FONAR PRESIDENT’S LETTER TO SHAREHOLDERS 2016

FONAR CHAIRMAN’S LETTER TO SHAREHOLDERS

May 2016

Dear Shareholders:

I am pleased to report to our shareholders that as of December 31, 2015, FONAR posted 22 consecutive quarters of positive net income and positive income from operations.

Fiscal Year Ended June 30,	2010	2011	2012	2013	2014	2015
Total FONAR Revenues	$31,815,555	$33,136,395	$39,444,419	$49,141,814	$68,505,477	$69,050,996
Total FONAR Net (Loss) Income	$ (3,012,742)	$ 3,309,019	$ 6,875,073	$10,256,362	$13,396,769	$15,430,383
Diluted Net (Loss) Income Per Common Stockholder	$ (0.61)	$ 0.55	$ 0.91	$ 1.34	$ 1.58	$1.95

The Company stock, which is listed on the NASDAQ Capital Markets under the symbol FONR, has enjoyed substantial interest by institutions and mutual funds. As of December 31, 2015, institutional ownership stood at 33%, compared to 19% one year earlier. In addition, as of December 31, 2015, mutual fund ownership stood at 9% compared to 6% one year earlier. This places our total ownership by institutions and mutual funds at 42%, an increase of 66% since last year.

The largest area of growth was in the company’s diagnostic imaging management segment, Health Management Company of America (HMCA). Credit for this remarkable achievement goes primarily to the contributions of my son, Timothy Damadian, and the management team he promptly assembled when he returned to FONAR in February, 2010. Tim was named President and Chief Executive Officer of FONAR on February 11, 2016. I remain FONAR’s Chairman of the Board.

Since Tim returned six years ago, I have relied on his managerial, financial and operational skills to direct the company’s business and affairs. At the time of Tim’s return, HMCA was managing 9 MRI facilities (6 in New York and 3 in Florida) that had completed approximately 29,000 scans in calendar 2009. We immediately implemented Tim’s ideas, methods and business plan for growing HMCA. By increasing scan volume at HMCA’s existing facilities, establishing de novo centers, and by acquisitions, the company now manages 25 facilities (18 in New York and 7 in Florida) that collectively completed over 150,000 scans in 2015. Twenty-four of the 25 centers are equipped with FONAR UPRIGHT® Multi-Position™ MRIs; the remaining center is equipped with a FONAR QUAD™ 12000.

The decision to appoint Tim the president and CEO of FONAR was not a difficult one. His vision, direction, and management skills had accounted for FONAR’s success for over six years. He has also been heavily involved with development of FONAR technology, where his keen understanding of the MRI marketplace and the needs and trends of MRI practitioners has been invaluable in helping me to guide the company’s R&D program. Tim is the perfect fit to ensure FONAR’s success for years to come.

The Growth of HMCA

The business plan for growing HMCA is three-pronged: increasing scan volume at existing facilities, establishing de novo centers, and making acquisitions.

Overall scan volume at existing HMCA-managed centers has been achieved by improved marketing strategies, changes in center management where necessary, enhanced customer service, increased awareness of the features and benefits of FONAR technology in the medical community and the general public, and, in cases where demand exceeded capacity, by adding complementary ancillary equipment, including X-Ray machines, MRI extremity scanners or High-Field MRIs.

In regard to centers that have such ancillary equipment, it is important to point out that the FONAR UPRIGHT® Multi-Position™ MRI is, in every case, the “anchor” modality. Add-on equipment is helpful to reduce appointment backlogs or to offer referring physicians “one-stop shopping” for all their MRI needs, but it is the URRIGHT® MRI that has the strongest appeal to both referring doctors and patients. Of the 25 HMCA-managed facilities, four Florida sites and three New York sites now have ancillary equipment.

In February 2016, the Stand-Up MRI of Great Neck, a de novo center, opened its doors in Great Neck, New York. HMCA is interested in several regions of the country for additional de novo projects, primarily in New York and Florida. Demographic and competitive assessments are ongoing in search of possible de novo locations.

In March of 2013, our company acquired an interest in a limited liability company that in one giant step brought the number of HMCA-managed centers from eleven (11) to twenty five (25). As a measure of the success of this transaction, FONAR’s net revenue for the quarter immediately preceding the acquisition was $9.6 million; the average net revenue for the next two quarters was $15.0 million.

We are aggressively exploring additional acquisition possibilities, ones that are compatible with our business plan and would quickly and significantly add to our net revenues and profit.

The FONAR UPRIGHT® Multi-Position™ MRI Continues to Withstand Cuts in Reimbursement

MRI centers across the country continue to face regular, unremitting, across-the-board cuts in provider reimbursement amounts by payers of all types, including Medicare, Medicaid, Workers’ Compensation and a host of commercial insurance carriers. HMCA-managed centers have been able to withstand these cuts by increasing scan volume, which is primarily attributable to the enormous appeal of the FONAR UPRIGHT® Multi-Position™ MRI.

The FONAR UPRIGHT® 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. The benefits of this unique feature continue to gain traction in the medical community because it provides referring physicians better outcomes for their patients. Weight-bearing MRI enables more complete diagnoses in comparison to conventional “weightless,” recumbent-only MRIs. The UPRIGHT® MRI has the power to “see it all” and is therefore essential to referring physicians for achieving their ultimate objective of optimizing patient outcomes and avoiding the risk of adopting a treatment plan that could consequently result in a poor outcome.

The rate of claustrophobic rejection by patients scanned in a FONAR UPRIGHT® Multi-Position™ MRI is nearly zero percent. The overwhelming majority of patients are scanned sitting while watching their choice of programming on a large TV. It is not unusual to learn of patients travelling hundreds of miles to the nearest UPRIGHT® MRI center in order to avoid our competitors’ highly claustrophobic “tube” or “tunnel” MRI. 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.

FONAR is the Original MRI Company – the first company to produce an MRI scanner. With great pride, we call FONAR the inventor of the MRI scanner. FONAR was incorporated in 1978 and introduced the first commercial MRI scanner (the QED 80) in 1980. We have installed approximately 300 recumbent-OPEN MRIs and 160 FONAR UPRIGHT® Multi-Position™ MRIs world-wide. The company, headquartered on Long Island, New York, became a publicly-traded company in 1981.

Our primary 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, bending, in flexion and extension, as well as the conventional lie-down position. The FONAR UPRIGHT® Multi-Position™ MRI often detects patients’ problems that lie-down MRIs cannot.

In 1997, we formed the diagnostic imaging management segment of our business. Today, HMCA provides non-medical management services for diagnostic imaging centers, predominately those equipped with FONAR UPRIGHT® Multi-Position™ MRIs. Since its inception, HMCA has been a steady source of income for FONAR. In times when industry-wide MRI sales dropped significantly, we successfully redirected our resources to our Field Service Division and, more importantly, to HMCA. Over the past six years, HMCA has emerged as the company’s leading source of revenue and profit.

Recent News and Developments from FONAR

This 94-page, seven chapter monograph entitled, “The Craniocervical Syndrome and MRI” was published by S. Karger, AG, (www.karger.com/Book/Home/261956). It examines the impact of rapid advances in MRI that are transforming the treatment of patients suffering from the craniocervical syndrome (CCS). It is written by leading international experts in the field to provide practitioners with a better understanding of the subtle anatomy and MRI appearances at the craniocervical junction, the junction of the human skull with the first two vertebra of the spine, the atlas vertebra (C-1), spine vertebra #1 and the axis vertebra (C-2), spine vertebra # 2, that provides the axis of rotation for the head. The Craniocervical Syndrome monograph compiles the symptoms and medical disabilities that result from common injuries to the head and neck, e.g. 1.2 million automobile whiplash injuries occurring annually in the U.S. Of particular importance, highlighted by the authors, is the newly discovered physiologic importance of the dynamic role of the cerebrospinal fluid (CSF) circulation throughout the brain and spinal column, which is circulating from the brain to the bottom of the spine at the rate of 32 quarts per day. With the advent of FONAR’s new technology for capturing realtime video visualization (“movies”) of the CSF as it moves in and out of the UPRIGHT® brain, the widespread pressure of the obstructions to the CSF flow in and out of the brain as a result of trauma injuries to the neck, is now believed by FONAR and scientists working in collaboration with FONAR to be playing a major role in the genesis of the neurodegenerative diseases such as Alzheimer’s, Childhood Autism, Parkinson’s, Multiple Sclerosis and Amyotrophic Lateral Sclerosis (ALS). It directs attention to the revolutionary importance of FONAR’s new UPRIGHT® MRI imaging technology and the prospect of significantly relieving the suffering of the millions of patients afflicted with these disorders.

A two-hour ‘30 for 30’ documentary on the 1985 Chicago Bears was shown nationwide on ESPN1 on February 4, 2016. The documentary featured a short segment on former 1985 Chicago Bears quarterback Jim McMahon’s health crisis.

After being diagnosed in November 2012 on the FONAR UPRIGHT® Multi-Position™ MRI, former NFL quarterback Jim McMahon, who suffered from post-concussion dementia, was able to receive appropriate treatment and relief of his symptoms.

Mr. McMahon, who guided the Chicago Bears to victory at the 1985 Super Bowl, has benefited from having used the FONAR UPRIGHT® MRI scanner at FONAR's Melville corporate headquarters. Mr. McMahon had severe headaches, body pain, dementia and other debilitating symptoms. FONAR's new technology for making cinés (movies) of cerebrospinal fluid (CSF) as it flows in and out of the brain when the patient is in the Upright position was a promising technology to help McMahon. Through a mutual friend, former FONAR Senior Vice President David Terry contacted Mr. McMahon and scheduled him for an UPRIGHT® CSF flow study at FONAR's Melville MRI facility. The FONAR UPRIGHT® CSF flow video demonstrated a significant obstruction of CSF flow and increased intracranial pressure (ICP) secondary to prior football injuries to Mr. McMahon’s neck (cervical spine). Subsequently he was treated by Dr. Scott Rosa, of the Trauma Imaging Foundation (www.traumaimagingfoundation.com) who treated Mr. McMahon with his patented IGAT (Image Guided Atlas Treatment) method. Mr. McMahon gives much credit to the FONAR UPRIGHT® Multi-Position™ MRI (aka The Stand-Up® MRI) and Dr. Scott Rosa for relieving his pain and post trauma symptoms. His experiences are reported and found online by The Stamford Advocate (Jan. 17, 2014) and The Yankees Yes Network.

A result of FONAR's findings and the new understanding of the role that cervical trauma plays in the etiology of disease, I believe it is imperative to certify that the sustained neck or head injuries of professional athletes such as NFL football players, whiplash patients and others with severe neck trauma, has been observed to caused obstruction of CSF flow and heightened ICP.

Written by Jeff Kinley and Dr. Raymond Damadian, Gifted Mind (Master Books, 2016), the 240-page biography/autobiography tells of Dr. Damadian’s incredible journey of discovery, in spite of academia’s mocking skepticism and a shoestring budget, from the making of the first MRI image of a human being, the construction of the world’s first human-size MRI scanner, Dr. Damadian’s battle with GE and others to protect his discovery, and the role his faith has played throughout it all.

The FONAR UPRIGHT® Multi-Position™ MRI is truly a unique product. It produces exquisite images of the body in all positions. Besides its ability to provide all the routine scans of a conventional lie-down-only MRI, the UPRIGHT® offers a host of new medical applications with the potential to provide new insights into the debilitating chronic consequences of sports injuries, the current epidemic of automobile whiplash injuries, injuries to our military personnel, low-back injuries, and pediatric disabilities and pathologies.

Nevertheless, record-low reimbursement rates coupled with an economy that has yet to fully recover from the recession continue to hamper sales. However, as evidenced by the consistent success of HMCA-managed sites, diagnostic imaging centers equipped with FONAR UPRIGHT® Multi-Position™ MRIs are able to thrive in even the most difficult of business environments. The proof is irrefutable. As an increasing number of medical practitioners recognize the power and potential of the FONAR UPRIGHT® Multi-Position™ MRI and as the general public becomes more aware of The Patient-Friendly™ MRI, I fully expect a resurgence of sales.

It is very gratifying, after many years of struggles, to have developed an indispensable MRI product and to have arrived at and implemented a business strategy that, even in the face of severe obstacles, has given FONAR nearly six unbroken years of success.

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