FONAR (FONR) 10-K: Profits Fall Amid Revenue Growth & Take-Private Bid

FONAR Corp., the company that invented the MRI scanner, recently released its annual financial results, offering a look into its performance for the fiscal year ending June 30, 2025. In this post, we'll dive into the key numbers from their latest 10-K filing to understand the financial health of a company operating at the intersection of medical device manufacturing and healthcare services.

FONAR’s business is split into two distinct parts: first, the design, manufacturing, and servicing of their unique Upright® MRI scanners; and second, the management of diagnostic imaging centers through their subsidiary, HMCA. While total revenue saw a modest increase to $104.4 million from $102.9 million the prior year, the bottom line tells a more complex story. Net income fell significantly to $10.7 million from $14.1 million in fiscal 2024.

To see how revenue translated into profit, the following flow diagram breaks down the company's income statement.

A Tale of Two Segments

The company's overall performance is best understood by looking at its two business divisions separately, as they are on very different trajectories.

Management of Diagnostic Imaging Centers: This segment is the clear financial engine of the company, generating $95.4 million in revenue. However, its profitability took a hit. Operating income for this division dropped to $19.2 million from $23.5 million the previous year. The filing points to a challenging cost environment, citing increased staffing costs, equipment repairs, and helium replacement costs. More notably, the company booked a $2.3 million increase in reserves for credit losses tied to a single motor vehicle insurer, American Transit Insurance Company (ATIC), which is facing potential insolvency. This highlights a key risk in the healthcare services industry: reliance on the financial stability of insurance payers.

Manufacturing and Servicing of Medical Equipment: This original part of FONAR's business continues to struggle. The segment generated $9.0 million in revenue, but its operating loss widened to $7.6 million from a $7.0 million loss in 2024. Product sales actually declined, with the revenue growth coming from an increase in service and repair fees. The company is investing in new ventures, such as servicing MRI equipment from other manufacturers, but these efforts have not yet offset the segment's losses.

Navigating Healthcare Headwinds

Beyond its internal operations, FONAR is grappling with broader industry pressures. The filing repeatedly mentions the impact of reduced reimbursement rates from both government programs like Medicare and private insurance companies. This trend not only squeezes the profit margins of the imaging centers FONAR manages but also dampens the demand for new MRI scanners, creating a dual challenge for the company.

Compounding this is the pressure of inflation, which has increased costs for materials and labor. The report also notes some unusual one-time expenses, including a tax settlement and a significant back-billed electricity charge, which further ate into profits this year.

In a significant development noted in the filing, a group led by the company's CEO and COO has made a non-binding proposal to acquire all outstanding stock and take FONAR private. This suggests that while challenges exist, current leadership may see a path to value creation away from the pressures of the public market. This move could reshape the company's future, making FONAR a company to watch in the coming months.