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FONAR CHAIRMAN’S LETTER TO SHAREHOLDERS
April 2017

Dear Shareholders:

I am pleased to report to our shareholders that as of December 31, 2016, FONAR has posted 26 consecutive quarters of positive net income and positive income from operations.

Fiscal Year Ended June 30
2010
2011
2012
2013
2014
2015
2016
Total FONAR
Revenue
$31,815,555
$33,136,395
$39,444,419
$49,141,814
$68,505,477
$69,050,996
$73,368,210
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
Diluted Net (Loss) Income Per Common Share
$ (0.61)
$ 0.55
$ 0.91
$ 1.34
$ 1.58
$1.95
$2.38

FONAR stock (FONR on NASDAQ Capital Markets) continues to enjoy substantial interest among institutions and mutual funds. As of December 31, 2016, institutional ownership was 42%, compared to 33% one year earlier. As of the same date, mutual fund ownership was 9%, bringing total ownership by institutions and mutual funds to 51%, an increase of 21% over last year.

FONAR’s diagnostic imaging management subsidiary, Health Management Company of America (HMCA), continues to be the company’s primary source of income and growth. When my son, Timothy, returned to FONAR in February, 2010, HMCA was managing 9 MRI facilities (6 in New York and 3 in Florida) that had completed approximately 29,000 MRI scans in calendar 2009.

Upon Tim’s return, he immediately assembled a proven management team to work with him to grow the company by increasing scan volume at HMCA’s existing facilities, establishing de novo centers, and making key acquisitions. The transition has been not only seamless, but dynamic. Today HMCA manages 26 facilities (19 in New York and 7 in Florida) collectively equipped with 33 MRI scanners that completed nearly 160,000 MRI scans in calendar 2016. Twenty-four (24) of the centers are equipped with FONAR UPRIGHT® Multi-Position™ MRI

In applying his extensive experience in managing MRI centers, his thorough understanding of the MRI marketplace, and the technical MRI know-how he acquired when working in FONAR’s Field Service and Manufacturing divisions, Tim has helped the company achieve steadily-increasing profitability and has set the course for continuing growth and new product development. Appropriately, Tim was named President and Chief Executive Officer of FONAR on February 11, 2016.

About HMCA

FONAR formed HMCA, the diagnostic imaging management segment of our business, in 1997. Since its inception, HMCA has provided a steady source of income for FONAR. Years ago, when MRI sales had dropped precipitously nationwide, we redirected our resources to growing HMCA. HMCA has since emerged as the company’s leading source of revenue and profit, helping FONAR deliver to its shareholders a steady annual growth rate of 6% over the past 6 years.

The Growth of HMCA

The business plan for growing HMCA remains the same: increase scan volume at existing facilities, establish de novo centers, and make acquisitions.

Increasing Scan Volume

Diagnostic imaging providers across the country continue to face unremitting, decreasing reimbursement rates by payers of all kinds, including Medicare, Medicaid, Workers’ Compensation and many commercial insurance carriers. In order to survive these cuts, providers must do what they can to control expenses and/or increase scan volume. HMCA keeps a tight rein on expenses and has been able to increase scan volume at its existing centers by improving marketing strategies, changing center management where necessary, enhancing customer service, and increasing awareness of the features and benefits of FONAR technology in the medical community and the general public.

  • De Novo Centers

HMCA is constantly conducting demographic and competitive studies in search of promising de novo locations in New York and Florida. The company’s most recent de novo center, Stand-Up MRI of Great Neck, opened in February 2016 in Great Neck, New York.

  • Acquisitions

In March of 2013, 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).

In July of 2016, HMCA purchased 100% of the equity in Turnkey Services of New York, LLC and 100% of the equity in TK2 Equipment Management, LLC. Also, HMCA, which had been a 50%-equity holder of Yonkers Diagnostic Management Services, LLC, purchased the remaining 50%, making it a wholly-owned subsidiary of HMCA.

In April of 2017, HMCA purchased all interests and assets, including an MRI system, of Radwell Leasing, LLC and Radwell, LLC, located in the Westchester Medical Pavilion at 311 North Street, White Plains, New York, bringing the total number of HMCA-managed centers to 26.

These acquisitions have contributed significantly to the growth and financial stability of the company, and so we continue to search for acquisition opportunities that are compatible with our business plan and would add quickly and significantly to net revenues and profit.

About FONAR

FONAR is headquartered in Melville, Long Island, New York. Incorporated in 1978, FONAR became a publicly-traded company in 1981. The company installed the world’s first commercial whole-body MRI, the QED 80, in 1980, thereby launching the entire MRI industry. The company has since installed approximately 300 recumbent-OPEN MRI and 160 FONAR UPRIGHT® Multi-Position™ MRI installations worldwide.

The company continues to manufacture the UPRIGHT® Multi-Position™ MRI (also known as the Stand-Up® MRI), its premier product, while the FONAR R&D team continues to develop new products as well as hardware and software upgrades that keep our UPRIGHT® MRI customers highly competitive.

The company boasts an extensive patent portfolio, including the world’s first-ever MRI patent. The most recent patents include technology that enables Weight-Bearing MRI, allowing diagnosticians to view human anatomy in its normal weight-bearing positions, including sitting, standing and bending.

About Our Product

Our primary product is the FONAR UPRIGHT® Multi-Position™ MRI, the only whole-body MRI that performs Position™ Imaging (pMRI™) and scans patients in numerous weight-bearing positions, i.e. standing, sitting, bending, in flexion and extension, as well as in the conventional lie-down position.

  • A Better Diagnostic Tool

The FONAR UPRIGHT® Multi-Position™ MRI is equipped with a patient bed that can rotate the patient from the recumbent (lie-down) position to an upright (sitting of standing) position, making it the only Position-of-Symptoms MRI and Weight-Bearing MRI.

Certain anatomical regions of the body are very sensitive to position and gravity. For example, patients with lower back problems are often most uncomfortable when in a particular weight-bearing position. If diagnosticians can evaluate the spine in positions of symptoms, they can minimize the risks of mischaracterizing or underestimating the patients’ problems and avoid the risk of adopting a treatment plan that could consequently result in a poor outcome. In fact, the FONAR UPRIGHT® Multi-Position™ MRI often detects patients’ problems that lie-down-only MRIs cannot. Considering that most MRI exams are of the spine, this technology is of great importance.

In short, weight-bearing MRI enables more complete diagnoses in comparison to conventional “weightless,” recumbent-only MRIs. Since the UPRIGHT® MRI has the power to “see it all,” the benefits of this unique scanner continue to gain traction in the medical community because it provides referring physicians better outcomes for their patients.

  • The Most Patient-Friendly™ MRI

The overwhelming majority of patients scanned on the FONAR UPRIGHT® Multi-Position™ MRI are in a seated position watching their choice of programming on a large TV. Since there is nothing immediately above the patient’s head or in front of the patient’s face, the rate of claustrophobic rejection is nearly zero percent. It is not unusual to hear of patients travelling hundreds of miles to the nearest UPRIGHT® MRI center in order to avoid our competitors’ highly claustrophobic “tube” or “tunnel” MRIs.

The FONAR UPRIGHT® Multi-Position™ MRI can also accommodate very large patients who simply can’t fit into other MRI scanners, as well as patients who are physically unable to lie down, such as kyphotic patients.

New Works-in-Progress Research

Sincerely,FONAR has begun new works-in-progress technology for visualizing and quantifying 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 due to this latest works-in-progress for quantifying CSF in all the normal positions of the body, particularly in its upright flow against gravity. This complete assessment and measurement of CSF physiology, in all the normal positions of the human body, is a unique attribute of the UPRIGHT® Multi-Position™ MRI.

In September 2011, I wrote a research paper titled The Possible Role of Craniocervical Trauma and Abnormal Cerebrospinal Fluid (CSF) Hydrodynamics in the Genesis of Multiple Sclerosis and the Craniocervical Syndrome. It is clear to me that to properly image cerebrospinal fluid (CSF), and learn about the role of CSF and disease, that it must be done in the weight-loaded, upright position. Only on the FONAR UPRIGHT® Multi-Position™ MRI can CSF be imaged adequately. Therefore, when practitioners want to understand the role of CSF for their patients they will have to do it on the FONAR UPRIGHT® Multi-Position™ MRI.

CONCLUSION

Years of a sluggish economy and ever-decreasing reimbursement rates have stifled MRI sales across the country. Nevertheless, thanks to the winning combination of our unique MRI product and our remarkably successful management subsidiary, FONAR has now achieved 27 consecutive quarters (6¾years) of profitability.

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

Sincerely,

Raymond V. Damadian
Chairman

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