Filing pursuant to Rule 424(b) (3)
Registration Statement No. 333-63782
PROSPECTUS SUPPLEMENT NO. 3 DATED MAY 3, 2004
(TO PROSPECTUS DATED NOVEMBER 1, 2001)
1,000,000 SHARES
FONAR CORPORATION
COMMON STOCK
This prospectus supplement covers 1,000,000 shares of the 9,900,000 shares
covered by the prospectus dated November 1, 2001 and the registration statement
of which it is a part. This prospectus supplement relates to a change in the
exercise price under and the number of shares covered by the Purchase Warrant
previously issued by us to The Tail Wind Fund Ltd. on May 24, 2001 in connection
with a financing transaction pursuant to which The Tail Wind Fund Ltd. provided
Fonar Corporation $4.5 million payable pursuant to a 4% Convertible Debenture.
In addition to the Purchase Warrant Fonar also issued to The Tail Wind Fund Ltd.
a Callable Warrant. The Purchase Warrant as amended and restated on April 28,
2004 covers 1,000,000 shares of our common stock at an exercise price of $0.79
per share. See "Purchase Warrant" below for a more detailed description of these
changes and the Purchase Warrant.
You should read this prospectus supplement along with the accompanying
prospectus. These documents contain information you should consider when making
your investment decision. You should rely only on information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone else to provide you with different or
additional information. You should not assume that the information in this
prospectus supplement is accurate as of any date other than the date on the
front of this document. The prior two prospectus supplements concerned only the
Callable Warrant issued with the Purchase Warrant, which Callable Warrant has
been exercised in full.
The prospectus supplement and the accompanying prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
common stock offered hereby. This prospectus supplement and the accompanying
prospectus do not constitute an offer to sell or a solicitation of an offer to
buy our common stock in any circumstances in which an offer or solicitation is
unlawful.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4 OF THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SELLING STOCKHOLDERS
PURCHASE WARRANT
On May 24, 2001, we issued a Purchase Warrant to The Tail Wind Fund Ltd.
covering 659,501 shares of our common stock at an exercise price of $1.801 per
share, subject to adjustment. The Purchase Warrant was issued in connection with
a financing transaction pursuant to which The Tail Wind Fund Ltd. provided Fonar
with $4.5 million pursuant to a 4% Convertible Debenture, which in the absence
of a conversion by The Tail Wind Fund Ltd., Fonar had the option of paying in
stock or cash. In addition, we issued to The Tail Wind Fund Ltd. a Callable
Warrant covering 2,000,000 shares of our common stock at a variable exercise
price. Under the terms of the Callable Warrant, the exercise price was to be
equal to the average closing bid price of Fonar's common stock for the full
calendar month preceding the date of exercise subject to a maximum exercise
price of $6.00 per share and a minimum exercise price of $2.00 per share,
subject to adjustment. In order to induce The Tail Wind Fund Ltd. to exercise
the Callable Warrant, the exercise price of the Callable Warrant was amended in
June and August of 2002 to reduce the exercise price thereof to $1.50 per share
and $1.125 per share respectively. The Tail Wind Fund Ltd. exercised the
Callable Warrant in full, purchasing 1,000,000 shares at $1.50 per share in June
of 2002 and 1,000,000 in August at $1.125 per share. As part of the amendments
to the Callable Warrant, Fonar replaced the Callable Warrant with a new Callable
Warrant having the same terms as the original Callable Warrant prior to the
amendments. The shares underlying the Replacement Callable Warrant were
registered under a separate registration statement and are not covered by the
prospectus to which this supplement relates or the registration statement of
which it forms a part.
The Purchase Warrant contained antidilution provisions, which provided for
proportionate adjustments in the event of stock splits, stock dividends and
reverse stock splits. In addition, the antidilution provisions provided that the
exercise price would be reduced if we issued shares at lower prices than the
warrant exercise price, or less than the market price for our common stock.
Where the effective per share selling price in connection with stock issuances
by Fonar was less than the exercise price, the exercise price would be reduced
to such lower price. The Purchase Warrant also provided that the number of
underlying shares would be inversely proportionately increased or decreased in
the event of a change in the exercise price, such that the aggregate purchase
price for the underlying warrant shares upon full exercise of the Purchase
Warrant would remain the same. In brief, a reduction of the exercise price would
increase the shares covered by the Purchase Warrant.
Since issuing the Purchase Warrant, we have registered shares of our common
stock and issued them to suppliers of goods and services in lieu of cash. Under
those arrangements, our suppliers would credit us for the net proceeds they
received from the sale of the shares we issued to them. The market price for our
common stock was under the $1.801 exercise price of the Purchase Warrant at many
times during our program of paying vendors with stock in lieu of cash.
Consequently, we were credited by our suppliers at rates below the $1.801 per
share exercise price under the Purchase Warrant. On April 28, 2004, The Tail
Wind Fund Ltd. and Fonar executed an amendment to the Purchase Warrant,
providing that the number of shares underlying the Warrant would be 1,000,000
shares and that the exercise price would be $0.79 per share. Although the new
exercise price was determined in accordance with the Warrant as a result of the
vendor issuances previously described, the number of underlying shares
represented an agreement on the part of The Tail Wind Fund Ltd. to accept an
adjustment representing a lesser number of shares than would have resulted from
the strict application of the formula in the Purchase Warrant. In addition,
among other things, the antidilution provisions were amended to provide that if
Fonar were to sell shares below the Warrant exercise price, the exercise price
would not automatically be reduced to the lower price, but that it would be
adjusted based on the price and number of shares sold relative to the total
number of shares outstanding before and after the sale. In addition, the
provision that required an adjustment in the exercise price if Fonar sold shares
below the market price was eliminated. These modifications were accepted by The
Tail Wind Fund Ltd. in consideration for, among other things, the term of the
Purchase Warrant being extended three years to May 24, 2009.
None of the Purchase Warrant shares have been exercised. We do not know or have
any indication from The Tail Wind Fund as to when they may exercise, in whole or
in part, the Purchase Warrant.
Also on April 28, 2004, the parties amended the Replacement Callable Warrant,
which also contained antidilution provisions. As a result of the antidilution
provisions, The Tail Wind Fund Ltd. exercised the Callable Warrant prior to
April 28, 2004 in part to purchase 400,000 shares at prices under $2.00 per
share, on one occasion 200,000 shares at the price of $1.41 per share and on a
second occasion 200,000 shares at $1.17 per share, before the parties came to a
final agreement as to the effect of the vendor sales. The parties agreed to
amend the Replacement Callable Warrant to fix the remaining number of underlying
shares at 3,000,000 shares of our common stock and set the exercise price at
$1.00 per share, provided that The Tail Wind Fund Ltd. would immediately
exercise the Replacement Callable Warrant in full. The Tail Wind Fund Ltd. has
exercised the Replacement Callable Warrant in full, purchasing 3,000,000 shares
for $3,000,000. The shares remaining available for resale under the registration
statement (and the prospectus and prospectus supplement which are a part
thereof) and applicable to the Replacement Callable Warrant is 1,600,000 shares,
after giving effect to the 400,000 shares previously purchased. The balance of
the 3,000,00 shares, or 1,400,000 shares, issued are unregistered and
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933, as amended. Fonar has agreed to file a registration statement with
respect to these 1,400,000 shares, and to use its best efforts to have it become
effective under the Securities Act of 1933, as amended. The shares underlying
the Replacement Callable Warrant are not covered by this prospectus supplement,
the accompanying prospectus, or the registration statement of which they are a
part.
USE OF PROCEEDS
We intend to use any net proceeds from the exercise of the Purchase Warrant for
general corporate purposes, including working capital to fund operations,
expenses and capital expenditures. As of the date of this prospectus supplement,
we cannot specify with certainty the particular uses for the net proceeds we may
receive upon the exercise of the Purchase Warrant. Accordingly, our management
will have broad discretion in the application of any net proceeds received.
Pending such uses, we currently expect that we would invest the net proceeds
from the exercise of the Callable Warrant in short-term, interest-bearing,
investment grade securities.
MARKET FOR OUR COMMON STOCK
Our common stock is listed on the NASDAQ Small Cap Market under the symbol
"FONR". On April 27, 2004 our closing price of one share of common stock was
$1.34. As of April 16, 2004, we had 94,555,637 shares of common stock
outstanding.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to "incorporate by reference" information that we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus supplement and the accompanying prospectus.
The documents we incorporate by reference and where you can find additional
filings and information concerning Fonar are set forth in the prospectus
beginning on page 16.