PROSPECTUS Filing Pursuant to Rule 424(b)(1)
Registration Statement No. 333-116908
3,500,000 Shares
FONAR CORPORATION
Common Stock
This prospectus will allow us to offer and sell to the public up to
3,500,000 shares of our common stock from time to time in one or more issuances.
We may sell the shares in open market transactions from time to time at
market prices through dealers, brokers, or agents, to underwriters or dealers,
or directly to investors. See "PLAN OF DISTRIBUTION" at page 12 of this
prospectus for a more detailed discussion of the manner in which the shares may
be sold.
Our common stock is traded on the Nasdaq Small Cap Market under the symbol
"FONR." On July 14, 2004, the last reported sales price for our common stock was
$1.19 per share.
This prospectus provides you with a general description of the shares that
we may offer. Each time we sell shares, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information" before you make your investment decision.
Investing in our common stock involves a high degree of risk. You should
consider carefully the risk factors described in this prospectus before making a
decision to purchase our stock. See "RISK FACTORS" at page 5 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is July 16, 2004.
You may rely only on the information contained in this prospectus and in
any prospectus supplement, including the information incorporated by reference.
We have not authorized anyone to provide information or to make representations
not contained in this prospectus. This prospectus is neither an offer to sell
nor a solicitation of an offer to buy any securities other than those registered
by this prospectus, nor is it an offer to sell or a solicitation of an offer to
buy securities where an offer or solicitation would be unlawful. Neither the
delivery of this prospectus, nor any sale made under this prospectus, means that
the information contained in this prospectus is correct as of any time after the
date of this prospectus.
Page 1
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS....................................................... 2
ABOUT FONAR.................................................................. 2
RISK FACTORS................................................................. 5
FORWARD LOOKING STATEMENTS...................................................11
USE OF PROCEEDS..............................................................11
PLAN OF DISTRIBUTION.........................................................12
LEGAL MATTERS................................................................14
EXPERTS......................................................................15
INDEMNIFICATION..............................................................15
WHERE YOU CAN FIND MORE INFORMATION..........................................15
INCORPORATION OF INFORMATION WE FILE WITH THE SEC............................15
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process we may issue and sell from time to time in one or more
offerings up to 3,500,000 shares of our common stock in the aggregate.
Each time we sell shares of our common stock, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with the additional information described below
under the heading "Where You Can Find More Information."
The registration statement that contains this prospectus, including the
exhibits to the registration statement and the information incorporated by
reference, contains additional information about the common stock offered under
this prospectus. The registration statement can be read at the Securities and
Exchange Commission's web site or at the Securities and Exchange Commission
offices mentioned below under the heading "Where You Can Find More Information."
ABOUT FONAR CORPORATION
At Fonar we design, manufacture and market magnetic resonance imaging (MRI)
scanners. MRI scanners use magnetic fields to generate images of organs, bones
and tissue inside the human body. The MRI scanner uses a magnetic field which
causes the hydrogen atoms in tissue to align. When the magnetic force is
withdrawn, the atoms fall out of alignment emitting radio signals as they do.
The speed at which the atoms fall out of alignment, or "relaxation time" and
radio signals vary depending on the type of tissue and whether any pathology is
present. The radio signals provide the data from which the scanner's computers
generate an image of the body part being scanned.
Page 2
Fonar offers the following MRI scanners: the Stand-Up(TM) MRI and
Fonar-360(TM). For the 2003 fiscal year, the revenues recognized by our medical
equipment segment (including product sales, service and certain license fees and
royalties product) were $30 million and for the first nine months of fiscal 2004
the revenues recognized by our medical equipment segment were $33 million.
The Stand-Up(TM) MRI allows patients to be scanned while standing, bending,
sitting or lying down. This means that an abnormality or injury, such as a
slipped disc, will be able to be scanned under full weight-bearing conditions,
or, more often than not, in the position in which the patient experiences pain.
An elevator built into the floor brings the patient to the desired height in the
scanner. An adjustable bed allows the patients to stand, sit or lie on their
backs, sides or stomachs, at an intermediate angle or in any of the conventional
recumbent positions. In the future, the Stand-Up(TM) may also be useful for MRI
directed surgical procedures.
The Fonar 360 is an enlarged room sized magnet in which the floor, ceiling
and walls of the room are part of the magnet frame. Consequently, this scanner
allows 360 degree access to the patient. The Fonar 360 is presently marketed as
a diagnostic scanner and is sometimes referred to as the Open Sky MRI.
In the future, we may also further develop the Fonar 360 to function as an
operating room. We sometimes refer to this contemplated version of the Fonar 360
as the OR-360.
In addition to manufacturing MRI scanning systems, we formed a subsidiary
in 1997, Health Management Corporation of America, which we sometimes call HMCA.
HMCA is engaged in the business of managing MRI imaging facilities and physical
rehabilitation and therapy practices. HMCA provides and supervises the
non-medical personnel for the clients at their sites. At HMCA we also provide
our clients centralized billing, collection, marketing, advertising, accounting
and financial services. We also provide office equipment and furnishings,
consumable supplies and in some cases the office space used by our clients. All
of HMCA's client professional corporations are owned by Fonar's founder,
President and Chairman of the Board, Dr. Raymond V. Damadian. Negotiations are
in progress, however, for the physical therapy and rehabilitation practices to
be transferred to other physicians. As presently contemplated, the new
physicians would substitute their own professional corporations for Dr.
Damadian's professional corporations rather than for Dr. Damadian to sell the
stock or assets of his professional corporations to the new physicians. HMCA or
its subsidiary Dynamic Healthcare Management, Inc. would continue to manage the
facilities. Professional corporations owned by Dr. Damadian would continue to
own the MRI facilities.
HMCA currently manages 10 MRI facilities and six physical therapy and
rehabilitation practices. In April 2003, HMCA sold its subsidiary, A&A Services,
Inc. which managed primary care medical practices. For the 2003 fiscal year, the
revenues HMCA recognized from the MRI facilities were $13.5 million and the
revenues recognized from the physical therapy and rehabilitation practices were
$9.4 million. The revenues recognized from the management of the primary care
medical practices were $1.2 million through April 9, 2003, when we sold this
part of our business. These revenues and the results of the operation of this
part of our business are part of discontinued operations and are not included in
our discussion of the results of our consolidated or HMCA's operations for
current or prior periods. Since this sale of A&A Services, Inc., none of HMCA's
clients are parties to capitated or other risk sharing plans with HMO's, managed
care companies or other insurers. For the first nine months of fiscal 2004, the
revenues recognized by HMCA's clients from the MRI facilities were $10.9 million
and the revenues recognized from the physical therapy and rehabilitation
practices were $11.1 million.
Page 3
Approximately 65.2% of our consolidated revenues for the first nine months
of fiscal 2004, 56.6% of our consolidated revenues for the fiscal year ended
June 30, 2003 and 37.4% of our consolidated revenues for the fiscal year ended
June 30, 2002 were from our medical equipment segment. Approximately 34.8% of
our consolidated revenues for the first nine months of fiscal 2004, 43.4% of our
consolidated revenues for the fiscal year ended June 30, 2002 and 62.6% of our
consolidated revenues for the fiscal year ended June 30, 2002 were from HMCA's
management services.
This change is principally due to the increased sales revenues from our
Stand-Up(TM) MRI scanners, which increased from $11.1 million in fiscal 2002 to
$24.3 million in fiscal 2003 and to $28.6 million for the first nine months of
fiscal 2004. Revenues attributable to HMCA's continuing operations declined,
however, by 15.1% to $22.9 million in fiscal 2003 from $27.0 million in fiscal
2002. For the first nine months of fiscal 2004, however, HMCA revenues were
$17.6 million as compared to $17.3 million for the first nine months of fiscal
2003. The earlier decrease in revenues reflected a decline in MRI scan volume
prior to upgrading older scanners and the closing of certain MRI facilities and
other facilities we managed. The number of facilities with new scanners managed
by HMCA, however, has been increasing. Presently, five of the ten MRI facilities
managed by HMCA are equipped with Stand-Up(TM) MRI scanners.
Approximately 44% of our consolidated revenues and 100% of HMCA's revenues
for the first nine months of fiscal 2004, 58% of our consolidated revenues and
99% of HMCA's revenues for the fiscal year ended June 30, 2003 and 78% of our
consolidated revenues and 99% of HMCA's revenues for the fiscal year ended June
30, 2002 were derived from professional corporations and other entities
controlled by Dr. Raymond V. Damadian or members of his family. The consolidated
revenues include revenues from sales and service by Fonar to such entities: $4.4
million for the first nine months of fiscal 2004, $7.7 million for fiscal 2003
and $6.5 million for fiscal 2002. Confirming our expectation of increased demand
for our MRI scanners, product sales revenues in the medical equipment segment to
unrelated parties increased by 229% in fiscal 2003 to $17.7 million from $5.4
million in fiscal 2002. For the first nine months of fiscal 2004 product sales
revenues in the medical equipment segment has already reached $24.7 million,
surpassing the total of $17.7 million for the full fiscal 2003 year. This
increase in product sales to unrelated parties is the principal reason for the
reduction of the percentage of our revenues derived from sales to related
parties.
Our address is 110 Marcus Drive, Melville, New York 11747, our telephone
number there is (631) 694-2929 and our Internet address is http://www.fonar.com.
HMCA's address is at 6 Corporate Center Drive, Melville, New York 11747,
its telephone number there is (631) 694-2816 and its internet address is
www.hmca.com.
Page 4
RISK FACTORS
An investment in our stock is high risk. You should carefully consider the risk
factors in this prospectus before deciding whether to purchase the shares
offered. See "RISK FACTORS."
RISK FACTORS
An investment in Fonar is highly speculative and subject to a high degree
of risk. Therefore, you should carefully consider the risks discussed below and
other information contained in this prospectus before deciding to invest in
shares of our common stock.
1. We have and continue to experience significant losses.
For the fiscal years ended June 30, 2003 and June 30, 2002, we experienced
net losses of $15.0 million and $22.9 million respectively and losses from
operations of $15.1 million and $14.4 million, respectively. Total net losses
from continuing operations for fiscal 2003 and fiscal 2002 were $15.2 million
and $17.0 million respectively. In fiscal 2003, we recognized a total net gain
of $194,000 from discontinued operations as compared to a loss of $5.9 million
in fiscal 2002. The gain in fiscal 2003 was attributable to a gain of $510,000
realized from the sale of the discontinued operations. For the first nine months
of fiscal 2004, we experienced a net loss of $8.0 million and a net loss from
operations of $7.6 million as compared to a net loss of $12.0 million and a loss
from operations of $11.1 million for the first nine months of fiscal 2003.
We have been able to fund our losses to date from the $10,641,000 in
funding received from The Tail Wind Fund Ltd. between May, 2001 and April 2004
(which includes proceeds from the exercise of warrants) and the $128.7 million
judgment, net $77.2 million after attorney's fees, received from General
Electric Company in 1997 for patent infringement and the settlement proceeds
from other patent litigation settlements with other competitors. The terms of
these settlement agreements are required to be kept confidential. More recently,
we have improved our liquidity and cash position not only through revenues
generated by the sale of Stand-Up(TM) MRI scanners but by the issuance of shares
of our common stock in connection with the payment of vendors and suppliers of
goods and services. The greater number of these shares were used in lieu of cash
to pay the costs of manufacturing our MRI scanners.
As of June 30, 2003, our consolidated balance sheet reflected $9.3 million
in cash and cash equivalents and $5.8 million in marketable securities out of
total current assets of $35.3 million as compared to $7.5 million in cash or
cash equivalents and $5.6 million in marketable securities out of total current
assets of $45.1 million as of June 30, 2002. As of March 31, 2004, our
consolidated balance sheet showed $7.0 million in cash and cash equivalents and
$11.3 million in marketable securities out of total current assets of $52.3
million, reflecting the investment of more cash in marketable securities. We
believe that we will be able to reverse our operating losses by continuing the
marketing of our new MRI scanners, particularly our Stand-Up(TM) MRI scanners.
Page 5
HMCA operating losses from continuing operations increased to $3.8 million
in fiscal 2003 from $1.1 million in fiscal 2002. Contributing to the operating
loss of HMCA, was an impairment loss of $795,237 on a management agreement with
an unprofitable physical rehabilitation and therapy facility which ceased
operations in the beginning of the second quarter of fiscal 2003. Since that
time all HMCA managed facilities have been owned by Dr. Damadian. We are
optimistic that we can restore HMCA to profitability principally by upgrading
scanners at MRI facilities we manage to Stand-Up(TM) MRI scanners. Five of our
10 managed MRI facilities now have the Stand-Up(TM) MRI. For the nine months
ended March 31, 2004, HMCA's operating results had improved to an operating loss
of $429,000 as compared to an operating loss of $2.4 million for the first nine
months ended March 31, 2003.
There can be no assurance, however, that we can reverse our operating
losses.
2. Fonar is dependant on the success of its new products to become profitable.
Our ability to generate future operating profits will depend on our ability
to market and sell our MRI products. The Stand-Up(TM) MRI and Fonar 360 scanners
have been introduced into the market. Although we are optimistic that these
scanners' features will make them competitive, and we perceive that the
Stand-Up(TM) MRI is successfully penetrating the market, there can be no
assurance as to the degree, timing or continuation of market acceptance of these
products. We have received orders, however, for 8 Stand-Up(TM) MRI scanners in
fiscal 2001, 16 Stand-Up(TM) MRI scanners in fiscal 2002, 23 Stand-Up(TM) MRI
scanners in fiscal 2003 and as of June 16, 2004, 40 Stand-Up(TM) MRI scanners in
fiscal 2004. The product we are promoting most vigorously is the Stand-Up(TM)
MRI. We believe the Stand-Up(TM) MRI is the most promising because it enables
scans to be performed on patients in weight bearing positions, such as sitting,
standing or lying at an intermediate angle or in any of the conventional
recumbent positions. The following chart shows the revenues attributable to each
model during fiscal year 2003 and fiscal year 2002 and the first nine months of
fiscal 2004. Please note that we recognize the revenue on scanner sales on a
percentage of completion basis. This means we book revenue not as cash is
received or sales are made, but as the scanner is built. Consequently, the
revenues for a fiscal period do not necessarily relate to the orders placed in
that period.
Revenues Recognized
-------------------
Model Fiscal Year Fiscal Year Fiscal Year
2004 (9 months) 2003 2002
--------------- ----------- ------------
Stand-Up $28,605,240 $24,298,460 $ 11,089,675
Fonar 360 0 0 0
Beta (used) 0 $ 100,000 $ 361,000
3. We must compete in a highly competitive market against competitors with
greater financial resources than we have.
Page 6
The medical equipment industry is highly competitive and characterized by
rapidly changing technology and extensive research and development. The market
demand for a continuing supply of new and improved products requires that we be
engaged continuously in research and development. New products also require
continuous retooling or at least modifications to our manufacturing facilities,
and our sales and marketing force must continuously adjust to new products and
product features. This is highly expensive and companies with substantially
greater financial resources than we have engage in the marketing of magnetic
resonance imaging scanners which compete with the Company's scanners.
Competitors include large, multinational companies or their affiliates such as
General Electric Company, Siemens A.G., Philips N.V., Toshiba Corporation and
Hitachi Corporation. There can be no assurance that Fonar's products will be
able to successfully compete with products of its competitors.
4. The success of some of the businesses purchased by HMCA depends on the
continued employment of the former owners of those businesses.
The businesses acquired by HMCA are essentially service organizations whose
continued success depends on retaining and developing existing business
relationships. Although these acquisitions have been essentially integrated with
the business of HMCA, or in the case of the management of primary care medical
practices, discontinued, some of these relationships still depend on the
personal efforts of key persons in the acquired company. HMCA has retained
certain of these key people through employment agreements which include both
noncompetition covenants and financial incentives. Nevertheless, there can be no
assurance that these key people will remain as employees or produce results
sufficient to make the acquired companies profitable.
5. HMCA's profitability depends on its ability to successfully perform billing
and collection services for its clients.
HMCA performs billing and collection services for the medical practices and
MRI facilities it manages. The viability of HMCA's clients and their ability to
remit management fees to HMCA depends on HMCA's ability to collect the clients'
receivables. Collectibility of these receivables can be adversely affected by
the longer payment cycles and rigorous informational requirements of some
insurance companies or other third party payors. Proper authorizations,
referrals and confirmation of coverage for patients, as well as issues of
medical necessity, need to be addressed prior to the rendering of service to
assure prompt payment of claims. HMCA believes it is properly addressing billing
and collection requirements and issues for its clients and that its collection
rates are good. Nevertheless, the regulations and requirements applicable to
medical billing and collections could change in the future and result in reduced
or delayed collections. Approximately 99% of the receivables billed and
collected by HMCA in fiscal 2003 were from professional corporations owned by
Dr. Raymond V. Damadian and 100% of the receivables billed and collected by HMCA
for the nine months ended March 31, 2004 were from professional corporations
owned by Dr. Damadian.
Page 7
6. The profitability of HMCA could be adversely affected if medical insurance
reimbursement rates change.
HMCA receives substantially all of its revenue from physician practices and
providers of MRI services. Consequently, HMCA would be indirectly affected by
changes in medical insurance reimbursement policies, HMO policies, referral
patterns, no-fault and workers compensation reimbursement levels and other
factors affecting the profitability of a medical practice or MRI facility. The
types of medical providers served by HMCA are MRI facilities and physical
therapy and rehabilitation practices. There are currently 10 MRI facilities
served by HMCA located in New York, Florida and Georgia. The physical therapy
and rehabilitation practices consist of six offices located in New York.
Approximately 57.6% of HMCA's clients' revenues in fiscal 2003 and approximately
43.0% of HMCA's clients' revenues in fiscal 2002 were generated from no-fault
and personal injury protection claims. Approximately 10.8% of HMCA's clients'
revenues were from workers' compensation claims in fiscal 2003 as compared to
9.3% in fiscal 2002. For the first nine months of fiscal 2004 approximately
58.2% of HMCA's clients' revenues were generated from no-fault and personal
injury protection claims and 6.5% were generated from workers' compensation
claims. In addition, in fiscal 2003, approximately 12.0% of the revenues of
HMCA's clients were attributable to Medicare and 0.5% were attributable to
Medicaid. In fiscal 2002, approximately 8.8% of the revenues of HMCA's clients
were attributable to Medicare and 0.2% were attributable to Medicaid. For the
first nine months of fiscal 2004, approximately 8.3% of the revenues of HMCA's
clients were attributable to Medicare and 0.73% were attributable to Medicaid.
Although we do not know of any pending adverse development affecting these types
of programs, future changes in the reimbursement levels for MRI, workers
compensation, no fault reimbursement or Medicare, or changes in utilization
policies for MRI or physical rehabilitation therapy could adversely affect the
ability of HMCA's clients to pay HMCA's fees. In addition, HMCA depends on the
ability of its clients to attract and retain physicians and other professional
staff.
7. The amortization of the management agreements on our consolidated balance
sheet will reduce future profits.
HMCA acquired businesses in 1997 and 1998 which were essentially service
businesses for purchase prices based on earnings multiples rather than net
tangible assets. As the fair value of the tangible assets was small relative to
the purchase price, the consolidated balance sheet of Fonar and its subsidiaries
has reflected an allocation of the purchase price in excess of the fair value of
the tangible assets exclusively to management agreements, an intangible asset.
For fiscal 2003 and fiscal 2002, amortization of management agreements, which is
over a period of twenty (20) years, reduced net profits by $696,285 for both
fiscal years. For fiscal 2004, the amortization was reduced to approximately
$634,000 annually because of the impairment loss of $795,237 on the management
agreement for an unprofitable site which was closed during the second quarter of
fiscal 2003. This amortization is a non-cash expense.
8. Professional liability claims against HMCA or its clients may exceed
insurance coverage levels.
Page 8
Although HMCA does not provide medical services, it is possible that a
patient suing one of HMCA's client medical practices or MRI facilities would
also sue HMCA. Except for two of the 10 current MRI facilities, neither HMCA nor
its clients carry professional liability insurance. Physicians working for
HMCA's clients, however, are required to maintain professional liability
insurance in the minimum amount of $1,000,000/$3,000,000. Such insurance would
not cover HMCA or a client professional corporation, which was not insured,
however, in the event a claim were made which was not covered by the physician's
insurance. Claims in excess of insurance coverage might also have to be
satisfied by HMCA or its uninsured clients if they were named as defendants.
9. We are dependent upon the services of Dr. Damadian.
Our success is greatly dependent upon the continued participation of Dr.
Raymond V. Damadian, Fonar's founder, Chairman of the Board and President. Dr.
Damadian has acted as our CEO since 1978 and will continue to do so for the
foreseeable future. In addition to providing general supervision and direction,
he provides active direction, supervision and management of our sales, marketing
and research and development efforts. In connection with the physician and
diagnostic management services business conducted by HMCA, Dr. Damadian now owns
all of the professional corporations which are HMCA clients. With the exception
of one professional corporation which provided management fees to HMCA of
approximately $25,000 in the aggregate in fiscal 2003, all of HMCA's revenues in
fiscal 2003 were provided by professional corporations which are owned by Dr.
Damadian. Loss of the services of Dr. Damadian would have a material adverse
effect on our business. We do not have an employment or noncompetition agreement
with Dr. Damadian. We do not currently carry "key man" life insurance on Dr.
Damadian.
10. Dr. Raymond V. Damadian has voting control of Fonar; the management cannot
be changed or the Company sold without his agreement.
Dr. Raymond V. Damadian, the President, Chairman of the Board and principal
stockholder of Fonar is and will continue to be in control of Fonar and in a
position to elect all of the directors of Fonar. As of June 15, 2004, there were
outstanding 98,199,765 shares of common stock, having one vote per share, 4,153
shares of Class B common stock, having ten votes per share and 9,562,824 shares
of Class C common stock, having 25 votes per share. Of these totals Dr. Damadian
owns 2,488,274 shares of common stock and 9,561,174 shares of Class C common
stock, giving him approximately 72% of the voting power of Fonar's voting stock.
This means that the holders of the common stock will not be able to control
decisions concerning any merger or sale of Fonar, the election of directors or
the determination of business and management policy.
11. The provisions of our warrants provide for reductions in the exercise price
if we issue common stock at prices below the warrant exercise prices.
In connection with the issuance of 4% convertible debentures issued to The
Tail Wind Fund, Ltd. in May 2001, we issued purchase warrants and callable
warrants. As of July 16, 2004 there were outstanding purchase warrants to
purchase an aggregate of 1,151,625 shares of our common stock at an exercise
price of $0.79 per share, subject to adjustment. All of the callable warrants
have been exercised.
Page 9
Of the purchase warrants, 1,000,000 are held by The Tail Wind Fund, Ltd.
and 454,875 were issued to the placement agent and its designees. The placement
agent and one of its designees, exercised their warrants to purchase 303,250
shares at an exercise price of $0.79 per share. The remainder of the purchase
warrants have not been exercised and are outstanding. The exercise period for
the purchase warrants extends to May 24, 2009.
Originally the number of purchase warrants issued were 659,501 to The Tail
Wind Fund, Ltd. and 300,000 to the placement agent and its designees. The
original exercise period for the purchase warrants was through to May 24, 2006.
Because of the terms of the antidilution provisions of the purchase
warrants originally issued, the exercise price has been reduced and the number
of shares covered by the warrants increased.
The antidilution provisions, provided for proportionate adjustments in the
event of stock splits, stock dividends and reverse stock splits. In addition,
the antidilution provisions provided that the exercise price would be reduced if
we issued shares at lower prices than the warrant exercise price, or less than
the market price for our common stock. The purchase warrants also provided that
the number of underlying shares would be inversely proportionately increased or
decreased in the event of a change in the exercise price, such that the
aggregate purchase price for the underlying warrant shares upon full exercise of
the purchase warrants would remain the same. In brief, a reduction of the
exercise price would increase the shares covered by the purchase warrants.
Since issuing the purchase warrants, we registered and issued shares of our
common stock to suppliers of goods and services in lieu of cash. Our suppliers
would credit us for the net proceeds they received from the sale of the shares.
Because the market price for our common stock was under the $1.801 exercise
price of the purchase warrants at many times during our program of paying
vendors with stock in lieu of cash, we were credited by our suppliers at rates
below the $1.801 per share exercise price under the purchase warrants.
The holders of the purchase warrants and Fonar executed amendments to the
purchase warrants, providing for the increase in the number of shares and the
reduction of the exercise prices. Although the new exercise price of $0.79 per
share was determined in accordance with the terms of the purchase warrants as a
result of the vendor issuances previously described, the number of underlying
shares represented an agreement on the part of warrant holders to accept an
adjustment representing a lesser number of shares than would have resulted from
the strict application of the formula in the purchase warrants. In addition,
among other things, the antidilution provisions were amended to provide that if
Fonar were to sell shares below the warrant exercise price, the exercise price
would not automatically be reduced to the lower price, but that it would be
adjusted based on the price and number of shares sold relative to the total
number of shares outstanding before and after the sale. In addition, the
provision that required an adjustment in the exercise price if Fonar sold shares
below the market price was eliminated. These modifications were accepted by the
holders in consideration for, among other things, the term of the purchase
warrants being extended three years to May 24, 2009.
Page 10
Since the exercise price under the purchase warrants is now $0.79, however,
further adjustments based on sales below the warrant exercise price would not be
made unless the effective purchase price per share was less than $0.79.
FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents incorporated by
reference that are considered forward-looking statements within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 contains the safe harbor provisions
that cover these forward-looking statements. We are including this statement for
purposes of complying with these safe harbor provisions. We base these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions including,
among other things:
- continued losses and cash flow deficits;
- the continued availability of financing in the amounts, at the times and
on the terms required to support our future business;
- uncertain market acceptance of our products; and
- reliance on key personnel.
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Because of these risks, uncertainties
and assumptions, the forward-looking events discussed or incorporated by
reference in this document may not occur.
USE OF PROCEEEDS
We cannot guarantee that we will receive any proceeds in connection with
this offering. We intend to use the net proceeds of this offering, if any, for
general corporate purposes, including working capital to fund operating
expenses, accounts payable and capital expenditures. Accordingly, our management
will have broad discretion in the application of any net proceeds received.
Pending such uses, we may invest the net proceeds from this offering in
short-term, interest-bearing, investment grade securities.
Page 11
PLAN OF DISTRIBUTION
We may sell the shares being offered by us in this prospectus:
o through dealers, brokers or agents;
o through underwriters;
o directly to purchasers; or
o through a combination of any of these methods of sale.
We and our agents and underwriters may sell the shares being offered by us
in this prospectus from time to time in one or more transactions:
o at market prices prevailing at the time of sale;
o at prices related to such prevailing market prices;
o at a fixed price or prices, which may be changed; or
o at negotiated prices.
In addition to any underwriters we may use, any brokers, dealers or agents
who participate in the distribution of the shares may be deemed to be
underwriters, and any profits on the sale of shares by them and any discounts,
commissions or concessions received by any broker, dealer or agent might be
deemed to be underwriting discounts and commissions under the Securities Act. In
any such case, any such underwriters may be subject to statutory liabilities,
including, but not limited to, Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Securities Exchange Act. These provisions of the securities
laws provide, in general terms, for liability for fraud, untrue statements
contained in a prospectus or otherwise made in connection with the sale of
securities, and the failure to disclose significant information which is
necessary to prevent information disclosed from being misleading.
We may solicit directly offers to purchase shares. We may also designate
agents from time to time to solicit offers to purchase shares. Any agent that we
designate, may then resell such shares to the public at varying prices to be
determined by such agent at the time of resale.
We may engage in at the market offerings of our common stock. An "at the
market" offering is an offering of our common stock at other than a fixed price
to or through a market maker. Under Rule 415(a)(4) of the Securities Act, the
total value of at the market offerings made under this prospectus may not exceed
10% of the aggregate market value of our common stock held by non-affiliates.
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If we use underwriters to sell shares, we will enter into an underwriting
agreement with the underwriters at the time of the sale to them. The names of
the underwriters will be set forth in the prospectus supplement which will be
used by them together with this prospectus to make sales of the shares to the
public. Details of our arrangement with the underwriter, including commissions,
underwriting discounts or fees paid by us and whether the underwriter is acting
as principal or agent, would be described in the prospectus supplement.
Underwriters may also receive commissions from purchasers of the shares.
Underwriters may use dealers to sell shares. If this happens, the dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents.
Any underwriters to whom we sell shares for public offering and sale may
make a market in the shares that they purchase, but the underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. Underwriters and agents also may engage in transactions with, or perform
services for, us in the ordinary course of business.
Regardless of the method used to sell the common stock, we will provide a
prospectus supplement that will disclose:
- the identity of any underwriters, dealers or agents who purchase the
common stock;
- the material terms of the distribution, including the number of shares
sold and the consideration paid;
- the amount of any compensation, discounts or commissions to be received
by the underwriters, dealers or agents;
- the terms of any indemnification provisions, including indemnification
from liabilities under the federal securities laws; and
- the nature of any transaction by an underwriter, dealer or agent during
the offering that is intended to stabilize or maintain the market price of the
common stock.
In order to comply with certain state securities laws, if applicable, the
shares may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the shares may not be sold unless the
shares have been registered or qualified for sale in such state or an exemption
from regulation or qualification is available and is complied with. Sales of
shares must also be made by us in compliance with all other applicable state
securities laws and regulations.
MANNER OF SALES. The shares may be sold according to one or more of the
following methods:
o A block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction.
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o Purchases by a broker or dealer as principal and resale by the broker
or dealer for its account.
o Ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
o Pledges of shares to a broker-dealer or other person, who may, in the
event of default, purchase or sell the pledged shares.
o An exchange distribution under the rules of the exchange.
o In private transactions without a broker-dealer.
o By writing options.
o Any combination of the foregoing, or any other available means
allowable under law.
EXPENSES ASSOCIATED WITH REGISTRATION. We will pay the expenses of
registering the shares under the Securities Act, including registration and
filing fees, printing expenses, administrative expenses, legal fees and
accounting fees. If we sell the shares through underwriters or broker-dealers,
we will be responsible for underwriting discounts, underwriting commissions and
agent commissions.
INDEMNIFICATION AND CONTRIBUTION. Underwriters, dealers, agents and other
persons may be entitled, under agreements that may be entered into with us, to
indemnification by us against certain civil liabilities, including liabilities
under the Securities Act of 1933, or to contribution with respect to payments
which they may be required to make in respect of such liabilities.
SUSPENSION OF THIS OFFERING. We may suspend the use of this prospectus if
we learn of any event that causes this prospectus to include an untrue statement
of material fact or omit to state a material fact required to be stated in the
prospectus or necessary to make the statements in the prospectus not misleading
in light of the circumstances then existing. If this type of event occurs, a
prospectus supplement or post-effective amendment, if required, will be
distributed.
Computershare Trust Company, Inc., formerly called American Securities
Transfer & Trust, Inc., located at 350 Indiana Street, Suite 800, Golden,
Colorado, 80401 is the transfer agent and registrar for our common stock.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares being
offered by the prospectus will be passed upon by Henry T. Meyer, Esq., 110
Marcus Drive, Melville, New York 11747. Mr. Meyer is Fonar's General Counsel.
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EXPERTS
The consolidated financial statements contained in Fonar's latest annual
report on Form 10-K, incorporated by reference into this prospectus, have been
audited by Marcum & Kliegman LLP, a registered independent public accounting
firm, to the extent set forth in their report. Such consolidated financial
statements were included therein in reliance upon their reports, given on their
authority as experts in accounting and auditing.
INDEMNIFICATION
The Delaware General Corporation Law and Fonar's by-laws provide for the
indemnification of an officer or director under certain circumstances against
reasonable expenses incurred in connection with the defense of any action
brought against him by reason of his being a director or officer. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or other persons under Fonar's by-laws or the
Delaware General Corporation Law, Fonar has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Our Securities and Exchange Commission filings are also
available over the Internet at the Securities and Exchange Commission's web site
at http://www.sec.gov. You may also read and copy any document we file at the
Securities and Exchange Commission's public reference rooms in Washington, D.C.
and New York, New York. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for more information on the public reference rooms. Our
Commission File No. is 0-10248.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means:
- incorporated documents are considered part of this prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the Securities and Exchange Commission will
automatically update and supersede this prospectus.
We are incorporating by reference the documents listed below which were
filed with the Securities and Exchange Commission under the Securities Exchange
Act of 1934:
- Annual Report on Form 10-K for the year ended June 30, 2003, which was
filed on September 30, 2003;
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- Quarterly Reports on Form 10-Q for the quarters ended on September 30,
2003, December 31, 2003 and March 31, 2004, which were filed on November 14,
2003, February 13, 2004 and May 17, 2004.
We also incorporate by reference each of the following documents that we
will file with the Securities and Exchange Commission after the date of this
prospectus but before the end of the offering:
- Reports filed under Sections 13(a) and (c) of the Securities Exchange Act
of 1934;
- Definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act of 1934 in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Securities Exchange Act of
1934.
You may request a copy of these filings, at no cost, by contacting us at
the following address or phone number:
Fonar Corporation
110 Marcus Drive
Melville, New York 11747
Attention: Investor Relations
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