Executive Summary / Key Takeaways

• Differentiated Technology as a Core Moat: FONAR Corporation stands out with its proprietary Upright Multi-Position™ MRI technology, enabling weight-bearing scans crucial for diagnosing conditions often missed by conventional lie-down MRIs. This unique capability provides a strong competitive advantage in specialized diagnostic imaging.
• Dual Business Model Drives Revenue: The company operates a synergistic dual model, combining the manufacturing and servicing of its innovative MRI equipment with a robust Physician Management and Diagnostic Services segment (HMCA), which is the primary driver of consolidated revenue and profitability.
• Resilient Revenue Growth Amidst Profit Headwinds: In fiscal year 2025, FONAR achieved a 1.4% increase in total revenues to $104.4 million, primarily fueled by its HMCA segment. However, net income decreased by 24% to $10.7 million, largely due to increased operating costs and significant credit loss reserves.
• Strategic Expansion and Innovation: FONAR is actively expanding its diagnostic service network, integrating high-field MRIs with its Upright systems, and investing in new technologies like SwiftMR™ for image enhancement and Opus Diagnostic Management for third-party MRI servicing, aiming to bolster future revenue streams and operational efficiency.
• Regulatory and Competitive Pressures: The company faces ongoing challenges from reduced reimbursement rates, particularly in Florida due to recent tort reform, and increasing competition from larger, more diversified medical imaging giants. A recent non-binding "take private" proposal from management introduces an additional layer of consideration for investors.

The Pioneer's Enduring Vision and Dual Engine Strategy

FONAR Corporation, incorporated in 1978, traces its origins to Dr. Raymond V. Damadian's groundbreaking 1970 discovery of distinct Nuclear Magnetic Resonance (NMR) relaxation times in normal versus abnormal tissues, a fundamental principle underlying all MRI scanning. This scientific breakthrough led to "The Cancer Detection Patent" in 1972 and the world's first MRI scan in 1977. FONAR introduced the first commercial MRI scanner and the first open MRI in 1980, establishing itself as a true pioneer in the medical imaging industry. This historical foundation of innovation continues to shape FONAR's strategic direction, emphasizing differentiated technology and patient-centric solutions.

Today, FONAR operates through a synergistic dual business model. Its Medical Equipment segment designs, manufactures, sells, and services its unique MRI scanners, while its Physician Management and Diagnostic Services segment, primarily through its subsidiary Health Management Corporation of America (HMCA), provides comprehensive non-medical management services to diagnostic imaging facilities. This dual approach allows FONAR to control the deployment of its proprietary technology while benefiting from recurring service and management fees. The broader medical imaging industry is characterized by continuous technological advancement, increasing demand for diagnostic services driven by an aging population, and intense competition from global healthcare technology giants.

Technological Moat: The Upright MRI Advantage

FONAR's core technological differentiator is its Upright Multi-Position™ MRI scanner, also known as the Stand-Up MRI. Unlike conventional MRI systems that confine patients to a recumbent position within a tunnel-like bore, the Upright MRI allows patients to be scanned in various weight-bearing postures, including sitting, standing, or bending. This capability is critical because certain injuries and pathologies, such as spondylolisthesis (slipped disc) or Chiari malformation, may only manifest or be fully assessed when the body is under physiological load. For instance, the Upright MRI has demonstrated its value for scoliosis patients, offering diagnostic, multi-slice images of their spines while standing, without the radiation risks associated with traditional X-rays.

The Upright MRI operates at a mid-field strength of 0.60 Tesla, which enjoys wide acceptance in the radiological community. While higher field strengths generally offer higher signal-to-noise ratios, FONAR emphasizes that optimal tissue contrast can occur in the mid-field region, with lower field strengths also reducing image artifacts from metallic implants. The scanner's design is inherently non-claustrophobic, offering patients an unobstructed view and the ability to watch television during scans, significantly enhancing the patient experience. This unique combination of positional imaging, diagnostic versatility, and patient comfort provides FONAR with a distinct competitive advantage, allowing it to address specific clinical needs that larger competitors cannot.

FONAR remains committed to innovation, with research and development expenditures totaling $1.58 million in fiscal year 2025, representing 17.6% of its medical equipment segment revenues. R&D efforts are focused on software improvements to the user interface and the development of new clinical protocols that leverage the Upright MRI's unique capabilities. In fiscal 2025, the company secured four new patents, including one for its next-generation patient positioning system, and others related to monitoring treatment effectiveness and assessing cerebral palsy risk based on cerebrospinal fluid flow. These advancements aim to expand the scanner's diagnostic utility and maintain its technological lead. Furthermore, FONAR's distribution agreement with AIRS Medical USA, Inc. for the SwiftMR™ product is expected to significantly improve image quality and efficiency for both its Upright MRI and third-party equipment, enhancing its service offerings.

HMCA: The Growth Engine in Diagnostic Services

The Physician Management and Diagnostic Services segment, primarily driven by HMCA, is the financial backbone of FONAR. HMCA provides comprehensive non-medical management services to diagnostic imaging facilities, including administrative support, billing and collection, IT services, and marketing. This model frees physicians from administrative burdens, allowing them to focus on patient care. As of June 30, 2025, HMCA managed 44 MRI scanners across New York (26) and Florida (18), with six facilities in Florida directly owned and operated by HMCA subsidiaries.

HMCA's growth strategy centers on upgrading and expanding its existing managed and owned facilities. This includes adding high-field MRI scanners, extremity scanners, and X-ray machines to complement the Upright MRI systems. In fiscal 2025, two additional high-field magnets were installed in Naples, FL, and Melville, NY, with another planned for Lynbrook, NY, and a new location in Nassau County, NY, expected to be operational in fiscal 2026. These additions create "the best of both MRI worlds" for referring physicians, combining the unique positional capabilities of the Upright MRI with the high-resolution imaging of high-field systems. HMCA's marketing efforts focus on the unique capabilities of the Upright MRI and expanding participation in various health insurance plans to drive patient volume.

Medical Equipment Segment: Innovation and Service Expansion

While the HMCA segment drives the majority of FONAR's revenue, the Medical Equipment segment is crucial for its technological differentiation. In fiscal 2025, this segment's revenues increased to $9.0 million from $8.4 million in fiscal 2024. However, product sales decreased by 23.6% to $563,000, which management attributes to reduced demand influenced by lower reimbursement rates. Conversely, service revenue, generated from the installed base of scanners, increased by 10.8% to $8.4 million.

The segment's operating loss widened from $7.0 million in fiscal 2024 to $7.6 million in fiscal 2025. This increase in loss is primarily due to higher costs associated with strategic investments. Notably, FONAR formed Opus Diagnostic Management, LLC in 2024 to provide in-house maintenance and repair for third-party MRI equipment operated by HMCA, with the goal of controlling costs and expanding into external service provision. These ventures, alongside the SwiftMR™ distribution, represent strategic efforts to diversify revenue streams and enhance the value proposition of FONAR's equipment and services.

Financial Performance: Resilience Amidst Headwinds

FONAR's consolidated financial performance in fiscal year 2025 reflects a mixed picture of resilient revenue growth alongside profitability pressures. Total revenues increased by 1.4% to $104.4 million, up from $102.9 million in fiscal 2024. This growth was primarily driven by the HMCA segment, which saw its revenues rise to $95.4 million from $94.6 million. However, consolidated operating income decreased by 29.7% to $11.6 million (from $16.5 million in fiscal 2024), and net income fell by 24% to $10.7 million (from $14.1 million in fiscal 2024). Diluted net income per common share decreased by 20% to $1.23.

The decline in profitability was largely due to a significant 10.7% increase in selling, general, and administrative (SG&A) expenses, which reached $29.7 million in fiscal 2025. A major contributor to this increase was a $2.3 million reserve for credit losses related to American Transit Insurance Company (ATIC), a New York-based motor vehicle insurer facing potential insolvency. The HMCA segment's operating income decreased from $23.5 million to $19.2 million, also impacted by increased staffing, equipment repair, and helium replacement costs. Additionally, the company incurred one-time expenses totaling $378,000 for a New York City Commercial Rent Tax settlement and unreported electricity bills.

Despite these challenges, FONAR maintains a strong liquidity position. Cash and cash equivalents remained stable at $56.3 million at June 30, 2025. Working capital increased by 4% to $127.5 million, demonstrating robust short-term financial health. Cash provided by operating activities was $11.3 million in fiscal 2025. The company also continued its stock repurchase program, buying back 373,942 shares for $6.07 million as of June 30, 2025, though this program has been temporarily suspended due to a potential "take private" transaction.

Competitive Landscape: Niche Leadership Against Giants

FONAR operates in a highly competitive medical imaging market, facing direct competition in MRI product sales from global giants such as Siemens (SIEGY), General Electric (GE), Philips (PHG), Fujifilm (FUJIY), Canon (CAJ), and United Imaging. These larger competitors primarily focus on the high-field (1 Tesla and above) MRI market. While some offer open MRI scanners for recumbent imaging, none have introduced an open, upright MRI system. FONAR believes its Upright MRI's higher field strength (0.60 T), larger dimensions, and superior patient positioning capabilities provide a significant competitive advantage over other products in the upright, weight-bearing MRI market.

In the physician and diagnostic management services field, HMCA competes with large health systems and independent imaging centers, many of which possess greater financial and operational resources. Competition in this segment centers on attracting physician referrals, establishing relationships with managed care organizations, and emphasizing the unique advantages of Upright MRI scanning. FONAR strategically positions its managed and owned diagnostic imaging centers by combining its Upright MRI scanners with strategically placed high-field MRI scanners, offering a comprehensive diagnostic solution. While larger competitors may have broader market penetration and economies of scale, FONAR's specialized technology allows it to carve out and dominate niche diagnostic applications.

Outlook and Risks: A Dynamic Healthcare Environment

FONAR's outlook is characterized by a continued focus on expanding its HMCA diagnostic services and leveraging its unique Upright MRI technology. The company has committed to material capital expenditures in fiscal year 2026, including approximately $1.5 million for a new high-field scanner in Lynbrook, NY, and an estimated $900,000 for a new HMCA-managed center in Nassau County, NY. Management expects these investments to drive further growth in scan volumes and enhance its New York and Florida networks. CEO Timothy Damadian highlighted record scan volumes in fiscal 2025, with HMCA-managed sites performing 216,317 scans, a 3.3% increase over the prior year.

However, the company faces several pertinent risks. Reduced reimbursement rates from Medicare, Medicaid, and private insurance companies continue to pressure revenues, particularly in the HMCA segment. Legislative changes, such as Florida's 2023 Tort Reform Act, have already led to decreased scan volume and lower average reimbursement rates in Florida, a trend expected to persist. Similarly, the passage of New York Public Health Law Article 49A is anticipated to negatively impact collection rates. The increasing use of radiology benefit managers (RBMs) by health insurance carriers also poses a risk of lower utilization of diagnostic imaging procedures. Inflation continues to increase material and labor costs, making organic growth more challenging. Furthermore, FONAR identified a material weakness in its internal controls over information technology systems in fiscal 2025, though a remediation plan is underway.

A significant recent development is the non-binding proposal received in July 2025 from a group led by CEO Timothy Damadian and COO Luciano Bonanni to acquire all outstanding common stock and other securities not currently owned by the group, with a supplemental proposal indicating a price of $17.25 per share in cash. This potential "take private" transaction, if completed, would de-list FONAR from NASDAQ and could significantly alter the company's future trajectory and public investment opportunity.

Conclusion

FONAR Corporation presents a compelling investment narrative rooted in its pioneering legacy and unique technological differentiation. The company's Upright Multi-Position™ MRI scanner provides a distinct advantage in specialized diagnostic imaging, addressing critical patient needs that conventional systems cannot. This technological edge, coupled with the robust and expanding HMCA diagnostic services segment, forms a dual engine for revenue generation. While recent financial performance has shown resilient top-line growth, profitability has faced headwinds from rising operational costs and specific credit loss reserves.

Looking ahead, FONAR's strategic investments in expanding its diagnostic network and integrating advanced imaging solutions are poised to capitalize on its differentiated offerings. However, investors must carefully consider the evolving regulatory landscape, particularly concerning reimbursement rates and insurance laws, as well as the competitive pressures from larger industry players. The ongoing "take private" proposal also introduces a pivotal factor that could redefine the company's future. Ultimately, FONAR's ability to leverage its technological leadership and adapt to a dynamic healthcare environment will be key to unlocking enduring value for its shareholders.