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FONAR Letter to Shareholders

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FONAR Letter to Shareholders

MELVILLE, N.Y.--(BUSINESS WIRE)--Jan. 13, 2003--

FONAR Corporation (NASDAQ-FONR), president and chairman Raymond V. Damadian, M.D. issued the following letter to shareholders, today:

Dear FONAR Shareholders,

As you know, we have been working hard over the past several years to develop a very special product: (1) a product that would give FONAR a substantive and lasting competitive edge, (2) a product with both enormous value to the medical community and with remarkable appeal to the general public, and therefore (3) a product that would secure the future of FONAR and allow the Company to finally reward its faithful employees and stockholders. I firmly believe that we have accomplished that goal with our creation of the Stand-Up(TM) MRI.

The Stand-Up(TM) MRI is the only MRI scanner on the market that can scan patients upright, either sitting or standing, and in multiple other positions, including the usual recumbent (lie-down) position. The ability to scan patients upright, i.e. in weight-bearing positions, is of enormous diagnostic value, simply because there are many problems that can best be diagnosed when the patient is upright. Over the past year, we have seen case after case where the Stand-Up(TM) MRI was able to detect pathology, particularly spine pathologies, that would have gone undetected on any other type of MRI scanner. For example, it was only because of the Stand-Up(TM) MRI that accident victim Heath Kilcrease of Alabama, after several years of agony, was finally properly diagnosed and relieved of his pain through surgery. It is aptly said, "The proof is in the picture."

In my opinion, the importance of upright imaging cannot be overestimated. The need to evaluate the spine and joints under normal weight-bearing conditions or in the very position in which the patient is in pain is fairly obvious. But as a physician, I must add that I am certain that the utility of upright imaging extends far beyond these kinds of applications.

For example, just a few weeks ago we encountered a patient suffering from chronic urinary tract infections. She had seen three specialists. The first one told her that her problem might be a prolapsed (fallen) bladder, which means the bladder literally drops when she is upright. The other two doctors told her that the first doctor misdiagnosed the problem. She was put on a regimen of medication. Using the Stand-Up(TM) MRI, we acquired images of the patient's pelvic floor - the bladder, uterus, rectum and other organs - with the patient recumbent (lie down), standing and standing bearing down. When the MRI images came up on the monitor they demonstrated a fallen bladder and uterus. Drugs were not the answer; surgical evaluation was. The Stand-Up(TM) MRI is the diagnostic device that "saw" her problem.

In the MRI industry, great emphasis is placed on the strength of the scanner's magnet because it is a significant factor affecting image quality. The Stand-Up(TM) MRI operates at 0.6 Tesla, making it among the most powerful of Open MRIs on the market. Its image quality is truly excellent. However, competitors that make the higher field recumbent MRI wish to argue that a 1.5 or 3.0 Tesla scanner makes a "better picture" because the field strength is higher. We counter that the best picture is the one that "sees the problem". Indeed, if a bulging intervertebral disc doesn't bulge when the patient is lying down, a 1.5 Tesla magnet, a 3.0 Tesla magnet, or a 100 Tesla magnet for the matter isn't going to make the disc bulge. The best picture is the one that detects the problem.

I also expect that cardiological and neurological problems will be better diagnosed with the patient in his normal posture - upright. Physicians most often have to address signs and symptoms manifested when the patients are in upright positions. Consequently, physicians would like most to see pictures of their patients in their normal position of operation (upright). In short, once the Stand-Up(TM) MRI is in the capable hands of our innovative medical community, including specialists that don't ordinarily refer their patients for MRI scans, I believe the number of clinical applications will explode.

The Stand-Up(TM) MRI has enormous appeal to patients. It has redefined the term Open MRI and is now the only true Open MRI on the market. The others are, at best, semi-Open. Stand-Up(TM) MRI patients typically sit for their scans. The only thing in front of the patient's face is a big-screen TV. Claustrophobic reactions are gone; anxieties disappear; patients delight in the experience.

The role of the patient's preference should not be underestimated. Once the public sees and hears about the Stand-Up(TM) MRI, they are sold. For example, the results of radio and TV advertising of the Stand-Up(TM) MRI in the metropolitan New York area have been remarkable. The patient schedule at Stand-Up(TM) MRI of Islandia, New York is backlogged. The center is consistently conducting 20 scans a day, with a 100-scan backlog, and the number of doctors referring to the center has tripled. This kind of success is not an isolated occurrence. Every new Stand-Up(TM) MRI installation has experienced remarkable growth rates in patient volume. Patients strongly prefer it and the referring physicians of all types are quick to embrace its diagnostic benefits.

The Stand-Up(TM) MRI represents the future of MRI. It is FONAR's future also, a very exciting one. We expect this remarkable innovation will finally enable FONAR to reward its faithful employees and its stockholders by building shareholder value.

Another FONAR product that I expect will soon be capturing the attention of the medical community is the FONAR 360(TM), our unique 0.6 Tesla magnet that allows doctors to walk inside the magnet. Since it offers 360(degree) access to the patient, we expect it to be the ideal MRI scanner for MRI-guided interventions. We call it the MRI Operating Room (OR 360). The MRI's exquisite visualization of soft tissues, together with its ability to generate rapid-fire images, makes it an ideal tool for detecting cancerous lesions, and for guiding the physician in the precise delivery of cancer-destroying agents with minimal damage to surrounding tissue. We now have three hospitals interested in the FONAR 360(TM).

To date we have sold 33 Stand-Up(TM) MRIs, 23 of them in 2002, four of them to GE Medical Systems, 12 of them installed and prospering. We have also penetrated the hospital market. We have installed a Stand-Up(TM) MRI at the highly prestigious research and teaching hospital of the University of Aberdeen in Scotland. We also have installations under way at Hospital de Madrid in Madrid, Spain, and at White Plains Hospital in White Plains, New York.

On the marketing side we have engaged Leapfrog Advertising to help us create a national awareness of the Stand-Up(TM) MRI, to build the FONAR brand, and also to develop proven marketing strategies that will benefit users of the Stand-Up(TM) MRI. Both endeavors have been very successful. We have learned that all that is needed is to show the merits of the product and describe its benefits to the public. The Stand-Up(TM) MRI has remarkable visual appeal. Many find its diagnostic value obvious. Communities where the Stand-Up(TM) MRI has been installed have been very receptive as evidenced by unsolicited local news coverage in both Florida and New York. We expect that the Stand-Up(TM) MRI, properly advertised, will be a huge success in the most competitive marketplaces.

Early last December, FONAR exhibited at the annual meeting of the Radiological Society of North America (RSNA) in Chicago, Illinois. The RSNA is the largest medical show in the country, drawing approximately 60,000 attendees, including radiologists from all over the world. Over the years, FONAR has received several awards recognizing the quality of its presentations. This year FONAR's exhibit focussed on the Stand-Up(TM) MRI. Professor J. Randy Jinkins, M.D., of the Medical College of Philadelphia-Hahnemann, Drexel University, Philadelphia, PA, and Manuel S. Rose, M.D., of Rose Radiology, Tampa, FL, presented their clinical experiences with the FONAR Stand-Up(TM) MRI and showed examples of patients whose pathologies were not visible in the normal recumbent MRIs but visible on the Stand-Up(TM) MRI. I was busy throughout the show negotiating with customers earnest about buying Stand-Up(TM) MRIs for their practices. The level of intensity was more that I can remember since we first started exhibiting at RSNA 20 plus years ago. We generated a substantial number of excellent leads, all of which are being diligently pursued by our sales team.

Our subsidiary HMCA is pursuing its plan to eventually upgrade all the existing MRI scanning facilities that it manages with Stand-Up(TM) MRIs. The Bensonhurst, New York and Staten Island, New York facilities are expected to be operational within weeks. These were chosen in the New York area to allow us to capitalize on our ongoing program of radio and TV advertising of the Stand-Up(TM) MRI in metropolitan New York. Plans are in the works for others. As 13-year-old scanners are replaced by Stand-Up(TM) MRIs, we expect significant additions to HMCA revenues.

With the basic R&D and product development for the Stand-Up(TM) MRI completed, and the manufacturing, service, sales and marketing structures in place, we are now fully focused on selling scanners. Important indicators are showing that we are moving forward. We have experienced seven straight quarters of revenue growth, one of the most difficult accomplishments in today's business climate. Our latest figures on cash, cash equivalents and marketable securities are showing a positive trend. Our scanner backlog is up and we are expecting escalating sales in 2003. As production increases, our unit costs are going down. We are looking forward enthusiastically to the outcome of calendar 2003.

Raymond V. Damadian
President and Chairman

Be sure to visit FONAR's Web site for Company product and investor information: www.FONAR.com.

CONTACT:
FONAR Corporation, Melville
Daniel Culver / David B. Terry, 631/694-2929

SOURCE: FONAR



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