Rule 424(b)(3)
File NO. 333-63782
PROSPECTUS
----------
9,900,000 Shares
FONAR CORPORATION
Common Stock
This is a prospectus for the resale, from time to time, of up to 9,900,000
shares of our common stock which may be issued to the selling stockholders
listed in this prospectus, or by the pledgees or donees of the selling
stockholders or by other transferees who may receive the shares of common stock
in transfers other than public sales. We will not receive any of the proceeds
from the sale of these shares.
The selling stockholders may sell the shares in open market transactions
from time to time at market prices through brokers, dealers or agents. See "PLAN
OF DISTRIBUTION" at page 13 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 September 26, 2001, the last reported sales price for our common
stock was $1.35 per share.
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 4 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 November 1, 2001.
You may rely only on the information contained in this prospectus. 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.
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TABLE OF CONTENTS
ABOUT THIS PROSPECTUS.........................................................2
ABOUT FONAR....................................................................3
ABOUT THIS OFFERING............................................................4
RISK FACTORS...................................................................4
FORWARD LOOKING STATEMENTS.....................................................9
USE OF PROCEEDS...............................................................10
SELLING STOCKHOLDERS..........................................................10
PLAN OF DISTRIBUTION .........................................................13
LEGAL MATTERS.................................................................16
EXPERTS ......................................................................16
MATERIAL CHANGES..............................................................16
INDEMNIFICATION ..............................................................16
WHERE YOU CAN FIND MORE INFORMATION...........................................17
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.............................17
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. Under this registration statement the
selling stockholders may sell from time to time up to 9,900,000 shares of common
stock issuable upon the conversion of or payment in stock on our 4% convertible
debentures due June 30, 2002 or upon the exercise of the purchase warrants and
callable warrants issued in connection therewith.
The number of shares being registered, by the terms of the registration
rights agreement with The Tail Wind Fund, Ltd. and Roan Meyers, Inc., 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. The "market price" is a discount from
the average of the four lowest closing bid prices for the common stock in the
previous calendar month. The market price used in determining the number of
shares to register was $1.31 and assumes no interest accrual.
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."
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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. 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 any angle. In the future, the Stand-Up 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.
The QUAD scanner is supported by four posts and is open on four sides,
thereby allowing access to the scanning area from four sides. The QUAD (TM) 7000
is similar in design to the QUAD 12000 but uses a smaller lower field magnet.
The "Pinnacle" (TM) 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
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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.
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.
Approximately 72% of our consolidated revenues for the fiscal year ended
June 30, 2001 and 81% for the fiscal year ended June 30, 2000 were from HMCA's
management services.
Approximately 98% of HMCA's revenues for the fiscal year ended June 30,
2001 and 99% of HMCA's revenues for the fiscal year ended June 30, 2000 were
derived from entities owned by Dr. Raymond V. Damadian.
ABOUT THIS OFFERING
The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of sales of the shares. They may
sell them in the open market at market prices through brokers, dealers or
agents, or in private transactions on negotiated terms. See "PLAN OF
DISTRIBUTION" for a more detailed discussion of the ways in which the selling
stockholders might sell their shares.
Our common stock is traded on the Nasdaq Small Cap Market.
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."
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, 2001 and June 30, 2000, we
experienced net losses of $15.18 million and $10.96 million respectively
and net operating losses of $16.21 million and $15.51 million respectively.
We have been able to fund our losses to date from the $128.7 million
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judgment, net amount of $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 June 30, 2001, however, our balance
sheet shows approximately $14.1 million in cash or cash equivalents and $6.1
million in marketable securities out of total current assets of $40.9 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 has declined from
$3.12 million in fiscal 1999 to $2.48 million in fiscal 2000 and to $1.0 million
for 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 during fiscal 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 $ 1,640,615
Fonar 360 0
QUAD $3,043,308
Echo $1,052,182
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,
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multinational companies or their affiliates such as General Electric Company,
Siemens A.G., Marconi International, 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. 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 98% of HMCA's revenues for the year ended
June 30, 2001 are from entities 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, less than two percent 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.
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7. The profitability of HMCA could be adversely affected if medical insurance
reimbursement rates 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 57% of HMCA's clients
revenues for the year ended June 30, 2001 were 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 management agreements 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 $20.4 million in management agreements as at
June 30, 2001. Before amortization, the aggregate amount of management
agreements attributable to the acquisitions was approximately $23.4 million.
Amortization of these management agreements, 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.
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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. In connection with the physician and
diagnostic management services business conducted by HMCA, Dr. Damadian owns
most of the professional corporations which are HMCA clients. With the exception
of four professional corporations which provide management fees to HMCA of
approximately $374,000 in the aggregate, all of the professional corporations
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.
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 September 20, 2001, there
were outstanding 60,044,124 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 would not be likely to convert and we would be left with the
alternative of paying the debentures in cash or 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
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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 full in August, 2001, then the number
of shares we would have to issue based on the formula would be 2,506,266, or
approximately 14% more shares than would be issued on conversion in full. 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. The number of shares issuable under the warrants
would change in this case in inverse proportion, but we would receive the same
amount of proceeds if the warrants were subsequently exercised in full.
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;
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- 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 will not receive any proceeds from the sale by the selling stockholders
of the common stock they receive upon the conversion or payment of the
debentures or the exercise of the warrants. Nor will we receive any proceeds
from the conversion of the debentures. If the warrants are exercised, however,
we will receive the exercise price of the underlying shares purchased. We can
not, however, guarantee the amount of the proceeds we may receive from the
exercise of warrants.
We intend to use the net proceeds, if any, from the exercise of warrants
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 any net proceeds we may
receive upon the exercise of the warrants. 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 the exercise of the
warrants in short-term, interest-bearing, investment grade securities.
SELLING STOCKHOLDERS
Pursuant to a securities purchase agreement dated May 24, 2001 between us
and The Tail Wind Fund Ltd. stockholders, we issued and sold to the selling
stockholders on that date, for an aggregate purchase price of $4.5 million:
4% convertible debentures due June 30, 2002 in the aggregate principal
amount of $4.5 million, convertible into shares of our common stock at a
conversion price of $2.047 per share, subject to adjustment;
purchase warrants to purchase an aggregate of 959,501 shares of our common
stock at an initial exercise price of $1.801 per share, subject to
adjustment; and
callable warrants to purchase an aggregate of 2,000,000 shares of our
common stock at a fluctuating exercise price which will vary depending on
the market price for our common stock
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.
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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 in full, then we would
still have the right to pay the debentures in shares of our common stock, to the
extent not converted, 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. By amendment dated October 25, 2001, however, the
payments originally due October 1, 2001 and November 1, 2001, have been extended
to November 5, 2001, and for those payments, the stock would be valued at the
average of the two lowest closing bid prices for October, 2001 less $0.25.
The purchase warrants cover 959,501 shares of common stock and have an
exercise price of $1.801 per share, subject to adjustment. The exercise period
extends to May 24, 2006. If all of the purchase warrants are exercised at such
price, 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, which is subject to adjustment pursuant to the
terms of the warrants, 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. At the maximum exercise price of $6.00 per share we
would receive proceeds of $12 million.
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.
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 since otherwise the holders are unlikely to exercise.
No commissions are payable by us or the holders of the debentures and the
warrants in connection with a conversion or exercise.
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 total number of shares being registered, by the terms of the
registration rights agreement with The Tail Wind Fund, Ltd. is approximately two
times the number of shares necessary to repay the debentures in common stock at
the lower of the market price, as computed under the agreement or the conversion
price, plus the number of shares underlying the warrants.
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The table below presents information regarding the selling stockholders and
the shares that they may offer and sell from time to time under this prospectus.
The table assumes that the selling stockholders sell all of the shares they
receive upon the conversion of or payment in stock on the debentures and
exercise of the warrants. However, no assurances can be given as to the actual
number of shares that will be sold by the selling stockholders or that will be
held by the selling stockholders after completion of the sales. Information
concerning the selling stockholders may change from time to time and any changed
information will be presented in a supplement to this prospectus if and when
necessary and required.
The number of shares set forth in the table represents an estimate of the
number of shares of common stock which may be offered by the selling
stockholders and includes:
200% of the common stock issuable upon conversion of the debentures based
on a "market price" conversion price of $1.31 per share, as determined in
accordance with the registration rights agreement and assuming no interest
accrual; and
100% of the common stock issuable upon exercise of the both purchase and
callable warrants issued in connection with the debentures.
The shares of common stock covered under this prospectus include all shares
issued (i) upon conversion of the debentures, (ii) in payment of principal and
interest under the debentures in the case where the debentures are not
converted, and (iii) upon exercise of the purchase and callable warrants.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned by
any person who has voting or investment power with respect to the shares. Common
stock issuable upon conversion of the debentures or exercise of warrants that
are currently convertible, exercisable or exercisable within 60 days are
considered to be outstanding and to be beneficially owned by the person holding
the debentures and warrants for the purpose of computing beneficiary ownership.
Assuming that the selling stockholders sell all of the shares offered under this
prospectus, the selling stockholders will beneficially own less than one percent
of our outstanding shares of common stock after the completion of this offering.
Shares Shares Shares
Beneficially Offered Beneficially
Selling Owned Prior By This Owned After
Stockholder to Offering (1) Prospectus Offering
---------------- --------------- ---------- ------------
The Tail Wind 4,857,840 (2) 9,600,000 0
Fund, Ltd.
Roan Meyers Inc. 300,000 (3) 300,000 0
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(1) Assumes conversion of debentures held by the selling stockholders as of
July 16, 2001, and assumes a conversion price of $2.047 per share and no
interest accrual. If the debentures are not converted the payment of the
debentures can be made in stock valued according to a formula based on the
four lowest bid price for common stock during the prior calendar month
which can fluctuate significantly. Thus, the number of shares of common
stock that the selling stockholders may acquire under the debentures could
significantly increase. The documents we entered into with The Tail Wind
Fund, Ltd. in connection with the private financing prohibit The Tail Wind
Fund Ltd. from beneficially owning more than an aggregate of 9.9% of our
common stock at any time, and the Tail Wind Fund Ltd. expressly disclaims
beneficial ownership of any shares of common stock that would cause the
Tail Wind Fund, Ltd. to own in excess of 9.9% of our common stock.
(2) Consists of 2,198,339 shares of common stock issuable on conversion of the
debentures and 2,659,501 shares of common stock issuable upon the exercise
of the warrant.
(3) Consists of 300,000 shares of common stock issuable on exercise of purchase
warrants issued as compensation for services rendered as the placement
agent.
Neither the selling stockholders nor any of their affiliates, officers,
directors or principal equity holders has held any position or office or has had
any material relationship with us within the past three years.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sales of these shares.
WHO MAY SELL AND APPLICABLE RESTRICTIONS. Shares may be offered and sold
directly by the selling stockholders and those persons' pledgees, donees,
transferees or other successors in interest from time to time. The selling
stockholders could transfer, devise or gift shares by other means. The selling
stockholders may also resell all or a portion of their shares in open market
transactions in reliance upon available exemptions under the Securities Act,
such as Rule 144, provided they meet the requirements of these exemptions.
Alternatively, the selling stockholders may from time to time offer shares
through brokers, dealers or agents. Brokers, dealers, agents or underwriters
participating in transactions may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders (and, if they act as
agent for the purchaser of the shares, from that purchaser). The discounts,
concessions or commissions might be in excess of those customary in the type of
transaction involved.
The selling stockholders will purchase their shares in the ordinary
course of business upon the conversion of debentures, or alternatively upon
the payment of the debentures in common stock at our option and upon the
exercise of warrants issued in connection with the debentures. The
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selling stockholders do not have any agreements or understandings, directly or
indirectly, with any person to distribute the securities.
Nevertheless, the selling stockholders and 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. To
the extent a selling stockholder may be deemed to be an underwriter, the selling
stockholder 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.
To comply with certain states' securities laws, if applicable, the shares
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states the shares may not be sold unless the
shares have been registered or qualified for sale in that state or an exemption
from registration or qualification is available and is complied with.
MANNER OF SALES. The selling stockholders will act independently of us in
making decisions with respect to the timing, manner and size of each sale. The
shares may be sold at then prevailing market prices, at prices related to
prevailing market prices, at fixed prices or at other negotiated prices. The
shares may be sold according to one or more of the following methods.
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.
Purchases by a broker or dealer as principal and resale by the broker or
dealer for its account as allowed under this prospectus.
Ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
Pledges of shares to a broker-dealer or other person, who may, in the event
of default, purchase or sell the pledged shares.
An exchange distribution under the rules of the exchange.
In private transactions between sellers and purchasers without a
broker-dealer.
By writing options.
Any combination of the foregoing, or any other available means allowable
under law.
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HEDGING OR SHORT TRANSACTIONS. In addition, the selling stockholders may
enter into option, derivative, hedging or short transactions with respect to the
shares, and any related offers or sales of shares may be made under this
prospectus. For example, the selling stockholders may:
enter into transactions involving short sales of the shares by
broker-dealers in the course of hedging the positions they assume with the
selling stockholders;
sell shares short itself and deliver the shares registered hereby to settle
such short sales or to close out stock loans incurred in connection with
its short positions;
write call options, put options or other derivative instruments (including
exchange-traded options or privately negotiated options) with respect to
the shares, or which it settles through delivery of the shares;
enter into option transactions or other types of transactions that require
the selling stockholder to deliver shares to a broker, dealer or other
financial institution, who may then resell or transfer the shares under
this prospectus; or
loan the shares to a broker, dealer or other financial institution, who may
sell the loaned shares.
These option, derivative, hedging and short transactions may require the
delivery to a broker, dealer or other financial institution of shares offered
under this prospectus, and that broker, dealer or other financial institution
may resell those shares under this prospectus.
EXPENSES ASSOCIATED WITH REGISTRATION. We have agreed to 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 the shares are sold through underwriters or broker-dealers,
the selling stockholders will be responsible for underwriting discounts,
underwriting commissions and agent commissions.
INDEMNIFICATION AND CONTRIBUTION. In the registration rights agreement that
we entered into with the selling stockholders, we and the selling stockholders
agreed to indemnify or provide contribution to each other and specified other
persons against some liabilities in connection with the offering of the shares,
including liabilities arising under the Securities Act. The selling stockholders
may also agree to indemnify any broker-dealer or agent that participates in
transactions involving sales of the shares against some liabilities, including
liabilities arising under the Securities Act.
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 to the selling stockholder. Any material changes in this plan of
distribution will be reflected in a post-effective amendment.
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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.
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.
EXPERTS
The consolidated financial statements and supplemental financial schedules
contained in Fonar's latest annual report on Form 10-K/A, incorporated by
reference into this prospectus, has been audited by Grassi & Co., CPA's, P.C.,
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.
MATERIAL CHANGES
The Company no longer consolidates any medical practices which it manages.
In 1999, 2000 and 2001, the Company had consolidated certain medical practices
managed as a result of the 1998 acquisitions of A & A Services, Inc. and Dynamic
Health Care Management, Inc. The Company also previously consolidated the
practices conducted by Superior Medical Services, P.C. in 1999, 2000 and 2001.
The Company has determined that consolidation of such medical practices is not
appropriate because the underlying management agreements do not meet all of the
six criteria of Emerging Issues Task Force ("EITF") Consensus No. 97-2.
Accordingly, the consolidated financial statements have been restated. The
significant effect of such restated financial statements for 1999, 2000 and 2001
has been to decrease revenue and related costs by $3.7 million, $3.8 million and
$4.2 million respectively. In addition, the balance sheet caption "Excess of
Cost Over Net Assets of Businesses Acquired - Net" has been reclassified to
"Management Agreements - Net".
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.
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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. 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/A for the year ended June 30, 2001, which
was filed on October 30, 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
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