FONAR PRESIDENT’S LETTER TO SHAREHOLDERS 2018

FONAR CHAIRMAN’S LETTER TO SHAREHOLDERS
May 2018

Dear Shareholders:

I am pleased to report that as of December 31, 2017, FONAR posted 31 consecutive quarters of positive net income and positive income from operations.

Fiscal Year Ended June 30	2010	2011	2012	2013	2014	2015	2016	2017
Total FONAR Revenue	$31,815,555	$33,136,395	$39,444,419	$49,141,814	$68,505,477	$69,050,996	$73,368,210	$78,036,586
Total FONAR Net (Loss) Income	$(3,012,742)	$ 3,309,019	$ 6,875,073	$10,256,362	$13,396,769	$15,430,383	$18,795,517	$23,678,798
Diluted Net (Loss) Income Per Common Share	$ (0.61)	$ 0.55	$ 0.91	$ 1.34	$ 1.58	$1.95	$2.38	$2.92

On June 26, 2017, FONAR was included in the broad-market Russell 3000® Indexes, which has increased the Company’s membership in related index funds and ETFs (Exchange Traded Funds), allowing mutual funds, institutions, and the investing community greater visibility of FONAR and helping to build shareholder value. As of December 31, 2017, total institutional and mutual fund ownership in FONAR stock (FONR on NASDAQ Capital Markets) stood at 62%, up from 51% the year before. A substantial, even growing, percentage of institutional and mutual fund ownership, together with the company’s steady growth in revenue and income, has significantly contributed to the value and unprecedented stability of FONAR stock.

FONAR’s primary source of income and growth has been attributable to Health Management Company of America (HMCA), the company’s diagnostic imaging management subsidiary. Eight years ago, HMCA was managing 9 MRI facilities (6 in New York and 3 in Florida) that had completed 29,000 MRI scans in calendar 2009. At that point my son, Tim, returned to FONAR with a business plan of his own design aimed at growing HMCA by increasing scan volume at existing HMCA-managed facilities, establishing de novo centers, and making key acquisitions. With FONAR management’s enthusiastic endorsement of his plan, Tim assembled an experienced management team that, under his leadership, has since faithfully executed the plan, thereby delivering consistent and unprecedented profitability for FONAR shareholders. Today, HMCA manages 26 diagnostic imaging centers (19 in New York and 7 in Florida) equipped with 34 MRI scanners that completed 170,000 MRI scans in calendar 2017, as compared to 160,000 in 2016. Twenty-four of the 26 centers are equipped with FONAR UPRIGHT® Multi-Position™ MRIs. Tim was named President and Chief Executive Officer of FONAR on February 11, 2016.

About HMCA

In the late 1990’s, MRI equipment sales were, for a variety of reasons, erratic, which made it very difficult to manage the company and plan for its future. By then we had been working with FONAR MRI customers and prospective buyers for nearly 20 years and, as a result, had become very familiar with the day-to-day operations of independent MRI scanning centers. We saw what worked and we saw what didn’t work. Having acquired that know-how, coupled with our expertise in MRI technology, it was logical for us to expand into the business of providing non-medical management services for MRI scanning facilities. Hence in 1997, FONAR established the subsidiary now known as Health Management Company of America (HMCA). It was expected that the relative certainty of reliable management fee payments would make FONAR less vulnerable to the uncertainties of the MRI equipment sales market. Thankfully, it has done just that. In fact, HMCA has since emerged as the company’s leading source of revenue and profit.

The company’s most recent de novo center, Stand-Up MRI of Great Neck, opened in February 2016 in Great Neck, New York.

The Company’s most notable acquisition was completed in March of 2013, when we acquired the majority interest in a limited liability company that brought the number of HMCA-managed centers from eleven (11) to twenty five (25).

We continue to conduct demographic studies in search of de novo locations and/or acquisition opportunities in New York and Florida that are compatible with our business plan and would add quickly and significantly to net revenues and profit.

About FONAR

FONAR, The Inventor of MR Scanning™, located in Melville, NY, was incorporated in 1978 and is the first, oldest and most experienced MRI company in the industry. FONAR introduced the world's first commercial MRI in 1980, and went public in 1981. The Company, which has installed over 400 MRIs all over the world, continues to manufacture, sell, service and upgrade FONAR scanners.

FONAR's signature product is the FONAR UPRIGHT® Multi-Position™ MRI (also known as the STAND-UP® MRI), the only whole-body MRI that performs Position™ imaging (pMRI™) and scans patients in numerous weight-bearing positions, i.e. standing, sitting, in flexion and extension, as well as in the conventional lie-down position. The FONAR UPRIGHT® MRI often detects patient problems that other MRI scanners cannot because they are “lie-down-only”, or "weightless-only" scanners. Weight-bearing MRI enables more complete diagnoses in comparison to “weightless” MRIs. In fact, the FONAR UPRIGHT® Multi-Position™ MRI has detected problems that were underestimated or missed entirely on “weightless-only” MRI scanners, particularly scans of the spine. That is very important because most MRI scans performed are of the spine. With the UPRIGHT® MRI’s power to “see it all,” the benefits of this unique scanner continue to gain traction in the medical community because the UPRIGHT® provides referring physicians the means to achieve better outcomes for their patients.

There is another very important aspect of the UPRIGHT® MRI. It is the Patient-Friendly™ MRI, a claim most strongly supported by its near-zero claustrophobic rejection rate by patients. In fact, approximately 85% of patients are scanned sitting while watching TV.

The unique diagnostic benefits of the FONAR UPRIGHT® Multi-Position™ MRI, along with its enormous popularity among patients, contribute significantly to success enjoyed by FONAR users everywhere.

FONAR’s R&D team continues to pursue new MRI innovations and provide hardware and software upgrades for existing customers.

The Company has new works-in-progress technology for visualizing and quantifying the cerebral hydraulics of the central nervous system, the flow of cerebrospinal fluid (CSF), which circulates throughout the brain and vertebral column at the rate of 32 quarts per day. This imaging and quantifying of the dynamics of this vital life-sustaining physiology of the body’s neurologic system has been made possible first by FONAR’s introduction of the MRI and now by this latest works-in-progress method for quantifying CSF in all the normal positions of the body, particularly in its upright flow against gravity. Patients with whiplash or other neck injuries are among those who will benefit from this new understanding.

FONAR continues to faithfully protect its substantial and ever-growing patent portfolio. Among them are recent patents for its technology enabling full weight-bearing MRI imaging of all the gravity sensitive regions of the human anatomy, especially the brain, extremities and spine. It includes its newest technology for measuring the Upright cerebral hydraulics of the central nervous system. FONAR’s UPRIGHT® Multi-Position™ MRI is the only scanner licensed under these patents.

In January of 1976, my two post-graduate students, Lawrence Minkoff, Ph.D. and Michael Goldsmith, Ph.D., and I began construction of the first-ever human-sized magnetic resonance imaging (MRI) scanner at the research lab in SUNY Downstate Medical Center, Brooklyn, NY. This first MRI scanner, which we named Indomitable, is now at the Smithsonian Institution.

I had first proposed MR scanning of the human body in my paper "Tumor Detection by Nuclear Magnetic Resonance" (Science, March 19, 1971). That paper reported that there are dramatic differences in the characteristic NMR (MRI) parameters, known as T1 and T2, between healthy and cancerous tissues, as well as between the healthy tissues themselves. It is precisely these tissue NMR signal differences that provide the exceptional picture element contrast, PIXEL CONTRAST (IMAGE DETAIL), of the body’s vital soft tissue organs (brain, heart, kidney, liver, stomach, spleen, intestine, pancreas) that had been missing and restricting conventional medical x-ray imaging and limiting its ability to visualize critical detail in medical images for the better part of a century. These newly discovered tissue-sensitive NMR signal parameters, T1 and T2, now provide today’s MRI scanners with the exceptional image detail MRI is known for. (1895- Roentgen’s introduction of medical x-ray imaging)

So, after many years of research, my moment of truth began late on July 2, 1977 when Larry entered Indomitable. The whole-body scan of his chest was completed at 4:45 A.M. on July 3, 1977.

What I am most grateful for is that the MRI scanner is now found throughout the world, with over 20,000 installed world-wide and over 60 million MRI examinations being performed each year. I am sincerely grateful for the blessing that has enabled FONAR to help so many people.

Thanks to the extraordinary benefits and appeal of our unique, patent-protected product, the FONAR UPRIGHT® Multi-Position™ MRI, together with our remarkably successful management subsidiary (HMCA), FONAR has hit its stride.

FONAR is already well known for its lengthy history of MRI innovations. Now that FONAR has finally settled into a steady rhythm of growth and profitability, the Company is well positioned and eager to continue its tradition of advancing MRI technology and increasing shareholder value.

As always, I remain grateful to our stockholders, customers and employees for their loyal support.