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FONAR PRESIDENT'S MESSAGE TO
SHAREHOLDERS - MARCH 2007
MELVILLE, NEW YORK, February 22, 2007 - FONAR Corporation (NASDAQ-FONR), The Inventor of MR Scanning™, has issued its annual President’s Message to Shareholders. DEAR SHAREHOLDERS: FONAR has been at the forefront of magnetic resonance imaging (MRI) research and development since 1978. In recent years, we developed and commercialized an MRI scanner whose unique physical configuration enables it to scan patients in any position or posture. Conventional MRI scanners can only scan patients lying down, i.e. in a single, static, non-weight-bearing position. With the introduction of the FONAR Walk-In Full-Range-of-Motion Multi-Position™ UPRIGHT™ MRI, patients can be scanned in their positions of symptoms, including normal, weight-bearing postures. When we first envisioned the product, we believed that it would revolutionize the field of diagnostic imaging. I am pleased to report that now with 142 scanners sold and 116 installed, reports from our users consistently confirm our expectation that this product is indeed beginning to revolutionize the industry. PENETRATING THE HOSPITAL MARKET I am pleased to report that we are now making inroads into the hospital market. Prior to our development of our new product, FONAR had very limited success in penetrating the hospital market because it was extremely difficult for FONAR to compete with the giants of industry who dominated and continue to dominate in the sale of medical equipment to hospitals. Now, however, these same giants don't have any products to offer hospitals that can compete with the FONAR scanner. As hospital surgeons and radiologists in need of full range of motion weight-bearing imaging come to recognize the tremendous value of our product for their practices, there is only one supplier that hospitals can go to - FONAR. In 2006, the state of Tennessee awarded a Certificate of Need (CON) permitting Wellmont Bristol Regional Medical Center hospital to purchase and install a FONAR UPRIGHT™ MRI in Bristol, Tennessee. Morgan Lorio, M.D., a spine surgeon who championed the effort to bring the product to Bristol, Tennessee, said that the new FONAR technology which "permits the fully-loaded spine to be evaluated in its dynamic state will greatly increase the accuracy of our surgery." In September 2006, St. Maartenskliniek in Nijmegen,
the Netherlands, the country's largest orthopedic hospital, placed
its order for the FONAR UPRIGHT™ MRI. Dr. Paul Pavlov, Director
of the St. Maartenskliniek and Toward the end of 2006, St. Vincent's Carmel Hospital installed Indiana's first FONAR UPRIGHT(TM) MRI. James Hardacker, M.D., orthopedic spine surgeon at the hospital, said, "The major significance of the FONAR UPRIGHT™ Multi-Position MRI is that it allows for more definitive and improved diagnoses." LANDMARK SALE TO MULTI-STATE DIAGNOSTIC IMAGING PROVIDER In February 2007, FONAR sold an UPRIGHT™ MRI to the Center for DiagnosticImaging (CDI) of Minneapolis, Minnesota. Founded by distinguished Spine Radiologist Dr. Kenneth Heithoff in 1981, CDI was one of the first outpatient imaging providers in the country. CDI currently owns and operates 39 diagnostic imaging centers in eight states - Minnesota, Wisconsin, Illinois, Indiana, Kansas, Missouri, Washington, and Florida. THE FONAR MARKETING STRATEGY The focus of the sales and marketing efforts is to stimulate demand and awareness of FONAR products among patients, surgeons, referring physicians, radiologists, independent MRI practice owners, and hospitals. FONAR continues with its multi-pronged marketing strategy to significantly accelerate growth in revenue streams for MRI scanner equipment sales and services and related revenues. FONAR's marketing strategy includes initiatives in the following areas: advertising campaigns; trade show and industry event participation; third-party endorsements in the form of medical research and professional testimonials; direct sales efforts for U.S. market penetration; and distribution channel partnerships.
SALES CHALLENGES
As has been the experience of every other manufacturer of MRI equipment, FONAR sales have been suffering from the effects of the Deficit Reduction Act (DRA) of 2005. The January 1, 2007 implementation of the DRA effectively reduced Medicare's reimbursement for MRI services by 17% - 48%, depending on the service provided. To make matters worse, since contracted fees with many commercial payers piggyback Medicare fees, MRI providers will see decreases in payments from them as well. Naturally, this has had a negative effect on new MRI equipment sales across the country. It is important to know, however, that in the past, Medicare has implemented reductions in reimbursement amounts for MRI procedures that were subsequently retracted. It is for this reason that many potential buyers of MRI equipment have adopted a "wait and see" posture. As of this writing, legislation to put a stop to the imaging cuts that went into effect on January 1 was introduced in the House on February 28, 2007. The bill, which is similar to the 2006 "Access to Medicare Imaging Act" that attracted 142 cosponsors, calls for a two-year freeze on the cuts. Hopefully, this new bill will become law. However, even if it does not, FONAR is confident that once the initial impact of the DRA is absorbed, it is expected that the medical community will move forward with the purchase of equipment that it needs, despite the DRA. And the medical community does need the FONAR Walk-In Full-Range-of-Motion Multi-Position UPRIGHT™ MRI. The good news is that FONAR is once again seeing serious interest in purchasing our product. We are seeing prospective buyers finally coming off the fence, and we are looking forward to a substantial increase in sales. NEW PRODUCTS At the annual meeting of the Radiological Society of North America (RSNA) in Chicago, the largest medical meeting in the United States, FONAR exhibited the FONAR 360™. The FONAR 360™ is a room-size MRI that can be used for conventional diagnostic imaging or, in the future, for intraoperative MRI. The FONAR 360™, unlike any other MRI, is one that doctors can walk inside of. The patient is positioned on a surgical table that is located immediately on top of one of the MRI's two magnet poles. This design allows 360-degree access to the patient for an entire physician team. The FONAR 360™ exhibit at RSNA was a replica of the unit installed at Nuffield Orthopaedic Centre (NOC), an Oxford University Teaching Hospital, in Oxford, England. Eugene McNally, M.D., NOC Consultant Radiologist, said, "We intend to exploit the unique imaging capability of the FONAR 360™ within our regular radiology practice. We think it will be an attractive option for claustrophobic patients and offer open field imaging at a higher field strength than most other open systems in the UK. We also plan to explore the possibilities for using this revolutionary magnet to support MRI-guided interventional procedures." There was a great deal of interest in the FONAR 360™ product on the floor of the RSNA exhibit and we look forward to the impact this exciting product will have on the medical community and, of course, on FONAR. HMCA Our subsidiary HMCA (Health Management Corporation of America) continues to provide FONAR with a steady source of revenue in fees from managing UPRIGHT™ MRI business in New York, Florida and Georgia. We are actively searching for additional locations in New York and Florida so that we may add to this important source of revenue. CONCLUSION We believe that although we have suffered some setbacks, FONAR has a very bright future. Why? Primarily because we have a product that physicians desperately need to improve the outcomes of their patients * a product that only FONAR can provide. As our product continues to gain acceptance, our scientists and engineers continue to improve it, our customer service organization grows to accommodate our ever-increasing installed base, and our sales and marketing team has the strategy, the skill and the organization to sell, we see a bright future for our company. I would like to acknowledge the support of our faithful shareholders who share our vision, the FONAR team for its unwavering dedication, and our customers for their loyalty. The opportunities and challenges we face strengthen our resolve to achieve the goal of medical excellence and financial success for FONAR. Sincerely, About FONAR # This release may include
forward-looking statements from the company that may or may not
materialize. Additional information on factors that could potentially
affect the company's financial results may be found in the company's
filings with the Securities and Exchange Commission. FONAR™ Corporation
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