MELVILLE, NEW YORK, June 21, 2006 - FONAR Corporation (the “Company”) (NASDAQ-FONR), The Inventor of MR Scanning™, announced today that it has been awarded a contract from the Defense Supply Center Philadelphia (DSCP), part of the Defense Logistics Agency (DLA) of the U.S. Department of Defense (DoD), to supply the FONAR Upright™ MRI scanner and related line of MR products. DSCP is the contracting activity of DoD for the purchase of all medical supplies, pharmaceuticals, food and related subsistence products and all clothing and textiles. The contract number is SP0200-06-D-8303.
          DoD’s contract, awarded by DLA’s DSCP division, is for purchases of the FONAR Upright™ MRI by all U.S. military hospitals, clinics and other Federal agencies around the world, including the Department of Veterans Affairs (VA). The DLA supplies the U.S. Army, U.S. Navy, U.S. Air Force, U.S. Marine Corps, VA Hospitals and other Federal Agencies and Clinics. "These armed forces divisions supplied by DLA now have direct access to the FONAR Upright™ MRI for the diagnosis of injuries sustained by military personnel where they can now be evaluated in their fully weight-loaded erect posture," said Raymond Damadian, president and founder of FONAR. “Our salesmen can now be directed to call on military hospitals and VA hospitals and make them aware that they are now able to buy a FONAR Upright™ MRI to diagnose military personnel simply by requesting it from DSCP, and that DoD has approved the FONAR Upright™ MRI for direct military purchase.”
          Under the terms of the contract, DoD agencies and their affiliated medical facilities can purchase the FONAR Upright™ MRI and the product line’s related products through the Defense Supply Center Philadelphia (DSCP). The contract is the standard length of one year and may be extended for a one year term each year thereafter. The DoD agency has estimated its expected annual purchases of FONAR’s Upright™ MRI but the Company may pursue unlimited sales of its equipment beyond the initial estimated amount. FONAR has not disclosed the estimated amount of annual purchases, although it is material relative to the Company’s annual revenue run rate. FONAR's application to be an approved contractor of DoD was submitted November 2003. FONAR was awarded the DoD contract on May 30, 2006.
          "The contract marks the first time in its 28 year history that FONAR Corporation is an approved supplier to DoD of MRI systems to be made available to U.S. government agencies," said Dr. Damadian. “Previously, if a government agency such as the VA wanted a FONAR scanner, it had to make specific application to the Surgeon General, await his approval and then await funding. Now any federal entity such as the U.S. Army or VA, once it is budgeted and wishes to purchase a FONAR Upright™ MRI scanner for its personnel, may place its order directly with DSCP and receive shipment without applying to the Surgeon General and then waiting for his approval and budget allocation.”
          Available for the first time under Federal contract, the FONAR Upright™ MRI, the world’s first and only whole-body MRI scanner that performs Position™ imaging (pMRI™) and scans patients in numerous weight-bearing positions, is now available to military personnel.
          The process of attaining government approval began when FONAR brought the superior medical benefits of its Upright™ MRI scanner to the attention of the VA. FONAR was then directed to submit an entry to be considered for inclusion on the government agency’s list of approved products. The approval process included a lengthy and comprehensive review of the device’s technology and diagnostic procedures and FONAR’s technical capabilities, corporate experience, quality, past performance, and other factors. Finally, a fixed price was determined for FONAR’s Upright™ MRI scanner, which facilitates the expedition of purchases and eliminates negotiations based on price. This methodology is used, according to the government agency, because it makes good business sense and ensures reliable contractors with proven performance records who will deliver quality products at agreed upon prices.
          "Following our recent penetration of the private sector hospital market with two scanner sales, we now have pre-approval to market FONAR’s Upright™ MRI in the public sector," said Dr. Damadian. “Moreover, we are privileged to have unprecedented access to the single largest segment of hospitals and medical facilities in the nation through the Department of Veterans Affairs. The FONAR Upright™ MRI will benefit from potentially significant exposure to an incredibly large number of medical professionals who work for various government agencies, and other practitioners who are primarily part of the private sector health care community.”
          “The VA is known for providing high quality health care to the nation’s veterans and also conducting research on some of the most difficult challenges facing medical science today. VA researchers have played key roles in developing the cardiac pacemaker, the CT scan, and radioimmunoassay, among other major medical innovations. With the failed spine surgery syndrome affecting many Americans, including U.S. military veterans, the VA will now have the opportunity to use FONAR’s Upright™ MRI to improve upon medical care for military personnel with spinal injuries and back pain,” said Dr. Damadian.
          On behalf of veterans, military personnel and other patients treated at DoD medical facilities, many of which have physically demanding occupations or have at some point experienced traumas to the spine in their military service career, FONAR’s Upright™ MRI will provide superior diagnoses over what they have heretofore been able to receive. Until the introduction of the FONAR Upright™ MRI in 2000, practitioners involved with medical diagnostics were capable of ordering only recumbent MRIs for their patients. It was the only technology available. FONAR’s research and development efforts have advanced the state-of-the-art of MRI scanning and brought a new technology to fruition that now allows surgeons to make more accurate diagnoses of spine pathology by their ability to see the spine fully weight-loaded. Through these advancements the surgeons are able to achieve better treatment outcomes for their patients.
          Given the uniqueness of Upright™ imaging technology, available only with the FONAR Upright™ MRI, an increasing number of highly respected surgeons believe that FONAR’s scanners will reshape the MR imaging market because recumbent-only scanning addresses the needs of only a fraction of patients. In fact, there is belief that the FONAR Upright™ imaging technology must replace all recumbent-only scanning for maladies of the spine, since the recumbent scan is largely not relevant to the vast majority of patients who experience back pain when they are erect and weight-bearing. With the high rate of failed back surgery being what it is(1), and a syndrome (FBSS)(2) specifically named for it, FONAR’s Upright™ MRI is a much needed product.
          As previously reported by FONAR based on third party studies, careful quantitative in vivo measurements of the pressure exerted on the intervertebral disc when the patient is lying down, is one-fifth (sitting) to one-eleventh (standing bending forward) of what the disc pressures are when the patient is erect (H-J. Wilke, P. Neef, M. Caimi, T. Hoogland and L. E. Claes, Spine 24, #8, pp. 755-762, 1999; and A. L. Nachemson, Spine 1, #1, pp. 59-71, 1976). A recumbent-only examination, therefore, cannot provide a satisfactory diagnosis of a patient’s back pain when the compressive forces responsible for the back pain have been removed. The need for FONAR’s new Upright™ MRI imaging technology is significant, inasmuch as there are 9 ,000,000 patients scanned annually in the MRI for back pain, 916,000 of whom proceed to surgery each year for relief from their pain (Center for Disease Control and Prevention, U.S. Dept. of Health and Human Services).
          To date, U.S. government agencies, including the VA which manages the largest medical education and health professions training program in the U.S., have had limited if any exposure to the FONAR Upright™ MRI and therefore have not availed military and related personnel to the scanner’s many benefits. The VA health care system had 7.7 million veterans who were enrolled as of October 2005, the latest figures available. About a quarter of the nation’s population, or approximately 70 million people, are potentially eligible for VA benefits and services because they are veterans, family members or survivors of veterans.
          In a recent “State of the VA” speech, the Honorable R. James Nicholson, Secretary of the Veterans Affairs agency, said his organization’s 154 hospitals and more than 900 clinics will treat more than 5.3 million veterans in 2006. VA health care facilities provide a broad spectrum of medical, surgical and rehabilitative care. The Washington Post reported in March that the VA’s health care budget has risen 69% in the past five years, and under President Bush’s proposed 2007 fiscal year budget, the VA would receive one of the biggest increases in discretionary spending for any Federal agency. The increase is expected to be $2.6 billion, bringing the total budget to $35.7 billion.
          According to the VA, its facilities are affiliated with 107 medical schools and more than 1,200 other schools across the country. Each year, about 83,000 health professionals are trained in VA medical centers. More than half of the physicians practicing in the United States had some of their professional education in the VA health care system. As Dr. Damadian indicated, the FONAR sales force can immediately begin calling on military and VA hospitals with the news that they can now purchase the FONAR Upright™ MRI.

¹ M. Szpalski, R. Gunzburg, Eds., ‘The Failed Spine’, Lippincott Williams & Wilkins, 2005
² FBSS, Failed Back Surgery Syndrome

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