Mail Stop 0306
March 31, 2005
Dr. Raymond V. Damadian
President, Chief Executive Officer and Chief Financial Officer
Fonar Corporation
110 Marcus Drive
Melville, New York 11747
RE: Fonar Corporation
Form 10-K for the fiscal year ended June 30, 2004
File No. 0-10248
Dear Dr. Damadian:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
document
in future filings in response to these comments. If you disagree,
we
will consider your explanation as to why our comment is
inapplicable
or a revision is unnecessary. Please be as detailed as necessary
in
your explanation. In some of our comments, we may ask you to
provide
us with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Period Ending June 30, 2004
Managements Discussion and Analysis
1. We note that you closed underperforming facilities in fiscal
year
2004. Supplementally clarify the nature of any closing costs
included in the periods presented and tell us how they were
accounted
for in your financial statements. Please revise future filings to
quantify the known or expected savings that have resulted from the
closing of these facilities.
Liquidity and Capital Resources
2. In future filings expand to describe the reasons for the
increases
and decreases in the various components of working capital cited
as
impacting cash flow from operations. In general, when you
describe
the effects of changes in working capital on cash flow from
operations, the reasons for these changes should also be
described.
3. Please revise your disclosure of liquidity in future filing to
describe more fully your overall financial structure, with
particular
emphasis on agreements between Fonar and related entities.
Transactions, arrangements and relationships with unconsolidated
entities that are reasonably likely to affect liquidity should be
fully disclosed.
4. As a related matter, revise future filings to discuss the
financial terms of the management contracts and detailed
disclosure
of the financial terms of individually material agreements.
Consolidated Statement of Cash Flows
5. Cash flows associated with securities classified as available-
for-
sale should be presented gross, as contemplated in paragraph 18 of
SFAS 115. That is, in future filings, please revise to separately
present cash flows from purchases, sales and maturities of
available-
for-sale securities as separate line item in the cash flow
statements.
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies
Revenue Recognition
6. We note that agreements with MRI facilities are for one-year
terms
and are based on the number of procedures performed. We also note
that fees are reviewed on an annual basis and adjusted by mutual
agreement. Tell us more about this review. Are you obligated to
make-up any losses of the MRI facilities? Please discuss.
7. Please tell us how you recognize revenue for equipment and
services to entities under common control. Do the terms differ
from
sales to unaffiliated companies or partnerships? Are you
recognizing
a profit on transactions with entities owned by Dr. Damadian or
his
family members? Please explain. Demonstrate that your accounting
complies with GAAP.
8. Tell us how you recognize revenue for new products where
financial
reimbursement is not guaranteed. Specifically tell us how you
estimate the reimbursement from third parties. Quantify the
adjustment made to the estimate recorded and final settlements
during
the periods presented.
Note 3. Management Agreements
9. Provide us with your impairment analysis as of June 30, 2004.
Explain how you determined that the management agreements were not
impaired and that a 20-year benefit is still appropriate. Refer
to
the guidance upon which you relied.
Note 11. Capital Stock
10. Supplementally describe how you account for stock paid for
goods
and services and non-employees. In future filings, revise to
provide
any disclosures required by SFAS 123 and EITF 96-18.
Note 16. Commitments and Contingencies
11. Revise future filings to disclose all material commitments and
guarantees of the management companies to the medical practices
and
any material amounts that may be paid under those arrangements.
Note 21. Quarterly Financial Data
12. We note that selling, general and administrative expenses and
other income for the fourth quarter 2004 included approximately
$344,000 and $215,000 of expenses and other income related to the
prior three quarters. Also, we note that an impairment loss of
$795,237 related to a facility that was closed in the second
quarter
of fiscal year 2004 was recorded in the fourth quarter 2004.
Supplementally advise us how you gained assurance to the accuracy
of
your quarterly information. Would this matter impact the
company`s
internal control over financial reporting? Please advise.
Item 9A. Controls and Procedures
13. We note your statement that the chief executive officer and
chief
financial officer have concluded that the company`s disclosure
controls and procedures are effective "except as described above."
Given the exceptions noted, it remains unclear whether your chief
executive officer and chief financial officer have concluded that
your disclosure controls and procedures are effective. Please
revise
your disclosure to state, in clear and unqualified language, the
conclusions reached by your chief executive officer and your chief
financial officer on the effectiveness of your disclosure controls
and procedures. For example, if true, you can state that your
disclosure controls and procedures are effective including
consideration of the identified matters, so long as you provide
appropriate disclosure explaining how the disclosure controls and
procedures were determined to be effective in light of the
identified
matters. Or, if true, you can state that given the identified
matters, your disclosure controls and procedures are not
effective.
You should not, however, state the conclusion in your current
disclosure, which appears to state that your disclosure controls
and
procedures are effective except to the extent they are not
effective.
14. Please revise your disclosure concerning changes in your
internal
control over financial reporting to also indicate whether there
was
any change in your internal control over financial reporting that
occurred that has materially affected, or is reasonably likely to
materially affect, your internal control over financial reporting,
consistent with the language used in amended Item 308(c) of
Regulation S-K.
Form 10-Q for the quarterly period ended December 31, 2004
Item 4. Controls and Procedures
15. We note your disclosure that your principal executive and
acting
principal financial officer have evaluated your disclosure
controls
and procedures as of a date within 90 days of the filing date of
your
report. Please amend your filings to disclose management`s
conclusion regarding the effectiveness of your disclosure controls
and procedures as of the end of the period covered by the report.
Refer to Item 307 of Regulation S-K and Part II.F of Management`s
Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports,
Release
No. 33-8238, available on our website at
www.sec.gov/rules/final/33-
8238.htm.
16. We note your statement that your principal executive and
acting
principle financial officer have concluded "that disclosure
controls
and procedures were adequate." It does not appear that your
certifying officers have reached a conclusion that your disclosure
controls and procedures are effective. Please revise to address
your
officers` conclusion regarding the effectiveness of your
disclosure
controls and procedures.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested supplemental
information. Detailed cover letters greatly facilitate our
review.
Please file your cover letter on EDGAR. Please understand that we
may have additional comments after reviewing your responses to our
comments.
You may contact Dennis Hult, Staff Accountant, at (202) 942-
2812 or myself if you have questions regarding comments on the
financial statements and related matters. Please contact me at
(202)
942-1931 with any other questions. In this regard, do not
hesitate
to contact Brian Cascio, Accounting Branch Chief, at (202) 942-
1791.
Sincerely,
Angela Crane
Reviewing Accountant
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Dr. Raymond V. Damadian
Fonar Corporation
March 31, 2005
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