item 99.1
FONAR ANNOUNCES FISCAL 2006 YEAR-END FINANCIAL RESULTS
MELVILLE, NEW YORK, September 15, 2006 - FONAR Corporation (NASDAQ-FONR), The
Inventor of MR Scanning(TM), today announced financial results for the fourth
quarter and full year of fiscal 2006, which ended June 30, 2006.
Commenting on the results for fiscal year 2006, Raymond Damadian, M.D.,
president and chairman of FONAR, said, "It was a challenging year for our
Company as FONAR continued its introduction of its new MRI products to the
marketplace. The primary challenge was in producing MRI equipment sales
following the achievement of record revenues in 2005 of $104.9 million. It was
a challenge in particular because of the diminished reimbursement by Medicare
and medical insurance companies for free-standing imaging centers, most
recently impacted by Medicare's impending reimbursement reductions under the
newly enacted Federal Deficit Reduction Act (DRA).
This in turn has created uncertainty in the market on the part of purchasers of
MRI scanners for free-standing centers. However, the reduced reimbursements of
Medicare and insurance carriers are directed at free-standing imaging centers
and are not expected to affect hospitals. Consequently, the transitioning of
FONAR's Marketing and Sales operations from being directed at free-standing
centers, which historically has accounted for the great majority of MRI sales
throughout FONAR's 28-year history, to hospital sales, has impacted FONAR's
2006 product sales. The transition for FONAR from free-standing imaging center
sales to hospital sales, once the cause for its declining MRI sales was fully
understood (declining reimbursement), has because of its nature been slow, and
therefore contributed to the drop in 2006 product sales. Selling cycles of MRI
equipment that cost $2 million, including buildout costs, are typically slow
and characteristically range from 6 months to one year. Additionally, hospital
sales are slower still because of the large number of hospital administrative
requirements that must be met, and the larger core of hospital personnel that
participate in the sales, relative to the two or three personnel that
participate in a free-standing center sale.
As in any marketplace correction however, FONAR expects the marketplace to
compensate for reduced reimbursement in the same way the MRI market has
compensated in the past for other marketplace corrections (e.g. the
introduction of MRI specific billing codes [DRG's] and self-referral laws
[Stark legislation]). Indeed, FONAR expects the marketplace compensation for
DRA and other reimbursement restrictions to favor FONAR. The principal
compensating market force offsetting declining reimbursement is the unrelenting
increase in MRI utilization. MRI's unique power for making detailed high-
resolution medical images of critical bodily functions and non-invasive
chemical analyses of diseased tissues and their response to treatment
represents a technology that is still in the early exponential phase of its
vast untapped uses in medicine. As shown in the Imaging Economics Radiology,
June 2005, (Table 5), the four (4) year annual growth rate of MRI as of 2004
was 19.3% per annum. As stated in Imaging Economics Radiology, June 2005,
"Overall, the utilization of MRI is growing faster than that of any other
modality, according to Medicare Part B non-managed care data provided by the
ACR." FONAR expects the utilization of its Upright(TM) MRI technology to
exceed this growth rate, since its use is mandatory for satisfactory spine
care and FONAR's patents on this upright MRI technology preclude the existence
of products from other vendors to compete for the rising demand of upright
weight-bearing multi-position imaging in medicine.
Most importantly, a change is underway in FONAR's MRI market segmentation that
represents a major change for FONAR in the way FONAR addresses the MRI market
at large. Traditionally FONAR's MRI product line exclusively addressed the
"Open MRI" market segment that FONAR originated by its introduction, in 1980,
of the first commercial MRI scanner (the QED80 followed by the Beta 3000) which
simultaneously launched both the generic MRI market and the "Open MRI" market
segment. These iron-frame permanent magnets had a lower magnetic field than
the superconducting "tunnel magnets" subsequently introduced by FONAR's
competitors.
FONAR's competitors' scanners reproduced the design of FONAR's original
superconducting scanner, Indomitable, that accomplished the first ever human
scan in 1977, but these "tunnel scanners" were unduly claustrophobic from the
patient's perspective. Hospitals typically seeking the medical benefits of
higher field did not address the patients' desire for openness, thereby giving
rise to the "Open MRI" market in the free-standing imaging center segment.
Typically FONAR's MRI scanners addressed this free-standing "Open MRI" segment
that FONAR's large multi-national competitors did not, but the lower magnetic
field strength that was the consequence of such "Open" designs traditionally
prevented FONAR, when selling to hospitals, from claiming medical benefits,
important in the hospital market, that competitor magnets could not claim.
FONAR's principal selling attraction of the "Open MRI", while important to the
claustrophobic patient, was of much less interest to the hospital buyer who was
insulated from the competitive pressures of patient preference because their
in-hospital patients did not have a choice in which MRI to be scanned.
In short, FONAR's "Open MRI" magnets sold significantly in the free-standing
imaging center market (350 scanners have been sold since 1978) and did not sell
significantly in the hospital market. Indeed, all "Open MRI" manufacturers
experienced limited access to the hospital market relative to the higher field
"tunnel magnets" because no Open MRI magnets could claim medical benefits that
were not outdone by the medical benefits of higher field "tunnel magnets".
This situation is now reversed. FONAR's Upright(TM) Multi-Position(TM) MRI
meets an important medical need of in-hospital patients that competitors'
scanners do not. There are 916,000 spine surgeries, primarily in hospitals,
which are performed throughout the U.S. each year. By comparison 940,000
cardiac surgeries are performed annually in the U.S.
Since the availability on the market of FONAR's Upright(TM) Weight-Bearing
Multi-Position(TM) MRI technology, such surgeries can no longer be undertaken
without accessing the important added information that weight-bearing and
multi-position imaging of the spine provides. The complete picture of the
patient's spine pathology provided by multi-position weight-bearing imaging is
essential to prevent wrong diagnoses and the wrong surgeries that can result
from wrong diagnoses.
Indeed, in a recent sale to the St. Maartenskliniek, the largest orthopedic
hospital in the Netherlands, the hospital reported that in deciding to buy,
they concluded that, for the reasons stated above, the decision to buy the
FONAR Upright(TM) Multi-Position(TM) MRI for their internationally renowned
"Spine Centre" was "mandatory and not optional"
(www.fonar.com/news/06132006a.htm).
Accordingly, FONAR's MRI products, unlike its prior "Open MRI products", now
directly address the needs of the hospital market, and redirection of FONAR
Sales and Marketing to selling in the hospital market are underway. The time
required to make this transition, to inform the hospital market of their need
and availability of this product, and the time required to achieve acceptance
by the hospital market, slowed product sales in 2006.
Acceptance by the hospital market is now growing and FONAR is presently looking
forward to rapid growth in this new market segment.
Fiscal Year 2006 Financial Results
- ----------------------------------
Revenues for fiscal 2006 were $33.1 million compared to $104.9 million for
fiscal 2005. Overall revenues attributable to the medical equipment (MRI)
segment were $11.1 million as compared to $73.1 million for the medical
equipment segment revenues reported in the comparable period of last year.
Service and repair revenues increased by 48% in fiscal 2006 to a record $8.6
million from $5.8 million in the prior year. This increase is the result of
warranty expirations and new service contract agreements with MRI customers.
Service and repair revenues are expected to increasing in the coming years as
warranties lapse on new unit installations and to address other post-
installation requirements for customers.
Revenues attributable to FONAR's physician and diagnostic services management
segment (HMCA) in fiscal 2006 were $13.4 million, as compared to $23.6 million
in the prior year. This decrease in revenues from HMCA on a year-over-year
basis can be substantially attributed to the sale of HMCA's physical therapy
and rehabilitation facility management business in July 2005.
FONAR has spent a significant sum of money over the last 2 fiscal years in
order to comply with the requirements imposed upon public companies by
Sarbanes-Oxley and has made significant improvements this year as evidenced by
the lack of any material weaknesses or significant deficiencies in its internal
financial controls.
Net loss for fiscal 2006 was $30.0 million, or $0.27 loss per share (basic and
diluted), as compared to a net income of $1.0 million, or $0.01 per share
(basic and diluted), for the same period of fiscal 2005. The Company's loss
for fiscal 2006 was primarily attributable to the decrease in sales of products
and the reduction of revenues from the sale of the physical therapy and
rehabilitation businesses as well as continued investment in development of the
Company's proprietary technology to improve its already industry leading MRI
imaging capabilities. These factors were partially offset by ongoing
management of operating expenses including a year-over-year decrease in
selling, general and administrative expenses by 11%.
The Company's cash and marketable securities position at June 30, 2006 was $9.5
million, a reduction of approximately $400,000 from the end of the third
quarter of fiscal 2006. At the end of fiscal 2006 FONAR had a positive working
capital position of $14.2 million and backlog of $24.2 million.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended
--------------------------
June 30, June 30,
2006 2005
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Revenues $33,076,329 $104,898,544
Net Income (Loss) $(29,963,357) $ 1,014,409
Basic & Diluted
Earnings (Loss)
per Share $(0.27) $0.01
Be sure to visit FONAR's Web site for Company product and investor information:
www.fonar.com
###
This release may include forward-looking statements from the company that may
or may not materialize. Additional information on factors that could
potentially affect the company's financial results may be found in the company
filings with the Securities and Exchange Commission.
Contacts:
Daniel Culver
FONAR Corporation
Tel: 631-694-2929
Fax: 631-390-1709
http://www.fonar.com
invest@fonar.com
Jordan M. Darrow
Darrow Associates, Inc.
Tel. 631-367-1866
Fax. 631-614-3612
jdarrow@darrowir.com