As filed with the Securities and Exchange Commission
On June 25, 2001
Registration
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SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FONAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 3845
(State or other jurisdiction of Primary Standard Industrial
incorporation or organization) Classification Code Number
11-2464137
(I.R.S. Employer Identification No.)
110 Marcus Drive
Melville, New York 11747
(631) 694-2929
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(Address, including zip code, and telephone number
of registrant's principal executive offices)
Raymond V. Damadian, M.D.
FONAR CORPORATION
110 Marcus Drive
Melville, New York 11747
(631) 694-2929
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Henry T. Meyer, Esq.
FONAR Corporation
110 Marcus Drive
Melville, New York 11747
(631) 694-2929
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Approximate date of commencement of proposed
sale to the public:
As soon as practicable after the effective date of this Registration
Statement If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of maximum maximum
each class Amount offering aggregate Amount of
of securities to be price offering registration
to be registered registered per unit price fee
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Common Stock
Underlying
Debentures (1) 6,940,499 Varies $4,500,000.00 $1,125.00
Common Stock
Underlying
Purchase
Warrants (2) 959,501 $1.801 $1,728,061.30 $432.02
Common Stock
Underlying 2,000,000 $1.61 $3,220,000.00 $805.00
Callable
Warrants (3)
Total 9,900,000 ----- $9,448,061.30 $2,362.02
1) Pursuant to Rule 457, Subsection (i) and subsection (g)
2) Pursuant to Rule 457, Subsection (g)
3) Pursuant to Rule 457, Subsection (c);
Specified date: June 19, 2001
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8 (a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8 (a),
may determine.
PROSPECTUS
9,900,000 Shares
FONAR CORPORATION
Common Stock
This prospectus will allow us to issue common stock to the owners of our 4%
convertible debentures due June 30, 2002, purchase warrants and callable
warrants if the owners elect to exercise their options to convert or exercise.
This prospectus will also allow the owners to resell the shares. Since the
owners will be able to exercise their rights up to June 30, 2002 under the
debentures, up to May 24, 2006 under the purchase warrants and up to May 24,
2004 under the callable warrants, the common stock may be issued over time. This
means
- - we will provide a prospectus supplement as required to update material
information contained in this prospectus; and
- - you should read this document and any prospectus supplement carefully
before you invest.
- - The conversion price for the debentures and the exercise price for the
purchase warrants are fixed. The proceeds we would receive if the owners
elect to buy the common stock are shown below. Neither we nor the owners
will have to pay any commissions on debenture conversions or warrant
exercises.
Maximum No. Per Share Maximum
Security of Shares Price Proceeds
----------- ----------- --------- ----------
Convertible 2,198,339 $2.047 $4,500,000
Debenture
Purchase 959,501 $1.801 $1,187,761
Warrant
The exercise price for the callable warrants will change at the beginning
of each calendar month and be equal to the average closing bid price of Fonar's
common stock for the prior calendar month. Assuming for the purpose of
illustration that the callable warrants are exercised at $1.66 per share, which
was the closing bid price for the common stock on June 15, 2001, we would
receive proceeds as shown below:
Maximum No. Per Share Maximum
Security of Shares Price Proceeds
----------- ----------- --------- ----------
Callable
Warrants 2,000,000 $1.66 $3,320,000
Even if the debentures are not converted because the market price for the
common stock is less than the conversion price for the debentures, we would
still have the option of paying the debentures in common stock rather than cash.
In this case, however, the common stock would be valued at a much lower price,
at the lesser of a) 90% of the average of the four lowest closing bid prices
during the preceding calendar month or b) the average of the four lowest closing
bid prices during the preceding calendar month less $0.125. Assuming that we
were paying the $4.5 million principal in debentures today according to that
formula, the common stock required to be issued would be as follows:
Maximum No. Per Share Maximum
Security of Shares Price Proceeds
----------- ----------- --------- ----------
Convertible
Debenture 3,435,115 $1.31 $4,500,000
An investment in our common stock is subject to a high level of risk and
you should carefully read and consider the risk factors described in this
prospectus, see "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We expect to pay expenses in this offering of approximately $78,000.
On June 15, 2001, the closing price for our common stock (Symbol: FONR) was
$1.67 per share, as reported by Nasdaq. Our common stock is traded on the Nasdaq
SmallCap Market.
The date of this prospectus is June 25, 2001
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS...........................................................
ABOUT FONAR.....................................................................
RISK FACTORS....................................................................
FORWARD-LOOKING STATEMENTS......................................................
USE OF PROCEEDS.................................................................
PLAN OF DISTRIBUTION ...........................................................
LEGAL MATTERS...................................................................
EXPERTS.........................................................................
INDEMNIFICATION ................................................................
WHERE YOU CAN FIND MORE INFORMATION.............................................
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 from time to time issue any number of the shares of
our common stock upon the conversion of the debentures or the exercise of the
warrants up to a total of 9,900,000 shares.
The number of shares being registered, by the terms of the agreements with
the Tail Wind Fund is two times the number of shares necessary to pay the
debentures at the lower of the market price, as computed under the agreements or
conversion price, plus the number of shares underlying the warrants.
Periodically, we expect to provide a prospectus supplement that will 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."
You should rely only on the information provided in this prospectus and in
any prospectus supplement, including the information incorporated by reference.
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not constitute an
offer to sell any shares in any jurisdiction in which it is unlawful. The
information in this prospectus is current as of the date on the cover. You
should not assume that the information in this prospectus, or any supplement to
this prospectus, is accurate at any date other than the date indicated on the
cover page of these documents.
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. 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.
Fonar offers the following MRI scanners: the Stand-Up, also called
Indomitable (TM), QUAD (TM), Fonar-360 (TM) and Echo (TM). The Pinnacle (TM)
MRI, a work-in-progress, recently received FDA clearance to market on June 6,
2001.
The Stand-Up allows patients to be scanned while standing, sitting or
reclining. We believe that the Stand-Up is the first and presently only MRI
scanner in which this is possible. This means that any 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 any angle.
In the future, the Stand-Up may also be useful for MRI directed surgical
procedures and could be particularly useful in trauma centers where a quick MRI
screening within the first critical hour of treatment would greatly improve the
patient's chances for survival and complete recovery.
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. Physicians and family members are able
to actually enter the scanner and approach the patient. The Fonar 360 is
presently marketed as a diagnostic scanner and is sometimes referred to as the
Open Sky MRI. The walls can be decorated with panoramic murals and the entire
scan room can be decorated to be incorporated into the pictured landscape.
In the future, we may also further develop the Fonar 360 to function as an
operating room. We sometimes refer to this version of the Fonar 360 as the
OR-360. The room sized magnet and 360 degree access to the patient would permit
surgical teams to walk into the magnet and perform surgery on the patient inside
the magnet. The MRI image could be obtained during surgery to guide the surgeon
in the surgery. Surgical instruments, needles, catheters, endoscopes and the
like could be introduced directly into the patient's body and guided to the
right location by means of the MRI image. For example, chemotherapy or radiation
in a cancer case could be delivered directly to the malignant tumor. The
challenges in converting the Fonar-360 to an actual operating room include
designing instruments and support equipment which can be used in a magnetic
field and conforming the OR-360 to operating room standards for the surgeries in
question.
The QUAD scanner is open on four sides, thereby allowing access to the
scanning area from four sides. We believe the QUAD (TM) 12000 MRI scanner was
the first "open" MRI scanner with a high field magnet. The QUAD (TM) 7000 is
similar in design to the QUAD 12000 but uses a smaller lower field magnet.
We are also developing the "Pinnacle" (TM) which is a superconductive
version of our open iron frame magnet. The Pinnacle received FDA clearance on
June 6, 2001.
Fonar also offers a low cost, low field open MRI scanner, the Echo (TM).
In addition to manufacturing MRI scanning systems, we formed a subsidiary,
Health Management Corporation of America, which we sometimes call HMCA, in 1997
to engage in the business of managing imaging facilities and medical 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 furnishing, consumable supplies and in some cases the
office space used by our clients. Almost all of HMCA's client professional
corporations are owned by Fonar's founder, President and Chairman of the Board,
Dr. Raymond V. Damadian.
NASDAQ Symbol..............FONR
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."
This summary is qualified in its entirety by the more detailed information
appearing elsewhere in the prospectus.
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, 2000 and June 30, 1999, we experienced
net losses of $10.96 million and $14.22 million respectively and net operating
losses of $16.43 million and $15.61 million respectively. For the nine months
ended March 31, 2001, we experienced a net loss of $9.7 million and an operating
loss of $10.8 million. We have been able to fund our losses to date from the
$128.7 million judgment, net $77.2 million after attorney's fees, received from
General Electric Company in 1997 for patent infringement and from other patent
litigation settlements with other competitors, the terms of which agreements are
required to be kept confidential. As of March 31, 2001, however, our balance
sheet shows approximately $10.3 million in cash or cash equivalents and $7.6
million in marketable securities out of total current assets of $40.1 million.
We believe that we will be able to reverse our operating losses with the
introduction into the marketplace of our new MRI scanners and from the operating
income generated by our subsidiary HMCA. HMCA operating income was $3.12 million
in fiscal 1999, $2.48 million in fiscal 2000 and $2.2 million for the first nine
months of fiscal 2001. 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 new lines of MRI products. The Stand-Up MRI, also called
"Indomitable(TM), Fonar 360(TM) and Echo scanners have all been recently
introduced into the market. Although we are optimistic that these scanners'
features will make them competitive, there can be no assurance as to the degree
or timing of market acceptance of these products. Revenues from the sales of
QUAD(TM) scanners, introduced in 1995, have not been sufficient to date to
generate operating profits. The product we are currently promoting most
vigorously is the Stand-Up MRI. We believe the Stand-Up MRI is the most
promising because it enable scans to be performed on patients in weight bearing
positions, such as sitting or standing. The market for the Stand-Up, which
received FDA clearance in October 2000, is still largely untested. The following
chart shows the revenues attributable to each model between October 1, 2000 and
March 31, 2001. Please note that we recognize the revenue on scanner sales on a
percentage of completion basis. This means we book revenue not as money 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.
Model Revenues Recognized
--------- -------------------
Stand-Up $ 990,700
Fonar 360 0
QUAD $ 1,798,645
Echo $ 328,950
3. We must compete in a highly competitive market against competitors with
greater financial resources than we have.
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., Picker International, Philips N.V.,
Toshiba Corporation, Hitachi Corporation and Shimadzu 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. These relationships are often heavily dependant on the personal
efforts of key persons in the acquired company or medical practices managed by
the acquired company. HMCA has sought to retain 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 97% of the receivables billed and
collected by HMCA are from professional corporations owned by Raymond V.
Damadian.
6. Capitated insurance programs could adversely affect HMCA's clients by
shifting a part of the financial responsibility for patient care to the medical
providers.
Certain HMO's and insurers have instituted managed care programs where the
physician or physician group is paid on a capitated basis. Under these plans,
the physician is not paid according to the services provided, but is paid a
fixed monthly fee per patient, which in HMCA's experience is based on age and
gender. Currently, approximately 12.3% of HMCA's clients' revenues are from
capitated programs. Under capitated insurance programs, the physician or
physician practice in effect bears some of the risk in the event a patient
requires extensive treatment. In the event that HMCA's client primary care
practices experience a shortfall between the capitated payments and the cost of
providing services, the ability of those practices to pay for HMCA's services
may be impaired.
7. The profitability of HMCA could be adversely affected if medical insurance
reimbursement rate change.
HMCA receives substantially all of its revenue from medical 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 (a) MRI facilities (b) primary
care practices and (c) physical therapy and rehabilitation practices. There are
approximately 20 MRI facilities served by HMCA located in New York, Florida and
Georgia. The primary care practices served by HMCA consist of four offices in
New York and the physical therapy and rehabilitation practices consist of eight
offices located primarily in New York. Approximately 40% of HMCA's clients
revenues are generated from the no-fault and personal injury protection claims.
Although we do not know of any pending adverse development affecting these types
of facilities, future changes in the reimbursement levels for MRI, primary care,
workers compensation or no fault reimbursement, 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 the medical practices and providers to attract and retain physicians
and other professional staff.
8. The amortization of the goodwill on our balance sheet will reduce future
profits.
HMCA acquired businesses which were essentially service businesses for
purchase prices based on earnings multiples rather than net tangible assets. As
the historical cost of the assets was small relative to the purchase price, the
consolidated balance sheet of Fonar, HMCA and Fonar's subsidiaries reflects a
net carrying value of approximately $20.7 million in goodwill as at March 31,
2001. Before amortization, the aggregate amount of goodwill attributable to the
acquisitions was approximately $23.4 million. Amortization of this goodwill,
which is over a period of twenty (20) years, will reduce net profits by
approximately $1.2 million annually. This is a non-cash annual expense.
9. Professional liability claims against HMCA or its clients may exceed
insurance coverage levels.
Although with one exception, 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. In Florida, where the corporate practice of
medicine is legally permissible, a subsidiary of HMCA in one case provides
medical care through employee doctors and could be subject to professional
liability claims in the event of malpractice. Neither HMCA nor its clients carry
professional liability insurance but physicians working for HMCA's clients or
for HMCA's subsidiaries 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, 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
clients if they were named as defendants.
10. We do not carry product liability insurance and would have to pay any claims
from our revenues and capital resources.
Fonar does not carry product liability insurance but is self-insured.
Consequently, Fonar would have to pay from its own resources any valid products
liability claim. To date, Fonar has not had to pay any such claims.
11. We are dependant 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. 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.
12. 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 March 31, 2001, there
were outstanding 58,787,817 shares of common stock, having one vote per share,
4,211 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 owned 2,488,274 shares of common stock and 9,561,174 shares of Class C
common stock, giving him over 80% 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.
13. The dilution which may result from the payment of the debentures in common
stock could be significant.
The debentures can be converted at a price of $2.047 per share, which would
result in 2,198,339 shares of common stock being issued. If, however, the market
price for our common stock is less than $2.047 per share, then the holders will
not convert and we will be left with the alternative of paying the debentures in
shares of common stock valued, for the purpose of payment, at a discount from
the then current market value for the common stock. This discounted value would
be the lesser of (1) 90% of the average of the four lowest closing bid prices
during the preceding calendar month or (2) the average of the four lowest
closing bid prices during the preceding calendar month less $0.125. If for
example, we were paying the debentures in June, 2001, then the approximate
number of shares we would have to issue based on the formula would be 3,435,115
or approximately 56% more shares then would be issued on conversion. Since this
alternative is based on market price, there is no limit on how low the
determined value could be. Fonar does retain the option, however, to pay the
debentures in cash if they are not converted.
14. The provisions of the debentures would subject Fonar's stockholders to
further dilution if we were to issue common stock at prices below market or
below the conversion price in the debentures.
In addition to provisions providing for proportionate adjustments in the
event of stock splits, stock dividends, reverse stock splits and similar events,
the debentures provide for an adjustment of the conversion price if Fonar issues
shares of common stock at prices lower than the conversion price or the then
prevailing market price. This means that if we need to raise equity financing at
a time when the market price for Fonar's common stock is lower than the
conversion price, or if we need to provide a new equity investor with a discount
from the then prevailing market price, then the conversion price will be reduced
and the dilution to stockholders increased.
15. The provisions of the warrants provide for reductions in the exercise price
if we issue common stock at prices below market or below the warrant exercise
prices.
In addition to provisions providing for proportionate adjustments in the
event of stock splits, stock dividends, reverse stock splits and similar events,
the warrants provide for a reduction of the exercise price if Fonar issues
shares of common stock at prices lower than the exercise price or lower than the
then prevailing market price. Although the number of shares issuable under the
warrants will not change in this case, we would receive less in proceeds if the
warrants were subsequently exercised.
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 PROCEEDS
We cannot guarantee the amount of the proceeds we will receive in this
offering. Whether the debentures will be converted or the warrants exercised
will depend on the market price for Fonar's common stock. We have received $4.5
million from the issuance of the debentures. We will not receive any additional
proceeds from any conversions. Whether we receive any proceeds from the warrants
will depend on the market price of our common stock relative to the exercise
price under the warrants.
We intend to use the net proceeds of this offering, if any, for general
corporate purposes, including working capital to fund operating losses, expenses
and capital expenditures. As of the date of this prospectus, we cannot specify
with certainty the particular uses for the net proceeds to be received in this
offering. Accordingly, our management will have broad discretion in the
application of any net proceeds received. Pending such uses, we intend to invest
the net proceeds, if any, from this offering in short-term, interest-bearing,
investment grade securities.
PLAN OF DISTRIBUTION
All of the shares of common stock being offered by this prospectus will be
issued upon the conversion or payment of our 4% convertible debentures due June
30, 2002 or upon the exercise of our outstanding purchase warrants and callable
warrants.
The debentures are convertible at the option of the holder at a price of
$2.047 per share. If the holders decide not to convert, then we would still have
the right to pay the debentures in shares of our common stock, but the stock
would be valued at the lesser of a) 90% of the average of the four lowest
closing bid prices during the preceding month or b) the average of the four
lowest closing bid prices during the preceding calendar month less $0.125.
This means that if the holders of the debenture elect not to covert because
the market price for our common stock is less than the conversion price, the
selection of the second alternative by Fonar will result in a significantly
lower valuation of our shares and greater dilution to our stockholders than
would be the case in a conversion.
We received the $4.5 million upon the issuance of the debentures. Whether
the debentures are converted or we elect to pay the debentures in stock, we will
not receive additional proceeds.
The purchase warrants cover 959,501 shares of common stock and have an
exercise price of $1.801 per share. The exercise period extends to May 24, 2006.
If all of the purchase warrants are exercised, we would receive proceeds in the
approximate amount of $1.7 million.
The callable warrants cover 2,000,000 shares of common stock and have a
variable exercise price. Subject to a maximum price of $6.00 per share and a
minimum price of $2.00 per share, the exercise price will be equal to the
average closing bid price of Fonar's common stock for the full calendar month
preceding the date of exercise. The exercise period extends to May 24, 2004.
Since the exercise price varies, the amount of proceeds, if any, which we would
receive cannot be predicted. At the minimum exercise price of $2.00 per share we
would receive proceeds of $4 million.
No proceeds can be expected to be received from the exercise of the
warrants unless the market price of our common stock is higher than the
applicable exercise prices.
No commissions are payable by us or the holders of the debentures and the
warrants in connection with a conversion or exercise.
We have the option of redeeming up to 200,000 callable warrants per month
at a price of $0.01 per underlying warrant share, if the average closing bid
price of Fonar's common stock is greater than 115% of the warrant price in
effect for five consecutive trading days in any calendar month. We also have the
option of reducing the exercise price under the callable warrants to any lower
exercise price that was previously in effect.
The debentures and warrants provide for proportionate adjustments in the
event of stock splits, stock dividends and reverse stock splits. In addition,
the conversion and exercise prices will be reduced, with certain specified
exceptions, if we issue shares at lower prices then the debenture conversion or
warrant exercise prices, or less than market price for our common stock.
The number of shares being registered, by the terms of the agreements with
the Tail Wind Fund is two times the number of shares necessary to pay the
debentures at the lower of the market price, as computed under the agreements or
conversion price, plus the number of shares underlying the warrants.
In connection with the issuance of the debentures to The Tail Wind Fund, we
paid a placement fee to Roan Meyers, Inc. in the amount of $157,500. In
addition, we issued 300,000 purchase warrants to Roan Meyers, Inc.
Computershare Trust Company, Inc., formerly called American Securities
Transfer & Trust, Inc., located at 12039 W. Alameda Parkway, Lakewood, Colorado
80228, is the transfer agent and registrar for our common stock.
SELLING STOCKHOLDERS
Assuming that all 9,900,000 shares of common stock are issued to the owners
of the debentures and warrants upon conversion and exercise, the following chart
shows the owners and certain other information. The chart assumes that the
owners will resell all the shares they receive.
Name of Shares To Be Percentage Shares Beneficially
Beneficial Beneficially of Voting Owned
Owner Owned and Offered Power After Offering
- ---------------- ----------------- ---------- -------------------
The Tail Wind 9,600,000 2.65% 0
Fund Ltd.
Roan Meyers Inc. 300,000 0.09% 0
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.
Experts
The consolidated financial statements and supplemental financial schedules
contained in Fonar's latest annual report on Form 10-K, incorporated by
reference into this prospectus, has been examined by Tabb Conigliaro & McGann,
to the extent set forth in their report. Such financial statements and schedules
were included therein in reliance upon their reports, given on their authority
as experts in accounting and auditing. Subsequent to their report, Tabb
Conigliaro & McGann merged into Grassi & Co., CPA's, P.C.
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.,
New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for more information on the public
reference rooms.
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, 2000, which was
filed on September 28, 2000;
- Quarterly report on Form 10-Q for the fiscal quarter ended March 31,
2001, which was filed on May 14, 2001
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
(631) 694-2929
Part II
Information Not Required in prospectus
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All amounts are estimates except the
registration fee.
AMOUNT TO BE PAID
SEC Registration Fee $ 2,362.02
Printing 15,000.00
Legal Fees and Expenses 25,000.00
Accounting Fees and Expenses 15,000.00
Blue Sky Fees and Expenses 15,000.00
Transfer Agent and Registrar Fees 5,000.00
Miscellaneous 1,000.00
-----------
Total...........................................................$ 78,362.01
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "Delaware Law") grants corporations the right to limit or eliminate the
personal liability of their directors in certain circumstances in accordance
with provisions therein set forth. Our Certificate of Incorporation contains a
provision eliminating director liability to us and our stockholders for monetary
damages for breach of fiduciary duty as a director. The provision does not,
however, eliminate or limit the personal liability of a director: (i) for any
breach of such director's duty of loyalty to us or our stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under the Delaware statutory provision making
directors personally liable, for improper payment of dividends or improper stock
purchases or redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
our Board of Directors protection against awards of monetary damages resulting
from breaches of their duty of care (except as indicated above). As a result of
this provision, our ability or a stockholder's ability to successfully prosecute
an action against a director for a breach of his duty of care is limited.
However, the provision does not affect the availability of equitable remedies
such as an injunction or rescission based upon a director's breach of his duty
of care. The SEC has taken the position that the provision will have no effect
on claims arising under federal securities laws.
Section 145 of the Delaware Law grants corporations the right to indemnify
their directors, officers, employees and agents in accordance with the
provisions therein set forth. Our By-laws provide that the corporation shall,
subject to limited exceptions, indemnify its directors and executive officers to
the fullest extent not prohibited by the Delaware Law. Our By-laws provide
further that the corporation shall have the power to indemnify its other
officers, employees and her agents as set forth in the Delaware Law. Such
indemnification rights permit reimbursement for expenses incurred by such
director, executive officer, other officer, employee or agent in advance of the
final disposition of such proceeding in accordance with the applicable
provisions of the Delaware Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of us
pursuant to these provisions, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 16. Exhibits and Financial Statement Schedules
Exhibits
4.1 * Specimen Common Stock Certificate incorporated herein by
reference to Exhibit 4.1 to the Registrant's registration
statement on Form S-1, Commission File No. 33-13365.
4.2 * Article Fourth of the Certificate of Incorporation, as amended,
of the Registrant incorporated by reference to Exhibit 4.1 to the
Registrant's registration statement on Form S-8, Commission File
No. 33-62099.
4.3 Section A of Article FOURTH of the Certificate of Incorporation,
as amended, of the Registrant. See Exhibits.
4.4 * Form of 4% Convertible Debentures due June 30, 2002
incorporated herein by reference to Exhibit 4.1 of the
Registrant's current report on For 8-K filed on June 11, 2001.
Commission File No. 0-10248.
4.5 * Form of Purchase Warrants incorporated herein by reference to
Exhibit 4.2 of the Registrant's current report on Form 8-K filed
on June 11, 2001. Commission File No. 0-10248.
4.6 * Form of Callable Warrants incorporated herein by reference to
Exhibit 4.3 of the Registrant's current reports on Form 8-K filed
on June 11, 2001. Commission File No. 0-10248.
5 Opinion of Counsel re: Legality. See Exhibits.
10.1 * License Agreement between Fonar and Raymond V. Damadian
incorporated herein by reference to Exhibit 10 (e) to Form 10-K
for the fiscal year ended June 30, 1983, Commission File No.
0-10248
10.2 * 1993 Incentive Stock Option Plan incorporated herein by
reference to Exhibit 28.1 to the Registrant's registration
statement on Form S-8, Commission File No. 33-60154.
10.3 * 1997 Non-Statutory Stock Option Plan incorporated herein by
reference to Exhibit 28.1 to the Registrant's registration
statement on Form S-8, Commission File No.: 333-27411.
10.4 * 1997 Stock Bonus Plan incorporated herein by reference to
Exhibit 28.2 to the Registrant's registration statement on Form
S-8, Commission File No: 333-27411
10.5 * Stock Purchase Agreement, dated July 31, 1997 by and between
U.S. Health Management Corporation , Raymond V. Damadian, M.D. MR
Scanning Centers Management Company and Raymond V. Damadian,
incorporated herein by reference to Exhibit 2.1 to the
Registrant's Form 8-K, July 31, 1997, Commission File No:
0-10248.
10.6 * Merger Agreement and Supplemental Agreement dated June 17, 1997
and Letter of Amendment dated June 27, 1997 by and among U.S.
Health Management Corporation and Affordable Diagnostics Inc. et
al., incorporated herein by reference to Exhibit 2.1 to the
Registrant's 8-K, June 30, 1997, Commission File No: 0-10248.
10.7 * Stock Purchase Agreement dated March 20, 1998 by and among
Health Management Corporation of America, Fonar Corporation,
Giovanni Marciano, Glenn Muraca et al., incorporated herein by
reference to Exhibit 2.1 to the Registrant's 8-K, March 20, 1998,
Commission File No: 0-10248.
10.8 * Stock Purchase Agreement dated August 20, 1998 by and among
Health Management Corporation of America, Fonar Corporation,
Stuart Blumberg and Steven Jonas, incorporated herein by
reference to Exhibit 2 to the Registrant's 8-K, September 3,
1998, Commission File No. 0-10248.
10.9 * Purchase Agreement dated May 24, 2001 by and between Fonar and
The Tail Wind Fund Ltd. incorporated herein by reference to
Exhibit 10.1 to the Registrant's current report on Form 8-K filed
June 11, 2001. Commission File No. 0-10248.
10.10*Registration Rights Agreement dated May 24, 2001 by and among
Fonar, The Tail Wind Fund, Ltd. and Roan Meyers, Inc.
incorporated herein by reference to Exhibit 10.2 to the
Registrant's current report on Form 8-K filed June 11, 2001.
Commission File No. 0-10248.
23.1 Consent of Grassi & Co., CPA's, P.C., Certified Public
Accountants. See Exhibits.
23.2 (Consent of Counsel is included in Exhibit 5).
* Exhibits incorporated by reference.
Financial Statement Schedules
None
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement. (iii) To include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(b) That for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13 (a) or section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on June 25, 2001.
Dated: June 25, 2001
FONAR CORPORATION
By: /s/ Raymond V. Damadian
Raymond V. Damadian,
President
Pursuant to the requirements of the Securities Act of 1933, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- ------------------- -------------
/s/ Raymond V. Damadian Chairman of the
Board of Directors,
- -----------------------
Raymond V. Damadian President and a
Director (Principal June 25, 2001
Executive Officer)
/s/ Claudette J.V. Chan Director June 25, 2001
- -----------------------
Claudette J.V. Chan
/s/ Robert J. Janoff Director June 25, 2001
- --------------------
Robert J. Janoff
/s/ Charles N. O'Data Director June 25, 2001
- ---------------------
Charles N. O'Data
/s/ Luis E. Todd Director June 25, 2001
- ----------------
Luis E. Todd