed claims. Approximately 67% of the PCs’ 2024 and 2023 net revenues were derived from no-fault and personal injury protection 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 Company also incorporates qualitative factors, such as changes in the nature and volume of the receivables, regulatory changes, and other relevant factors. The provision for credit losses for the year ended June 30, 2024 was $1,882,061. This can be attributable to an increase in scan volume at all the PC’s and due to the nature of the payor classes, where there is a longer expected payment term. Additionally, newly proposed legislation around credit reporting on individual medical debts increasing the likelihood of non-payment of individual patient accounts. The management fee receivable for unrelated and related parties as of July 1, 2022 was $33,419,219 and $8,602,561, respectively. 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, 2022 was $4,335,956. 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 $731,000 and $570,000 and for the years ended June 30, 2024 and 2023, 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. In accordance with 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, 2024 and June 30, 2023 were $20,444 and $31,122, 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, 2024 and 2023. 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, 2024 and 2023, diluted EPS for common shareholders includes 127,504 shares upon conversion of Class C Common.
Schedule of earnings per share |  |  |  |  |  |  |  |  |  |  |  |
|  | June 30, 2024
Basic |  | Total |  | Common Stock |  | Class C Common Stock
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common stockholders |  | $ | 10,567,396 |  |  | $ | 9,908,920 |  |  | $ | 167,700 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding |  |  | 6,350,862 |  |  |  | 6,350,862 |  |  |  | 382,513 |
Basic income per common share |  | $ | 1.66 |  |  | $ | 1.56 |  |  | $ | 0.44 |
Diluted |  |  |  |  |  |  |  |  |  |  |  |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding |  |  |  |  |  |  | 6,350,862 |  |  |  | 382,513 |
Class C Common Stock |  |  |  |  |  |  | 127,504 |  |  |  | — |
Total Denominator for diluted earnings per share |  |  |  |  |  |  | 6,478,366 |  |  |  | 382,513 |
Diluted income per common share |  |  |  |  |  | $ | 1.53 |  |  | $ | 0.44 |
|  | June 30, 2023
Basic |  | Total |  | Common Stock |  | Class C Common Stock
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income available to common stockholders |  | $ | 9,375,776 |  |  | $ | 8,801,974 |  |  | $ | 146,136 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding |  |  | 6,539,376 |  |  |  | 6,539,376 |  |  |  | 382,513 |
Basic income per common share |  | $ | 1.43 |  |  | $ | 1.35 |  |  | $ | 0.38 |
Diluted |  |  |  |  |  |  |  |  |  |  |  |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding |  |  |  |  |  |  | 6,539,376 |  |  |  | 382,513 |
Class C Common Stock |  |  |  |  |  |  | 127,504 |  |  |  | — |
Total Denominator for diluted earnings per share |  |  |  |  |  |  | 6,666,880 |  |  |  | 382,513 |
Diluted income per common share |  |  |  |  |  | $ | 1.32 |  |  | $ | 0.38 |
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, 2024, the Company had cash on deposit of approximately $53,883,000 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, 2024 and 2023. Net management fee receivables from the related party medical practices accounted for approximately 12% and 13% of the consolidated accounts receivable as of June 30, 2024 and 2023, 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. 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. Notes receivable: The carrying amount approximates fair value because the discounted present value of the cash flow generated by the parties approximates the carrying value of the amounts due to the Company. 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. Recent 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 is currently evaluating the effect that the adoption of ASU 2023-09 will have on our disclosures. 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 is expected to adopt the new disclosures as required and are currently evaluating the impact on the related disclosures. Recently Adopted Accounting Standards The Company adopted ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326) “Measurement of Credit Losses on Financial Instruments”, on July 1, 2023, as amended which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. The Company used a modified retrospective approach, which required a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting in which the standard was effective. The adoption did not have a material effect on the Company’s consolidated financial statements. FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of June 30, 2024 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 2024 or 2023, 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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