PRESIDENT'S MESSAGE TO STOCKHOLDERS
From the Desk of
Raymond V. Damadian, M.D.
President and Chairman
May 19, 2003
I am pleased to report to you that the Stand-Up(TM) MRI is
proving itself to be all that we hoped it would be, and that
I am very optimistic about the future of our Company.
The Stand-Up(TM) MRI - A Remarkable Product
Because of its revolutionary magnet configuration, the Stand-Up(TM)
MRI is the only MRI that can perform Position Imaging(TM) (pMRI(TM)),
i.e. patients can be scanned sitting, standing, bending, in
flexion and extension, or lying down. Its unique ability to
scan patients in weight-bearing positions and to scan patients
in their positions of pain or symptoms has enabled it to detect
pathologies that went undetected on conventional lie-down (recumbent)
MRI scanners. The proof is beginning to accumulate, making the
Stand-Up(TM) MRI the most exciting and talked-about advancement
in the field of MRI. Indeed, the best image is the one that
sees the pathology.
Operating on a proven platform of 0.6 Tesla technology, the
Stand-Up(TM) MRI makes images of extraordinary quality. A full
range of advanced software features and state-of-the-art pulse
sequences provides the user with all the tools necessary to
achieve remarkable diagnostic precision.
Besides its unique diagnostic advantages and extraordinary
image quality, the Stand-Up(TM) MRI is also the most patient-friendly
MRI in the industry. Stand-Up(TM) MRI patients typically sit
and watch TV throughout their scans. A pleasant experience in
a Stand-Up(TM) MRI is a far cry from having to lie down and
be pushed into a "tunnel." Very large or anxious patients who
had repeatedly failed to tolerate other MRIs, including "open"
MRIs, have traveled hundreds of miles, some from Europe to New
York, to be scanned in a Stand-Up(TM) MRI. These patients are
invariably relieved and extremely grateful to finally have their
problems properly addressed and to get on with their treatment
plans and their lives.
Early results are confirming our expectation that the Stand-Up(TM)
MRI's ability to scan patients in weight-bearing positions,
either sitting, standing, or bending would be extremely useful
for accurately diagnosing back and neck problems. As you know,
back problems are very common. The National Center for Health
Statistics reports that "14% of new patient visits to physicians
each year are due to low back pain, and almost 13 million physician
visits per year are required to care for chronic low back pain."
Back pain is second only to the common cold as a cause of lost
time from work. So it is no surprise that roughly half of all
MRI scans performed today are of the spine.
This is a huge market for the Stand-Up(TM) MRI practitioner,
because the Stand-Up(TM) MRI is the only MRI that enables visualization
of the spine under weight-bearing conditions. Back pain can
be most acute or might only be present when the patient is in
an upright, weight-bearing position. Only the Stand-Up(TM) MRI
can see the complete picture of what is occurring in the spinal
region when the patient is upright.
Should surgery be required, the Stand-Up(TM) MRI provides the
surgeon with the most comprehensive evaluation of the patient's
spine. Dr. Manuel S. Rose, a board-certified diagnostic radiologist
who owns two Stand-Up(TM) MRIs in Florida, says, "If the problem
is a herniated disk, it is quite possible that the herniation,
when visualized with the patient in a supine position, could
appear far less severe that it actually is, or it could disappear
altogether. We've seen this happen on several occasions. Through
no fault of their own, surgeons are at a serious disadvantage,
consequently resulting in failed surgeries. With the Stand-Up(TM)
MRI, the surgeon can, for the first time, visualize pathology
in both the supine and upright positions, allowing him to accurately
evaluate the full extent of the problem."
According to the June 1, 2002 issue of American Family Physician,
a peer review journal for family practice physicians, MRI is
already "the procedure of choice for diagnostic imaging of neurologic
structures related to lower back pain." So when it comes to
tools for diagnosing back problems, the Stand-Up(TM) MRI is
the preferred of the preferred.
While diagnosing spine and joint problems is at present the
most obvious and most common usage of the Stand-Up(TM) MRI,
I expect that its ability to see inside the human body with
the patient in an upright position will, in the near future,
make it a valuable, perhaps indispensable, diagnostic and therapeutic
tool in many areas of medicine.
Sales and Marketing have become top priorities at FONAR. At
this writing, we have sold 38 Stand-Up(TM) MRIs and installed
18. I might add that our manufacturing and installation departments
are doing an excellent job in accommodating our customers' installation
schedules. Most sales have been to independent, free-standing,
diagnostic imaging businesses. Three sales have been to hospitals,
including Scotland's prestigious University of Aberdeen.
Six customers have already purchased more than one system;
one customer has purchased eight and has six installed. Stand-Up(TM)
MRIs in operation. Other multiple-purchase customers are expected.
Repeat sales indicate the remarkable appeal of the Stand-Up(TM)
MRI to patients and physicians, and they demonstrate the Stand-Up(TM)
MRI's ability to create thriving enterprises.
Since the time we first introduced the Stand-Up(TM) MRI, we
have never had as many serious sales prospects as we have right
In the past, our major marketing event has been our exhibition
at the annual meetings of the Radiological Society of North
America (RSNA) in Chicago. The show typically draws 60,000,
making it the largest medical meeting in the world. At the last
RSNA show in November/December 2002, FONAR exhibited the Stand-Up(TM)
MRI with its beautifully restyled magnet configuration.
The Stand-Up(TM) MRI, because of its unique ability to do weight-bearing
and Position Imaging(TM), has special appeal to orthopedic surgeons.
In order to reach that very important market for the Stand-Up(TM)
MRI, FONAR, for the first time, exhibited at the meeting of
the American Academy of Orthopaedic Surgeons (AAOS) in New Orleans
in February of this year. The show was attended by approximately
12,000 domestic and international orthopedic surgeons and other
healthcare professionals. FONAR's exhibit was one of the largest
on the floor. The physicians were extremely receptive and sales
leads are being vigorously pursued.
In August 2003, FONAR will be exhibiting for the first time
at World Spine II, the 2nd Interdisciplinary Congress on Spine
Care. The show, held in Chicago this year, is expected to attract
over 1000 physicians from all over the world, most of them orthopedic
surgeons (40%) and neurosurgeons (50%).
In October 2003 we will be exhibiting, again for the first
time, at the annual meeting of the North American Spine Society
(NASS) in San Diego. This meeting will be attended by approximately
2500 physicians, most of them orthopedic surgeons and neurosurgeons
from North America. As this will be an outstanding marketing
opportunity for the Company, we are planning a high-impact presentation,
similar to the highly successful one we made at the AAOS meeting
earlier this year.
FONAR has continued its national media blitz that began in
early 2002. The blitz, which includes primarily radio, TV and
billboard advertising, targets several fronts. We have two goals
for each targeted area: to generate sales leads for the Stand-Up(TM)
MRI, and to generate business for any Stand-Up(TM) MRI centers
in the targeted areas. In steering patients to Stand-Up(TM)
MRI centers through advertising, we are demonstrating to potential
buyers the enormous appeal that the Stand-Up(TM) MRI has for
physicians and the general public alike. I am pleased to report
that the response has been very encouraging and that we are
achieving our goals.
Health Management Corporation of America (HMCA), our wholly-owned
physician and diagnostic services management subsidiary, has
been undergoing some very positive changes. Several diagnostic
imaging centers with old FONAR equipment have either been closed
or upgraded with Stand-Up(TM) MRIs. This time last year, HMCA
managed only one Stand-Up(TM) MRI facility; now it manages three,
with plans to upgrade as many others as it can, as quickly as
it can. In addition to upgrading existing MRI centers, HMCA
is, as financing becomes available, interested in establishing
and managing new Stand-Up(TM) MRI centers in promising regions
of the country.
Management fees from Stand-Up(TM) MRI facilities are excellent
sources of revenue for the Company. Our first HMCA-managed Stand-Up(TM)
MRI facility in Islandia, New York consistently completes over
400 scans a month. As reported previously, in the first six
months of fiscal 2003 (July 1, 2002 through December 31, 2002)
HMCA enjoyed operating income of $537,000 from its management
of the Islandia facility, clearly demonstrating the value to
FONAR of selling Stand-Up(TM) MRIs to HMCA-managed facilities.
It is our expectation that our newly-upgraded facilities in
Bensonhurst, New York and Staten Island, New York, installed
in January and April of 2003 respectively, will repeat the success
we have enjoyed in Islandia. A fourth Stand-Up(TM) MRI upgrade
will soon commence in Florida. At present, HMCA manages 12 diagnostic
imaging centers, primarily in New York and Florida.
HMCA closed its only poorly-performing multi-specialty practice
late last year, leaving the subsidiary with management revenues
from the remaining six, all of them in New York, all of them
doing well. In April 2003, HMCA sold for $3.0 million (together
with forgiveness of indebtedness of approximately $1.1 million)
what had become a poorly-performing group of four primary care
offices in Queens, New York. These offices produced losses in
fiscal 2002 and in the first six months of fiscal 2003.
While closing down or selling poor performers will result in
a loss of management revenues, the savings in expenses (and
time) will more than compensate, thereby contributing to the
profitability and viability of the company. HMCA is doing exactly
what it needs to do - growing with the Stand-Up(TM) MRI and
trimming where necessary.
Revenues Growing, Losses Shrinking
I am pleased to report that FONAR revenue, as indicated in
the accompanying graph, is continuing its positive trend. In
fact, revenues increased 51% during the first six months of
fiscal 2003. [FONAR's fiscal 2003 year runs from July 1, 2002
through June 30, 2003]. The first six-month revenues were $30.0
million compared to $19.9 million for the corresponding period
a year earlier. The net loss over the same period was $5.6 million,
a 34% improvement over that of the previous year.
Total Revenues Chart for the past 10 quarters
|1st Quarter Fiscal 2001
|2nd Quarter Fiscal 2001
|3rd Quarter Fiscal 2001
|4th Quarter Fiscal 2001
|1st Quarter Fiscal 2002
|2nd Quarter Fiscal 2002
|3rd Quarter Fiscal 2002
|4th Quarter Fiscal 2002
|1st Quarter Fiscal 2003
|2nd Quarter Fiscal 2003
I believe that there are two keys to shareholder value. The
first is to be successful in operating the business. We are
doing that. But the second, which is also important, is to be
in close and regular communication with the financial community.
We need to do both. To that end we will be devising a plan that
will take our story to where it needs to go - to the doorsteps
of the financial institutions and funds.
We have a wonderful product, a one of a kind product -- the
Stand-Up(TM) MRI. We are seeing the Stand-Up(TM) MRI do what
no conventional MRI can or ever will be able to do. Physicians
are enthusiastically embracing it for its unique diagnostic
advantages, and patients love it because it has transformed
a negative, sometimes horrifying, scanning experience into a
very pleasant one. It is opening new markets for FONAR and it
is growing our subsidiary, HMCA. Revenues are up, and we are
anticipating a record year in sales.
I remain grateful to FONAR employees and stockholders, especially
the ones who have stood by us for so many years. I look forward
with great optimism to a prosperous future for our Company.
Thank you for your support.
Raymond V. Damadian
President and Chairman