SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to section 14(a) of the Securities and Exchange Act of
1934 (Amendment No.     )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by Rule
     14a-6(e)(2))
[X]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to {section}240.14a-12


                                Fonar Corporation
    ........................................................................
                (Name of Registrant as Specified In Its Charter)

    ........................................................................
      Name of Person(s) Filing Proxy Statement if other than the Registrant

               Payment of Filing Fee (Check the appropriate box):

[X]  No fee required

[ ]  Fee computed on table below per Exchange Act Rules 14-6(i) (1) and 0-11.

     1)   Title of each class of securities to which transaction applies:
                                       N/A
          .............................................................

     2)   Aggregate number of securities to which transaction applies:
                                       N/A
          .............................................................

     3)   Per unit  price  or other  underlying  value of  transaction  computed
          pursuant to Exchange  Act Rule 0-11 (Set forth the amount of which the
          filing fee is calculated and state how it was determined:
                                       N/A
          .............................................................

     4)   Proposed maximum aggregate value of transaction:
                                       N/A
          .............................................................

     5)   Total fee paid:
                                       N/A
          .............................................................

     [ ] Fee paid previously with preliminary materials.

     [ ] Check box if any part of the fee is offset as provided by Exchange  Act
     Rule 240.0-11 and identify the filing for which the offsetting fee was paid
     previously.  Identify the previous  filing by registration  number,  or the
     Form or Schedule and the date of its filing.

     1)   Amount Previously Paid:

          .............................................................

     2)   Form, Schedule or Registration Statement No.:

          .............................................................

     3)   Filing Party:

          .............................................................

     4)   Date Filed:

          .............................................................



                                FONAR CORPORATION
                                110 MARCUS DRIVE
                            MELVILLE, NEW YORK 11747
                                 (631) 694-2929


                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                                  MAY 20, 2011

To The Stockholders:

The Annual Meeting of the stockholders of Fonar  Corporation will be held at the
Double Tree Hotel,  Wilmington Downtown, 700 King Street,  Wilmington,  Delaware
19801  (302-655-0400),  on May 20,  2011,  at  10:00  a.m.  local  time  for the
following purposes:

1.   To elect five Directors to the Board of Directors.

2.   To ratify the  selection  of Marcum LLP as the  Company's  auditors for the
     fiscal year ended June 30, 2011.

3.   To transact such other business as may properly come before the meeting.

Only  stockholders  of  record at the close of  business  on March 21,  2011 are
entitled to notice of, and to vote at, this meeting. A list of such stockholders
will be available for  examination by any stockholder for any purpose germane to
the meeting,  during  normal  business  hours,  at the  principal  office of the
Company, 110 Marcus Drive, Melville, New York, for a period of ten days prior to
the meeting.

Whether or not you expect to attend in person,  we urge you to vote your  shares
at your earliest convenience.  You may vote by internet, by phone or by signing,
dating,  and  returning  your  proxy at your  earliest  convenience.  Voting  by
internet,  telephone  or mail will not prevent you from voting your stock at the
meeting if you desire to do so, as your proxy is revocable at your option.

                                      BY ORDER OF THE BOARD OF DIRECTORS

                                     /s/ Claudette J.V. Chan
                                     Claudette J.V. Chan, Secretary


                                 PROXY STATEMENT
                              FOR ANNUAL MEETING OF
                      STOCKHOLDERS TO BE HELD MAY 20, 2011

This proxy statement,  which is first being made available to shareholders on or
about  April 8,  2011 on the  internet,  is  furnished  in  connection  with the
solicitation  of proxies by the Board of  Directors  of Fonar  Corporation  (the
"Company"), to be voted at the annual meeting of the stockholders of the Company
to be held at 10:00 a.m. on May 20, 2011 and any adjournment(s)  thereof for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
At the same time a paper notice  regarding the  availability  of proxy materials
will be mailed to  stockholders.  Stockholders  who execute  proxies  retain the
right to revoke them at any time prior to the  exercise of the powers  conferred
thereby. The cost of solicitation of proxies is to be borne by the Company.

The  stockholders  will have several options as to how to view the materials and
vote their shares.

THIS  YEAR,  THE  COMPANY  IS POSTING  THE  NOTICE OF ANNUAL  MEETING  AND PROXY
STATEMENT,  TOGETHER WITH THE ANNUAL  REPORT ON THE  INTERNET.  YOU MAY READ THE
MATERIALS  ONLINE OR PRINT OUT A COPY.  YOU WILL ALSO HAVE THE  ABILITY  TO VOTE
ONLINE.

IN THE ALTERNATIVE,  YOU MAY ELECT TO RECEIVE AN E-MAIL OR THE TRADITIONAL PAPER
COPIES OF THE  NOTICE OF ANNUAL  MEETING  AND PROXY  STATEMENT,  AND THE  ANNUAL
REPORT.  THERE IS NO CHARGE FOR RECEIVING  E-MAIL OR PAPER COPIES,  BUT YOU MUST
REQUEST THEM IF YOU WANT THEM. TO  FACILITATE  TIMELY  DELIVERY  PLEASE MAKE THE
REQUEST AS INSTRUCTED ON OR BEFORE MAY 6, 2011.

TO VIEW THE  MATERIALS  AND  VOTE ON THE  INTERNET,  HAVE  THE 12 DIGIT  CONTROL
NUMBER(S)  LOCATED ON THE NOTICE  REGARDING THE  AVAILABILITY OF PROXY MATERIALS
AVAILABLE AND VISIT: www.proxyvote.com.

STOCKHOLDERS MAY REQUEST A COPY OF THE PROXY MATERIALS:

1.     BY INTERNET - VISIT www.proxy.com
2.     BY TELEPHONE - 1-800-579-1639
3.     BY E-MAIL - sendmaterial@proxyvote.com

Only  stockholders  of record at the close of business on March 21, 2011 will be
entitled to vote at the meeting. Shares of Common Stock are entitled to one vote
per share,  shares of Class B Common  Stock are  entitled to ten votes per share
and shares of Class C Common Stock are entitled to twenty-five  votes per share.
At the close of business on February 28, 2011, there were issued and outstanding
5,412,215  shares  of  Common  Stock  held  of  record  by  approximately  2,770
stockholders,  158  shares  of  Class  B  Common  Stock  held  of  record  by 10
stockholders  and  382,513  shares of Class C Common  Stock  held of record by 2
stockholders.  The shares of Class A Nonvoting  Preferred Stock,  313,438 shares
held of record by approximately  2,600  stockholders at the close of business on
February  28, 2011,  are not entitled to vote.  Except for the shares of Class A
Nonvoting  Preferred  Stock,  there are no shares of Preferred  Stock issued and
outstanding.

All shares of HMCA's issued and outstanding Common Stock are owned by Fonar.

Any proxy may be revoked at any time  before it is  exercised  by  delivery of a
written  instrument of revocation or a later dated proxy to the Secretary of the
Company at the principal  executive  office of the Company or, while the meeting
is in session, to the Secretary of the meeting, without, however,  affecting any
vote  previously  taken.  The presence of a stockholder  at the meeting will not
operate to revoke his proxy.  The  casting of a ballot by a  stockholder  who is
present at the  meeting,  however,  will  revoke  his proxy,  but only as to the
matters on which the  ballot is cast and not as to any  matters on which he does
not cast a ballot or as to matters previously voted upon.

Proxies  received by management  will be voted at the meeting or any adjournment
thereof.  EACH PROXY WILL BE VOTED IN ACCORDANCE  WITH THE  SPECIFICATIONS  MADE
THEREIN BY THE PERSON  GIVING THE PROXY.  TO THE EXTENT NO CHOICE IS  SPECIFIED,
HOWEVER, THE PROXY WILL BE VOTED FOR MANAGEMENT'S PROPOSALS. All of management's
proposals have been unanimously approved by the Board of Directors.

1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION

Five directors are to be elected at the annual meeting, to hold office until the
next annual meeting of stockholders  and until their  successors are elected and
qualified.  It is intended that the accompanying proxy will be voted in favor of
the following nominees to serve as directors unless the stockholder indicates to
the  contrary  on the  proxy.  All  of the  nominees  are  currently  directors.
Management expects that each of the nominees will be available for election.

DIRECTORS AND OFFICERS

Raymond  V.  Damadian,  M.D.  (age 75),  a nominee  for  Director,  has been the
Chairman of the Board and  President of FONAR since its  inception and Treasurer
since February,  2001. Dr. Damadian  received an M.D. degree in 1960 from Albert
Einstein  College of Medicine,  New York, and a B.S. degree in mathematics  from
the University of Wisconsin in 1956. In addition,  Dr. Damadian  conducted post-
graduate work at Harvard University,  where he studied extensively in the fields
of physics, mathematics and electronics. Dr. Damadian is a 1988 recipient of the
National  Medal  of  Technology  and in 1989  was  inducted  into  the  National
Inventors Hall of Fame, for his  contributions  in conceiving and developing the
application of magnetic resonance technology to medical  applications  including
whole body scanning and diagnostic  imaging.  Dr.  Damadian is also the director
and sole officer of the Company's subsidiary,  Health Management  Corporation of
America ("HMCA").

Claudette  J.V.  Chan (age 73), a nominee for  Director,  has been a Director of
FONAR  since  October  1987.  She also has been  the  Secretary  of FONAR  since
January,  2008.  Mrs.  Chan  has  been  employed  since  1992  by  HMCA  and its
predecessor,  Raymond V. Damadian,  M.D. MR Scanning Centers Management Company,
as "site  inspector," in which capacity she is responsible  for  supervising and
implementing  standard  procedures and policies for MRI scanning  centers.  From
1989  to 1994  Mrs.  Chan  was  employed  by St.  Matthew's  and  St.  Timothy's
Neighborhood  Center,  Inc.,  as the  director  of  volunteers  in the "Meals on
Wheels" program, a program which cares for the elderly.  She received a bachelor
of science degree in nursing from Cornell  University in 1960.  Mrs. Chan is the
sister of Raymond V. Damadian.

Robert J. Janoff (age 83), a nominee for Director,  has been a Director of FONAR
since  February,  1989.  Mr.  Janoff  has been a  self-employed  New York  State
licensed private  investigator for more than thirty-five  years and was a Senior
Adjustor in Empire  Insurance  Group for more than 15 years until  retiring from
that position on July 1, 1997.  Mr.  Janoff also served,  from June 1985 to June
1991,  as President of Action Data  Management  Strategies,  Ltd., a supplier of
computer  programs  for use by  insurance  companies.  Mr.  Janoff is a Director
Emeritus  of  Harmony  Heights of Oyster  Bay,  New York,  which is a  nonprofit
residential school for girls with learning disabilities.

Charles N. O'Data (age 74), a nominee for Director, has been a Director of FONAR
since  February,  1998. From 1968 to 1997, Mr. O'Data was the Vice President for
Development  for  Geneva  College,  a liberal  arts  college  located in western
Pennsylvania.  In that  capacity,  he acted as the  College's  chief  investment
officer.  His  responsibilities  included  management of the College's endowment
fund and fund  raising.  In July 1997,  Mr. O'Data  retired from Geneva  College
after 36 years of service to assume the position of National Sales Executive for
SC Johnson Company's  Professional Markets Group (a unit of SC Johnson Wax), and
specialized  in  healthcare  and education  sales,  a position he held until the
spring of 1999.  Mr.  O'Data  presently  serves  as  Director  of  Philanthropic
Advisors for McKinley Carter Wealth Services a regional wealth  management firm.
He founded The Beaver County Foundation,  a Community  Foundation,  in 1992, and
serves as its  President.  Mr.  O'Data  served as a director of Heritage  Valley
Health System, The Medical Center, Beaver for 25 years, three years as Chairman.
Mr. O'Data is a graduate of Geneva  College,  where he received a B.S. degree in
Economics in 1958.

Robert  Djerejian  (79),  a nominee for  Director,  has been a Director of Fonar
since June, 2002. Since 1996 Mr. Djerejian has served as a senior consultant for
Haines,  Lundberg & Waehler International,  (HWL International) an architecture,
design and engineering firm, which among other specialties designs hospitals and
laboratories.  Prior to that time he was the Senior Managing Partner of the firm
where he received numerous design awards including the National Honor Award from
the Endowment for the Arts and The Design  Excellence  Award from the NY Society
of the American  Institute of  Architects.  During his management of the firm he
brought the firm to  international  prominence with offices in London,  Shanghai
and  Saudi  Arabia.  He  currently  consults  to  private  clientele  in  design
management in planning,  design and construction  services.  Mr. Djerejian is an
Emeritus member of the Board of Trustees of Pratt Institute since 1992, where he
chaired the  Nominations  Committee  and was the Vice  Chairman of the Executive
Committee.  He served  as a Board  Member  coordinating  the  joint  venture  of
Corcoran College of Art & Design in Washington DC with Pratt Institute as one of
the founding  directors  forming the Delaware College of Art and Design. He is a
member of the American Institute of Architects and the NY Society of Architects.
Mr. Djerejian is a graduate of Pratt Institute School of Architecture,  where he
received his B.A. in Architecture in 1955.

CORPORATE GOVERNANCE, THE BOARD AND ITS COMMITTEES

All of the nominees are  presently  directors of the Company.  The five nominees
will be elected to hold  office for the ensuing  year or until their  respective
successors are elected and qualified.  Of the five nominees,  Messrs. Charles N.
O'Data, Robert J. Janoff and Robert Djerejian are independent, as defined in the
Securities and Exchange Commission Regulations and Nasdaq Market Place Rules. In
making  such  determinations,  there  were  no  transactions,  relationships  or
arrangements  not  disclosed in our SEC filings to be considered by the Board of
Directors, in determining whether the director was independent.

BOARD MEETINGS

During  the year  ended  June 30,  2010,  the  Board  of  Directors  unanimously
consented to take action in lieu of a meeting on four  occasions,  and the audit
committee met four times.

The attendance of the Board of Directors at annual meetings is not required. The
Chairman of the Board and Chief Executive Officer,  however,  always attends the
annual  meeting of  stockholders  where he acts as Chairman of the Meeting.  One
director attended the last annual meeting of stockholders.

Dr. Damadian  receives no cash  compensation for serving on the Board. The other
directors are each paid $20,000 per year in their capacities as directors.  This
is the sole compensation payable to the directors.

BOARD LEADERSHIP STRUCTURE. The current Board Chairman, Dr. Raymond V. Damadian,
is also the current  President and Chief  Executive  Officer of the Company.  In
addition,  although  the Company has not selected a lead  independent  director,
Charles  N.  O'Data,  in  his  capacity  as  Chairman  of the  Audit  Committee,
effectively  functions as such. The Company believes that the Company's  current
model of the combined  Chairman/Chief  Executive Officer role is the appropriate
leadership  structure  for the Company at this time.  The Company  believes that
each of the possible  leadership  structures for a board has its particular pros
and cons, which must be considered in the context of the specific circumstances,
culture  and  challenges  facing a  company,  and that such  consideration  fall
squarely on the shoulders of a company's  board and  necessitates a diversity of
views and experiences. The combined Chairman/Chief Executive Officers model is a
leadership  model that has served our  shareholders  well since the inception of
the Company.

The lead independent  director,  Charles N. O'Data, is the Chairman of the Audit
Committee. As such he plays a leading role in the engagement of auditors and the
review of the Company's financial statements.  Under certain  circumstances,  he
also serves as a contact point for employees.

The Company believes the combined Chairman/Chief  Executive Officer position has
certain advantages over other board leadership  structures that continue to best
meet the Company's current needs, including:

     -    Efficient communication between management and the Board;

     -    Clarity for the Company's  stockholders  on corporate  leadership  and
          accountability;

     -    The  Chairman  of the  Board  possessing  the  best  knowledge  of the
          Company's strategy, operations and financial conditions; and

     -    Continuity in the Company's  leadership,  as Dr. Damadian  founded the
          Company in 1978.

The Company's  Board of Directors has an audit  committee.  There is no standing
compensation committee, nominating committee or other committee of the Board.

In accordance with the Nasdaq  Marketplace Rules, the Board of Directors adopted
a written  charter for the audit  committee  which took effect in June, 2001 and
was revised on November 17, 2004. A copy of the charter is attached as Exhibit A
to this  proxy  statement.  All of the  directors  on the  audit  committee  are
independent.

Stockholders may communicate with directors by writing to them at the Company in
accordance with the Company's corporate governance policies and code of conduct,
or in any other manner the  particular  director  may provide.  Depending on the
sensitivity  and  timing of a matter  raised by a  stockholder  and the need for
disclosure  of  matters  to be made  not to  just  one  stockholder,  but to the
stockholders as a whole, it may not be possible for the director to reply to the
stockholder.

Due to the  shareholdings  of the  Company's  Chairman  of the  Board  and Chief
Executive  Officer,  Dr. Raymond V.  Damadian,  which total more than 50% of the
voting power of the Company, the Company is a controlled company for purposes of
NASDAQ Marketplace Rule 4350(c).

AUDIT COMMITTEE

The Audit Committee, which is comprised of independent directors, is governed by
a Board approved  charter that  contains,  among other things,  the  Committee's
membership  requirements and responsibilities.  The audit committee oversees the
Company's accounting, financial reporting process, internal controls and audits,
and consults with  management and the independent  public  accountants on, among
other  items,  matters  related to the annual  audit,  the  published  financial
statements and the accounting  principles  applied.  As part of its duties,  the
audit committee appoints, evaluates and retains the Company's independent public
accountants.  It also  maintains  direct  responsibility  for the  compensation,
termination and oversight of the Company's  independent  public  accountants and
evaluates the independent public  accountants'  qualifications,  performance and
independence.

Financial Expert on Audit  Committee:  The Board has determined that Mr. Charles
N. O'Data,  who  currently  is a financial  consultant  to various  entities and
previously was the Vice President for  Development  for Geneva  College,  is the
audit committee financial expert. The Board made a qualitative assessment of Mr.
O'Data's  level of  knowledge  and  experience  based on a  number  of  factors,
including his formal education and experience.

BOARD  OVERSIGHT OF RISK  MANAGEMENT.  The Company faces risk in many  different
areas, including business strategy; government regulation;  financial condition;
health care  compliance;  product  research  and  development;  competition  for
talent;   business   vitality;   operational   efficiency;   quality  assurance;
reputation;   intellectual  property;  and  trade  secrets,  among  others.  The
oversight  function is carried out in the quarterly  and annual Audit  Committee
meetings and by  communication  and meetings with the Company's  Chief Executive
Officer,  who also serves as Chairman of the Board and  exercises  the principal
responsibility for oversight of risk management.

AUDIT COMMITTEE REPORT

The audit  committee  has (a)  reviewed  and  discussed  the  audited  financial
statements  with  management,  (b) discussed with the  independent  auditors the
matters required to be discussed by SAS 61 (Statement on Auditing  Standards No.
61) and (c) has  received  the  written  disclosures  and the  letter  from  the
independent accountants required by Independence Standards Board, Standard No. 1
and has discussed with the independent accountants the independent  accountant's
independence.

Based on the foregoing review and discussions,  the audit committee  recommended
to the Board of Directors that the audited  financial  statements be included in
the  Company's  Annual  Report on Form 10-K for the  fiscal  year ended June 30,
2010.

The members of the audit  committee  are Messrs.  Charles N.  O'Data,  Robert J.
Janoff  and  Robert  Djerejian.   Messrs.   O'Data,  Janoff  and  Djerejian  are
independent  directors,  as defined in the  Securities  and Exchange  Commission
Regulations and Nasdaq Market Place Rules.

NOMINATING COMMITTEE

The  Board of  Directors  does not  believe  it  requires  a  separate  standing
nominating  committee because the Board of Directors is relatively small and can
make the  nominations  acting as a whole.  The Board does not have a policy with
regard to director candidates recommended by stockholders because the absence of
such  recommendations  makes a formal policy  unnecessary.  Historically,  there
usually  has not been a need to  identify  new  nominees  in the  absence of the
resignation or death of an existing director.

The remaining directors evaluate a new nominee based on his integrity,  loyalty,
competence  and  experience,  and how  his  background  complements  that of the
remaining directors.

Promoting  diversity in the  selection of nominees has not yet been  considered.
Traditionally,  the Board has followed a policy of  nondiscrimination  and equal
opportunity.

COMPENSATION COMMITTEE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The  Board of  Directors  does not  believe  it  requires  a  separate  standing
compensation  committee  because  the  management,  under the  authority  of the
Chairman  of the Board and Chief  Executive  Officer,  is best  equipped to make
compensation  decisions.  The Board  reserves the right to change this policy at
any time.

Dr. Raymond V. Damadian,  who serves as Chairman of the Board,  Chief  Executive
Officer and  President  of the Company,  participates  in  deliberation  and the
determination of executive officer and director compensation.

VOTE REQUIRED AND BOARD RECOMMENDATION

The  directors  will  be  elected  by the  vote  of a  plurality  of  the  votes
represented at the meeting.  THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF
THE NOMINEES FOR THE DIRECTORS OF THE COMPANY.


            INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL
                    STOCKHOLDERS, DIRECTORS, AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of
the Company's  common shares by the nominees for directors,  the Company's Chief
Executive  Officer,  and the directors  and executive  officers as a group as of
February 28, 2011.

NAME AND ADDRESS OF                   SHARES
BENEFICIAL OWNER (1)             BENEFICIALLY OWNED       PERCENT OF CLASS
__________________________       __________________       ________________
Raymond V. Damadian, M.D.
c/o FONAR Corporation
Melville, New York
 Director, President
 PEO, PFO 5% + Stockholder
    Common Stock                      120,302                   2.22%
    Class C Stock                     382,447                  99.98%
    Class A Preferred                  19,093                   6.09%

David Sandberg (2)(3)(4)
    Common Stock                      442,487                   8.18%

The Red Oak Fund, LP (2)(3)(4)
    Common Stock                      221,242                    4.09%

Red Oak Partners, LLC (2)(3)(4)
    Common Stock                      442,487                    8.18%
654 Broadway, Suite 5
New York, New York 10012

Pinnacle Fund LLLP (2)(3)(4)
     Common Stock                     221,245                    4.09%
Pinnacle Partners, LLC (2)(3)(4)
     Common Stock                     221,245                    4.09%
32065 Castle Court, Suite 100
Evergreen, CO  80439

(The total number of shares of
 Common Stock beneficially
 owned by David Sandberg and
 the entities listed above is
 442,487 (8.41%)).
See Note 2 below.

Claudette Chan
Director
    Common Stock                          106                     *
    Class A Preferred                      32                     *

Robert J. Janoff
Director
    Common Stock                        2,899                     *
    Class A Preferred                      79                     *

Charles N. O'Data
Director
    Common Stock                           28                     *

Robert Djerejian
Director
    Common Stock                            0                     *

All Officers, Directors
and Nominees as a Group
(5 persons)
    Common Stock                      123,335                   2.28%
    Class C Stock                     382,447                  99.98%
    Class A Preferred                  19,204                   6.13%
___________________________
*   Less than one percent

1. Address  provided for each beneficial  owner owning more than five percent of
the voting securities of the Company.

2. David Sandberg is the controlling  member of Red Oak Partners,  which manages
each of Red Oak Fund  and  Pinnacle  Fund.  The  Funds  are  private  investment
vehicles.  The Funds are the parties that directly own the 442,487  shares.  The
Red Oak Fund, LP holds  221,242  shares and the Pinnacle Fund LLLP holds 221,245
shares.  Each party listed  disclaims  beneficial  ownership with respect to any
shares other than the shares owned directly by such party.

3. In the case of all of the shares listed,  voting power and despositive  power
are shared.

4. Ownership is shown as of March 3, 2011.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Item 13, "Certain  Relationships and Related  Transactions" of the Company's
Annual  Report on Form 10-K for the fiscal  year  ended  June 30,  2010 which is
specifically  incorporated  by  reference  herein.  A copy of the  Form  10-K is
included  in the  Annual  Report  to  Stockholders  which is  being  sent to the
Company's stockholders with this Proxy Statement.)

The Company  believes that each of the related  transactions  described  therein
were on terms at least as favorable to the Company as were  available  from non-
affiliated parties.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

With the exception of the Principal  Executive  Officer and Principal  Financial
Officer,  Dr. Raymond V. Damadian,  the compensation of the Company's  executive
officers is based on a combination  of salary and bonuses based on  performance.
Decisions  concerning  compensation  are  made on a case by case  basis  and not
pursuant to standardized formulas, programs, policies or criteria. Dr. Damadian,
who serves as both the  Principal  Executive  Officer  and  Principal  Financial
Officer,  receives  compensation  which  consists  only of a  salary,  which has
remained at modest  levels to conserve  funds.  The Board of Directors  does not
have a compensation committee and does not believe such a committee is required,
in view of the manner in which compensation  matters are handled. Dr. Raymond V.
Damadian  is the  only  executive  officer  who is a  member  of  the  Board  of
Directors.  Dr. Damadian,  who also has voting control of the Company and serves
as Chairman of the Board and President,  participates  in the  determination  of
executive compensation for the Company's officers.

As noted above,  the Company's  compensation  policy is primarily based upon the
practice of  pay-for-performance.  Section  162(m) of the Internal  Revenue Code
imposes a limitation on the deductibility of  nonperformance-based  compensation
in excess of $1 million paid to the Principal  Executive Officer.  No officer of
the Company  received  compensation in excess of $1 million in fiscal 2010 or in
any previous fiscal year. The Board  currently  believes that the Company should
be able to continue to manage its executive  compensation  program for others so
as to preserve the related federal income tax deductions.

The  Company  does  not  believe  that  there  are any  risks  arising  from its
compensation  policies and practices for its employees that are likely to have a
material adverse effect on the Company.

The Company  maintains  no pension or deferred  compensation  plans except for a
noncontributory 401(k) plan.

The following  table discloses  compensation  received for the three years ended
June  30,  2010 by the  Company's  Principal  Executive  Officer  and  Principal
Financial Officer.

                           SUMMARY COMPENSATION TABLE
________________________________________________________________________________
                                                    Plans,
                                            Stock   Pension,  All
Name and                                    and     Deferred  Other
Principal Position                          Option  Compen-   Compen-
Position             Year  Salary     Bonus Awards  sation    sation  Total
-------------------  ----  ---------- ----- ------  --------  ------- ----------
Raymond V. Damadian  2010  $39,390.46   0      0         0        0   $39,390.46
Chairman of the
Board; President;    2009  $71,870.46   0      0         0        0   $71,870.46
Principal Executive
Officer; Acting
Principal Financial  2008  $81,518.69   0      0         0        0   $81,518.69
Officer; Director
________________________________________________________________________________

No executive  officer has a written or unwritten  employment  agreement with the
Company.  Salaries,  bonuses and  discretionary  stock and stock  option  awards
comprise  the  full  amount  of total  compensation.  The  only  exceptions  are
commissions, based on a percentage of the sales prices, payable to salesmen.

COMPENSATION PURSUANT TO STOCK OPTIONS AND SAR GRANTS

No stock  options or stock  appreciation  rights were  granted to the  Company's
Principal Executive Officer and Principal Financial Officer during fiscal 2010.

OPTION/SAR EXERCISES AND YEAR END VALUES

No options or stock  appreciation  rights were exercised by the Company's  Chief
Executive  Officer during fiscal 2010. The Company's Chief Executive Officer did
not hold any unexercised stock options or stock  appreciation  rights at the end
of fiscal 2010.


                              DIRECTOR COMPENSATION
                              _____________________
_______________________________________________________________________________
                                        Non-      Non-
                                        equity    qualified
              Fees                      incentive deferred  All
              earned                    plan      compen-   other
              or          Stock  Option compen-   sation    compen-
              paid in     awards awards sation    earnings  sation   Total
Name          cash ($)    ($)    ($)    ($)       ($)       ($)      ($)
(a)           (b)         (c)    (d)    (e)       (f)       (g)      (h)
------------  ----------  ------ ------ --------- --------- -------  ----------
A. Claudette
   J.V. Chan  $20,000.24     0      0         0         0       0    $20,000.24

B. Charles
   N. O'Data  $20,000.24     0      0         0         0       0    $20,000.24

C. Robert
   Janoff     $20,000.24     0      0         0         0       0    $20,000.24

D. Robert
   Djerejian  $20,000.24     0      0         0         0       0    $20,000.24
_______________________________________________________________________________


Each  director is entitled to receive  $20,000 per annum for his or her services
as a director of the Company, including service on any committee of the Board of
Directors.  No other  fees are  paid to the  directors  for  their  services  as
directors of the Company.

2. RATIFICATION OF SELECTION OF AUDITORS

The  Board of  Directors  selected  Marcum  LLP,  as the  Company's  independent
auditors for the fiscal year ending and June 30, 2011. The stockholders  will be
asked to ratify this action by the Board. Marcum LLP were the Company's auditors
for the fiscal years ended June 30, 2008, June 30, 2009 and June 30, 2010.

One or more  representatives  of Marcum LLP,  are  expected to be present at the
Meeting with the opportunity to make a statement if they desire to do so, and to
be available to respond to appropriate questions.

The  affirmative  vote of shares holding a majority of the votes  represented at
the  meeting is  required  to ratify the  selection  of auditors by the Board of
Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.

AUDIT FEES

The aggregate  fees billed by Marcum LLP for the audit of the  Company's  annual
financial  statements for the fiscal year ended June 30, 2010 and the reviews of
the financial  statements  included in the  Company's  Forms 10-Q for the fiscal
year ended June 30, 2010 were  $379,165.  An audit of internal  controls was not
required this year.

The aggregate  fees billed by Marcum LLP for the audit of the  Company's  annual
financial  statements  for the fiscal year ended June 30, 2009 and our  internal
controls,  and the reviews of the financial statements included in the Company's
Forms 10-Q for the fiscal year ended June 30, 2009 were $554,571.

All work on the audits in each of the last two  fiscal  years was  performed  by
full-time permanent employees of Marcum LLP.

AUDIT-RELATED FEES

No audit-related  fees were billed by Marcum LLP for the fiscal years ended June
30, 2010 and June 30, 2009.

TAX FEES

The aggregate fees billed by Marcum LLP for tax  compliance,  tax advice and tax
planning in the fiscal years ended June 30, 2010 and June 30, 2009 were $121,093
and $206,335, respectively.

ALL OTHER FEES

The aggregate fees billed by Marcum LLP for all other services  rendered by them
during the fiscal  years ended June 30, 2010 and June 30, 2009 were  $59,294 and
$31,776,   respectively,   which  included   services  in  connection  with  the
registration  of securities,  employee  benefit plans and reviews and procedures
that we requested  Marcum LLP to undertake to provide  assurances on matters not
required by laws or regulations.

Since January 1, 2003, the audit  committee has adopted  policies and procedures
for  pre-approving  all non-audit work performed by its auditors.  Specifically,
the committee  must  pre-approve  the use of the auditors for all such services.
The audit committee has  pre-approved  all non-audit work since that time and in
making its determination  has considered  whether the provision of such services
was compatible with the independence of the auditors.

No fees were  billed by Marcum LLP for the fiscal  years  ended June 30, 2010 or
June 30, 2009 for designing,  operating,  supervising or implementing any of our
financial  information  systems or any  hardware  or  software  systems  for our
financial information.

The  Company's  audit  committee  believes  that the  provision by Marcum LLP of
services in addition to audit  services in fiscal 2010 and 2009 were  compatible
with maintaining their independence.  The services to be performed are presented
by Marcum LLP to the committee or its chairman. The matter is then evaluated and
a decision made.

PROPOSALS OF STOCKHOLDERS

Proposals of stockholders intended to be presented at next year's annual meeting
of  stockholders  must be received by the Company no later than January 15, 2012
to be included in the  Company's  proxy  statement  and form of proxy related to
that meeting.

SOLICITATION OF PROXIES

The  proxy  accompanying  this  proxy  statement  is  solicited  by the Board of
Directors of the Company.  Proxies may be solicited by officers,  directors, and
regular  supervisory and executive  employees of the Company,  none of whom will
receive any additional  compensation for their services.  Such solicitations may
be made personally,  or by mail, e-mail,  facsimile,  telephone,  telegraph,  or
messenger.  The Company will pay persons  holding shares of stock in their names
or in the names of nominees,  but not owning such shares  beneficially,  such as
brokerage houses,  banks, and other  fiduciaries,  for the expense of forwarding
solicitation materials to their principals.  All of the costs of solicitation of
proxies will be paid by the Company.

VOTING TABULATION

The  election  of the  Company's  directors  requires a  plurality  of the votes
represented in person or by proxy at the meeting.  The ratification of proposals
and the selection of auditors requires the affirmative vote of a majority of the
votes  represented in person or by proxy at the meeting.  Votes cast by proxy or
in person at the meeting will be tabulated by the Company.

A stockholder  who abstains from voting on any or all proposals will be included
in the  number  of  shareholders  present  at the  meeting  for the  purpose  of
determining the presence of a quorum.  Abstentions will not be counted either in
favor of or against the election of the nominees or other  proposals.  Under the
rules of the National  Association of Securities Dealers,  brokers holding stock
for the  accounts  of their  clients  who have not been  given  specific  voting
instructions  as to a matter by their  clients in  certain  cases may vote their
clients' proxies in their own discretion.  Where a proposal  requires a majority
of the votes present for its passage, an abstention or broker non-vote will have
the same effect as a negative vote.

OTHER MATTERS

The Board of Directors  does not intend to bring any other  business  before the
meeting,  and so far as is known to the  Board,  no  matters  are to be  brought
before the meeting except as specified in the notice of the meeting. However, as
to any other business which may properly come before the meeting, it is intended
that  proxies,  in the  form  enclosed,  will be  voted in  respect  thereof  in
accordance  with the  judgment of the persons  voting  such  proxies,  where the
authorization to do so has been granted.

DATED: Melville, New York, April 8, 2011

A COPY OF THE  COMPANY'S  FORM 10-K  REPORT  FOR FISCAL  YEAR  2010,  CONTAINING
INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE UPON REQUEST. PLEASE WRITE TO:

                          INVESTOR RELATIONS DEPARTMENT
                                FONAR CORPORATION
                                110 MARCUS DRIVE
                            MELVILLE, NEW YORK 11747


                                    EXHIBIT A

                                FONAR CORPORATION

                         REVISED AUDIT COMMITTEE CHARTER


This Audit Committee Charter, as most recently revised,  adopted by the Board of
Directors (the "Board") of Fonar Corporation (the "Company").

1. PURPOSE

The Audit Committee (the  "Committee")  shall assist the Board of Directors (the
"Board") in fulfilling its  responsibility  to oversee (i) management's  conduct
of: the Company's financial reporting, including by overviewing the integrity of
the financial reports and other financial information provided by the Company to
any  governmental or regulatory  body, the Company's  securityholders  and other
users  thereof;  (ii)  management's  establishment  and conduct of the Company's
systems of internal accounting and financial  controls,  including the Company's
internal audit function;  (iii) the  qualifications,  engagement,  compensation,
independence and performance of the Company's independent auditors,  the conduct
of the annual  audit and any other  audit,  attest or review  services,  and the
engagement of the independent auditors to provide any non- audit services;  (iv)
the  preparation of the audit committee  report required by U.S.  Securities and
Exchange  Commission  ("SEC")  rules;  (v) the  Company's  legal and  regulatory
compliance;  and  (vi)  the  Company's  codes  of  conduct,  as  established  by
management and the Board.  The Committee's role shall apply equally with respect
to any subsidiary of the Company  (including  any  partnership or joint venture)
whose  financial  results are  consolidated  with the  financial  results of the
Company and any other subsidiary  which is directly or indirectly  controlled by
the Company and also with respect to any separate  financial reports of any such
subsidiary.

In discharging  its role,  the Committee is empowered to investigate  any matter
that  comes to its  attention  and  shall  have  access to all  books,  records,
facilities  and  personnel of the Company  which are  necessary in order for the
Committee to perform its duties hereunder. The Committee has the power to retain
legal counsel,  auditors or other experts as it determines  appropriate to carry
out its role and  responsibilities  and shall be provided  adequate funding from
the  Company  to  engage  such  advisors  and  for  the  administration  of  the
Committee's  affairs.  The Company shall compensate the independent  auditor for
its  audit,  review  and attest  services  as  determined  and  directed  by the
Committee.

The Committee shall report regularly to the Board on the Committee's activities,
including all actions taken by the Committee on behalf of the Company and on any
material  issues  that arise with  respect to the  quality or  integrity  of the
Company's  financial  statements,   the  performance  and  independence  of  the
independent  auditor,  the  performance  of the  internal  audit  function,  the
Company's  compliance with legal or regulatory  requirements and the adequacy of
and compliance  with the Company's  codes of conduct to the extent such codes of
conduct  relate to the duties and  purposes of the Audit  Committee as described
herein and any other  matters the  Committee  reasonably  deems  appropriate  in
connection  with the  performance  of its  duties  hereunder  or which the Board
requests.  The  Committee  shall  report to the Board at least  annually  on its
expenses, including the compensation of the independent auditor.

II. COMMITTEE MEMBERSHIP

The Committee  shall consist of three or more members of the Board,  as shall be
determined  by the Board,  each of whom has been  determined  by the Board to be
"independent" in accordance with the applicable  listing  standards of the NASD.
All  members of the  Committee  shall  meet the  applicable  financial  literacy
requirements  of the NASD and at least one member  shall be an "audit  committee
financial  expert" as such term is defined under applicable SEC rules. No member
of the  Committee  may serve on the audit  committee  of more than three  public
companies,  including the Company,  unless the Board of Directors has determined
that such  simultaneous  service  would not impair the ability of such member to
effectively serve on the Committee.

III. COMMITTEE MEETINGS; SUBCOMMITTEES

The Committee shall meet on a regularly-scheduled  basis at least four times per
year or more frequently as circumstances dictate. The Committee's meetings shall
include,  on  at  least  a  quarterly  basis,  an  executive  session  with  the
independent  auditor to provide the opportunity for full and frank discussion of
the  Company's  financial  reporting  without  any  member of senior  management
present, except for the Company's General Counsel if the Committee so desires.

IV. RESPONSIBILITIES AND FUNCTIONS

The Committee's role is one of oversight. The Committee's primary responsibility
relates to the Company's financial reporting and its other  responsibilities and
functions as stated herein, while important in their own right, are ancillary to
the accurate and complete  presentation of the Company's  financial position and
prospects.  The Company's  management is responsible for preparing the Company's
financial  statements,  for assuring the Company's compliance with its legal and
regulatory  obligations  and for the  adherence  by Company  personnel  with the
Company's  business  policies and codes of conduct.  The  Company's  independent
auditor is  responsible  for auditing the  Company's  financial  statements  and
assessing  the  adequacy  of the  Company's  internal  controls.  The  Company's
management and independent auditor have more knowledge and detailed  information
about the Company,  greater expertise in financial  reporting,  internal control
matters, the legal and regulatory  obligations of the Company and the details of
the Company's codes of conduct and business policies, and greater opportunity to
analyze financial reporting issues facing the Company than do Committee members.
Consequently, in carrying out its oversight responsibilities, the Committee does
not  provide  any  expert or special  assurance  as to the  Company's  financial
statements,  internal  controls,  legal  compliance or adherence to its codes of
conduct  and  business  policies  or any  professional  certification  as to the
independent auditor's work.

The following  functions of the  Committee  are  specified as a guide,  with the
understanding  that the Committee will exercise its judgment in determining  the
specific  activities  the  Committee  may  undertake  at  any  time  and  in its
activities may diverge from this guide as appropriate  given the  circumstances.
The  Committee is  authorized  to carry out these and such other  functions  and
responsibilities  as are assigned by the Board from time to time and to take any
actions  reasonably related to the Committee's  responsibilities  as mandated by
this Charter.

To fulfill its purpose, the Committee shall:

     1.   appoint,   subject  to   ratification   of  the   appointment  by  the
          shareholders,  and, if appropriate,  dismiss the accounting firm which
          shall audit the Company's  annual  financial  statements and any other
          accounting  firm which shall  provide to the Company any other  audit,
          attest  or  review  services  (each of which  shall be  considered  an
          "independent auditor" for purposes for this Charter), and evaluate the
          performance,  determine the  compensation  and oversee the work of the
          independent  auditors;  the independent auditors shall report directly
          to the  Committee and the  Committee  shall  resolve any  disagreement
          between management and the independent  auditors  regarding  financial
          reporting  In  connection   with  the  appointment  of  the  Company's
          independent auditors, the Committee shall on an annual basis:

          (a)  receive and review a formal written statement from the accounting
               firm  to  be  retained  as  the  Company's   independent  auditor
               delineating all relationships between the accounting firm and the
               Company  (consistent with  Independence  Standards Board Standard
               No. 1 and any additional or successor standard established by the
               Public Company  Accounting  Oversight Board) and also delineating
               any services the  accounting  firm has provided to the  Company's
               chief executive,  chief financial and chief  accounting  officer;
               the  Committee  shall  actively  engage in a  dialogue  with such
               accounting  firm with respect to any disclosed  relationships  or
               services that may impact the objectivity and  independence of the
               accounting  firm and take  appropriate  action in response to the
               accounting  firm's  report to  satisfy  itself  of the  auditor's
               independence;

          (b)  consider  whether,   in  the  interest  of  assuring   continuing
               independence  of the  independent  auditor,  the  Company  should
               regularly   rotate  the  accounting   firm  that  serves  as  its
               independent  auditor;

          (c)  set  clear  policies  with  respect  to the  Company's  hiring of
               employees or former employees of the independent auditors;

          (d)  receive  and  review  a  report  from  the  independent  auditors
               describing:  (i) such firm's internal quality-control  procedures
               and (ii) any material  issues raised by the most recent  internal
               quality-control review, peer review, or Public Company Accounting
               Oversight,  Board  Review  of such  firm,  or by any  inquiry  or
               investigation by governmental or professional authorities, within
               the  preceding  five  years,  regarding  one or more  independent
               audits  carried out by the firm, and any steps taken to deal with
               any such issues;

     2.   review and  approve  any  auditing  and  non-auditing  services  to be
          provided by the Company's independent auditors, including the adoption
          by the  Committee of any policies and  procedures  detailing  services
          which the independent auditors are permitted to provide to the Company
          without  specific  advance  approval by the Committee,  if any, except
          that if  services  rendered by the  auditors  were not  recognized  as
          non-audit   services  at  the  time  of  the   independent   auditor's
          engagement,  such services shall be promptly  brought to the attention
          of the Committee and approved by the Committee prior to the completion
          of the audit.

     3.   review and discuss with  management and the  independent  auditor on a
          regular  basis:  (i)  the  adequacy  of  the  Company's  internal  and
          disclosure controls and procedures, including computerized information
          system  disclosure  controls and  procedures  and  security;  (ii) any
          significant  deficiencies  or  material  weaknesses  in the  design or
          operation of the Company's  internal  controls  which could  adversely
          affect the Company's ability to record, process,  summarize and report
          financial  data that are reported to the  Committee;  (iii) any fraud,
          whether or not material,  that involves  management or other employees
          who have a significant  role in the Company's  internal  controls that
          are   reported  to  the   Committee;   and  (iv)  any   findings   and
          recommendations  of  the  independent  auditor  with  regard  to  such
          matters, together with management's responses;

     4.   review and discuss  with  management,  including  the chief  financial
          officer and chief accounting officer,  and the independent auditor (i)
          any significant  audit findings during the year,  including the status
          of  previous  audit  recommendations;   (ii)  any  audit  problems  or
          difficulties   encountered  in  the  course  of  the  auditor's  work,
          including  any  restrictions  on the scope of  activities or access to
          required  information;  (iii) any changes required in the scope of the
          audit  plan;  (iv)  the  audit  budget  and  staffing;   and  (v)  the
          coordination  of audit  efforts  in order to monitor  completeness  of
          coverage,  reduction of redundant  efforts,  and the  effective use of
          audit resources;

     5.   review  and  discuss  with  management  and  the  independent  auditor
          accounting policies that may be viewed as critical; review and discuss
          significant  changes in Company accounting policies and any accounting
          and  financial  reporting  proposals  (including  changes in generally
          accepted accounting principles) that may have a material impact on the
          Company's financial reports;  inquire as independent auditor's view of
          the  accounting   treatment   related  to   significant   new  Company
          transactions  or  other  significant  matters  or  events  not  in the
          ordinary  course  of the  Company's  business  and  inquire  as to the
          independent   auditor's   views  about  whether   Company   accounting
          principles as applied are conservative,  moderate,  or aggressive from
          the  perspective  of income,  asset,  and liability  recognition,  and
          whether or not those principles reflect common or minority practices;

     6.   review and discuss with  management  and the  independent  auditor any
          financial  or  non-financial  arrangements  that do not  appear in the
          financial  statements of the Company but are material to the Company's
          financial position or performance; and review, discuss with management
          and the independent  auditor, and approve, any transactions or courses
          of  dealing  with  related   parties  (e.g.,   including   significant
          shareholders of the Company,  directors,  corporate  officers or other
          members  of  senior  management  or  their  family  members)  that are
          material in size or involve  terms or other  aspects  that differ from
          those that would likely be negotiated  with  independent  parties,  as
          determined by the Committee to warrant review by the Committee;

     7.   review and discuss with the  independent  auditor:  (i) any accounting
          adjustments that were noted or proposed by the independent auditor but
          were "passed" (as  immaterial or otherwise),  (ii) any  communications
          between the audit team and the audit firm's national office respecting
          auditing or accounting  issues  presented by the  engagement and (iii)
          any "management" or "internal  control" letter issued,  or proposed to
          be issued, by the independent auditor to the Company;

     8.   review and discuss  with  management,  including  the chief  financial
          officer and chief accounting officer,  and the independent auditor any
          significant  risks or  exposures  to which the  Company is subject and
          assess  the  Company's   underlying  policies  with  respect  to  risk
          assessment and risk  management and the steps  management has taken to
          minimize risks;

     9.   review the Company's  financial  statements,  including:  (i) prior to
          public  release,  reviewing and  discussing  with  management  and the
          independent  auditor  the  Company's  annual and  quarterly  financial
          statements  to be  filed  with the SEC,  including  (a) the  Company's
          disclosures under  "Management's  Discussion and Analysis of Financial
          Condition and Results of Operations", (b) the certifications regarding
          the  financial  statements or the Company's  internal  accounting  and
          financial   controls  and  procedures   and  disclosure   controls  or
          procedures  filed  with  SEC  by the  Company's  chief  executive  and
          financial officers and personnel and any qualifications  thereon,  (c)
          the matters  required to be discussed with the independent  auditor by
          Statement of Auditing Standards No. 61 or No. 71; (ii) with respect to
          the  independent  auditor's  annual  audit  report and  certification,
          before  release  of the  annual  audited  financial  statements,  meet
          separately with the independent  auditor without any management member
          present  and  discuss  the  independent  auditor's  assessment  of the
          adequacy of the Company's system of internal  accounting and financial
          controls and the appropriateness of the accounting  principles used in
          and the judgments  made in the  preparation  of the Company's  audited
          financial  statements  and  the  quality  of the  Company's  financial
          reports;  (iii) also in  connection  with the release of the Company's
          audited annual financial  statements,  meet separately with management
          and  the  Company's  financial  personnel  and  discuss   management's
          evaluation  of  the  adequacy  of the  Company's  system  of  internal
          accounting  and  financial  controls  and the  appropriateness  of the
          accounting   principles   used  in  and  the  judgments  made  in  the
          preparation  of the Company's  audited  financial  statements  and the
          quality of the Company's financial reports; (iv) make a recommendation
          to the Board of  Directors  regarding  the  inclusion  of the  audited
          annual  financial  statements in the  Company's  Annual Report on Form
          10-K to be filed  with the SEC;  and (v)  prior to  submission  to any
          governmental authority of any financial statements of the Company with
          the  SEC,   review   such   financial   statements   and  any  report,
          certification or opinion thereon provided by the independent auditor;

     10.  discuss with management and the independent  auditor,  as appropriate,
          earnings  press  releases  and  financial   information  and  earnings
          guidance provided to analysts and to rating agencies;

     11.  establish  and  maintain  procedures  for the receipt,  retention  and
          treatment of  complaints  regarding  accounting,  internal  accounting
          controls  or  auditing  matters,   and  the  confidential,   anonymous
          submission by employees of concerns regarding questionable  accounting
          or auditing matters;

     12.  review periodically with the General Counsel: (i) legal and regulatory
          matters  that may have a material  impact on the  Company's  financial
          statements and (ii) the scope and effectiveness of the Company's legal
          compliance policies and programs;

     13.  receive  and act upon  any  reports  of a  material  violation  of law
          received  from any  attorney  for the Company in  accordance  with the
          SEC's Rule of practice,  any reports from legal  counsel  appointed or
          retained,  with the authorization of the Committee, to investigate any
          such report and any reports of the General  Counsel on any  proceeding
          relating to such reports;

     14.  review  periodically  with  management  the adequacy of the  Company's
          codes of conduct  (including  the  Company's  policies and  procedures
          concerning  trading  in  Company  securities  and  use in  trading  of
          proprietary or confidential  information) and the compliance therewith
          by Company  personnel and review and approve any waivers  sought under
          such codes with respect to  directors,  executive  officers and senior
          financial  officers) but any waiver reviewed by the Committee shall be
          reported by the  Committee  to the Board and  approval of the Board as
          well shall be  required  for any such  waiver to any  officer who is a
          member of the Board;

     15.  review  and  advise  the  Board  with  respect  to  the   appointment,
          reassignment,  replacement or dismissal of the chief financial officer
          and  chief  accounting  officer  and  other  financial  or  accounting
          personnel  and  consult  with  the  Compensation  Committee,  if  any,
          regarding  any  reduction  in the salary or benefits  of, the terms of
          participation  in  any  incentive  compensation  program  by  and  any
          discretionary  bonus or incentive award to the chief financial officer
          and chief accounting officer;

     16.  prepare  a  report  to be  included  in  the  Company's  annual  proxy
          statement  stating whether or not the Committee:  (i) has reviewed and
          discussed the Company's audited financial  statements with management;
          (ii) has discussed with the independent  auditor the matters  required
          to be  discussed  by SAS No. 61 and 90; (iii) has received the written
          disclosure and letter from the independent  auditor  (delineating  all
          relationships  such firm has with the Company) and has discussed  with
          such  firm  its  independence;  and  (iv)  based  on  the  review  and
          discussions   referred  to  above,   the  members  of  the   Committee
          recommended  to the Board that the audited  financials  be included in
          the  Company's  Annual  Report on Form 10-K for  filing  with the U.S.
          Securities and Exchange Commission;

     17.  conduct an annual self-evaluation of the performance of the Committee,
          including its  compliance  with this Charter,  and review and reassess
          the adequacy of this Charter; and

     18.  maintain   minutes  and  other  records  of  Committee   meetings  and
          activities.

                                FONAR CORPORATION

          Proxy - Annual Meeting of Stockholders for fiscal year 2011 -
                              May 20, 2011 10:00 AM

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned,  a stockholder of Fonar  Corporation  (the  "Company"),  hereby
revoking any proxy  heretofore  given,  does hereby appoint Raymond V. Damadian,
Luciano Bonanni,  Kurt Reimann and Daniel Culver, and each of them, proxies with
full power of substitution, for and in the name of the undersigned to attend the
Annual Meeting of the  Stockholders of the Company to be held at the Double Tree
Hotel,  Wilmington Downtown,  700 King Street,  Wilmington,  Delaware on May 20,
2011 at 10:00 a.m., local time, and at any adjournment(s)  thereof, and there to
vote upon all  matters  specified  in the notice of said  meeting,  as set forth
herein,  and upon such other  business as may properly and lawfully  come before
the meeting,  all shares of stock of the Company which the undersigned  would be
entitled to vote if personally present at said meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED
FOR ALL PROPOSALS.

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE FOLLOWING:

No. 1. Election of Directors

             FOR ALL              WITHHOLD ALL          FOR ALL EXCEPT

            __________             __________             __________
           [          ]           [          ]           [          ]
           [          ]           [          ]           [          ]
           [__________]           [__________]           [__________]


INSTRUCTION:  To withhold authority to vote for any individual nominee(s),  mark
"FOR ALL EXCEPT" and circle or cross out the name(s) of those nominee(s).

01 - Raymond V. Damadian,    02 - Claudette J. V. Chan,   03 - Robert J. Janoff,
04 - Charles N. O'Data       05 - Robert Djerejian

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE FOLLOWING PROPOSALS:

No. 2. To  ratify  the  selection  of Marcum  LLP as the  Company's  independent
auditors for the fiscal year ended June 30, 2011.

               FOR                  AGAINST                ABSTAIN
            __________             __________             __________
           [          ]           [          ]           [          ]
           [          ]           [          ]           [          ]
           [__________]           [__________]           [__________]

No. 3. In their  discretion,  the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

               FOR                  AGAINST                ABSTAIN
            __________             __________             __________
           [          ]           [          ]           [          ]
           [          ]           [          ]           [          ]
           [__________]           [__________]           [__________]



__________________________________             _______________________
Signature                                     Date


__________________________________            _______________________
Signature (Joint owners)                      Date

Please  sign  exactly  as  your  name(s)  appear(s)  hereon  or  on  your  stock
certificate(s).  When signing as an attorney,  executor,  proxy,  administrator,
trustee,  guardian or other  fiduciary,  please  give full title as such.  Joint
owners should each sign  personally.  All holders must sign.  If a  corporation,
please sign in full corporate name, by an authorized  officer. If a partnership,
limited liability company or other entity,  please sign in the company's name by
an authorized person, indicating your capacity.





                    FONAR PRESIDENT'S MESSAGE TO SHAREHOLDERS
                                 MARCH 31, 2011

DEAR SHAREHOLDERS:

I'll  open  with my  assessment  of the  difficulties  that  FONAR,  like  other
manufacturers  of MRI equipment,  continues to face. Then I'll outline how FONAR
has  adjusted its course and is  achieving  success  even in a very  challenging
business environment.

MRI scanner sales  continue to suffer from the effects of falling  reimbursement
for  MRI  services,  an  on-going  recession,   scarcity  of  capital  equipment
financing,  and the uncertainties of the yet-to-be  implemented  national health
care program.  Consequently,  the number of would-be MRI scanner  buyers remains
relatively low in comparison to previous years.

FONAR has  structured  itself such that in the event of a sales drought we would
be able to turn to our Field Service Division and our MRI Management subsidiary,
Health  Management  Corporation  of America  (HMCA),  for  financial  stability.
Although the manufacturing and sales of the FONAR UPRIGHT(R)  Multi-Position(TM)
MRI,  will always be a principal  objective  of the  company,  we are pleased to
report  that by  re-directing,  at least  for the  time  being,  our  resources,
talents,  and energy to these  other  segments  of the  Company  we have  indeed
achieved financial stability.

Both  the  Field  Service  Division  and HMCA are  performing  admirably.  It is
important to note that although sales of the FONAR UPRIGHT(R) Multi-Position(TM)
MRI  may be  sluggish,  it is  primarily  the  features  and  benefits  of  this
remarkable product that have made HMCA successful.

RECORD RESULTS

As reported this past February, net income and also income from operations,  was
$1.4  million in the second  quarter  fiscal 2011  (ended  December  31,  2010),
compared to a loss of $1.3 million in the corresponding  quarter of the previous
fiscal year. This marked three consecutive  quarters of positive net income, and
four consecutive quarters of positive income from operations.

FIELD SERVICE/UPGRADES

As always,  we strive to provide our installed base with  high-quality  customer
service.  We also develop and sell upgrades that will improve the performance of
our  customers'  scanners.  Such upgrades  assist our customers in obtaining ACR
(American College of Radiology)  accreditation and, at the same time, make their
centers more competitive.

FONAR's latest  upgrade,  the P2 Upgrade,  is a  hardware/software  upgrade that
includes  re-shimming of the scanner's magnet and system  recalibration.  The P2
Upgrade provides customers with more reliable magnetic field homogeneity,  which
improves  image quality and enables  advanced  imaging  techniques.  The new Fat
Suppression Upgrade combines the P2 Upgrade with newly developed QUAD-Z receiver
coils to achieve fat-suppression  imaging, a highly desirable imaging technique.
At this  writing,  we have 33 orders for the P2  Upgrade,  most of them  already
installed.

HMCA

FONAR's MRI management  subsidiary,  HMCA  (established  in 1997),  is providing
FONAR with a reliable  and growing  source of  revenue.  At this  writing,  HMCA
manages ten (10) MRI  scanning  centers - seven (7) in New York and three (3) in
Florida. All of them are equipped with a FONAR UPRIGHT(R) Multi-Position(TM) MRI
scanner.  We  continue  to  execute  our plan of  growing  HMCA in two ways * by
increasing business at the existing sites and by securing additional  management
contracts at new UPRIGHT(R) MRI facilities.

In 2010,  HMCA-managed  facilities  completed MRI 36,039 scans, 19% more than we
completed in 2009  (30,219).  Last year HMCA  contracted  with an UPRIGHT(R) MRI
facility  on the West Side of  Manhattan.  This year  HMCA has  contracted  with
another New York UPRIGHT(R) MRI facility that is expected to open this summer.

A BRIEF HISTORY OF FONAR

FONAR is the  Original  MRI  Company  - the  first to  produce  an MRI  scanner.
Incorporated in 1978, FONAR introduced the first commercial MRI scanner (the QED
80) in 1980 and has since produced several generations of cutting-edge MRIs. The
Company's  latest  innovation,  the  FONAR  UPRIGHT(R)   Multi-Position(TM)  MRI
features a unique  physical  configuration  that enables it to scan  patients in
virtually any position.  Conventional  MRI scanners can only scan patients lying
down,  i.e.  in  a  single,  static,   non-weight-bearing  position.  The  FONAR
UPRIGHT(R)  Multi-Position(TM)  MRI is the  only  MRI  that is  able to  provide
Dynamic(TM)  MRI * patient  imaging in any  position,  including  weight-bearing
postures, bending, flexion and extension.

At this  writing  we have sold 164  UPRIGHT(R)  MRIs and  installed  150 of them
worldwide. There are UPRIGHT(R) MRIs in 13 foreign countries: Australia, Canada,
Dubai, England,  Germany,  Greece, Kuwait, Libya, the NEtherlands,  Puerto Rico,
Scotland, Spain, and Switzerland.

             RECENT HIGHLIGHTS [EXCERPTS FROM FONAR PRESS RELEASES]

The following news reports attest to the increasing awareness, understanding and
acceptance   of  the   unique   diagnostic   power  of  the   FONAR   UPRIGHT(R)
Multi-Position(TM) MRI.

FONAR UPRIGHT MRI CUSTOMER WINS JURY DECISION IN FEDERAL COURT FOR ANTITRUST
LAWSUIT VERSUS CARECORE NATIONAL
(DECEMBER 13, 2010)

FONAR  announced  that a provider  of  outpatient  diagnostic  services (a FONAR
customer) and several Stand-Up MRI diagnostic imaging professional  corporations
(PCs)  received a jury  verdict in their favor in an antitrust  lawsuit  against
CareCore National, LLC, a radiology benefits management (RBM) company.

This antitrust lawsuit involved CareCore National's exclusion of the plaintiffs,
all of them  providers  of MRI  services  using  Stand-Up  MRI  scanners  (FONAR
UPRIGHT(R) Multi-Position(TM) MRIs), from utilization by its member subscribers.
CareCore Radiology, a division of CareCore National, covers more than 30 million
member subscribers in all 50 states. The diagnostic service provider and the PCs
were represented by Constantine Cannon LLP, New York, NY.

The verdict was reached  November  30, 2010 in the U.S.  District  Court for the
Eastern  District of New York.  The eight members of the jury were  unanimous in
their decision and awarded over $11 million in damages to the diagnostic service
provider  and the PCs in the case,  which are to be  trebled  by law.  The total
judgment with costs and attorney fees is expected to be close to $40 million.

Constantine  Cannon's lead trial attorney  Matthew Cantor said: "This verdict is
not just important for my clients, but for patients everywhere.  The evidence in
this  case  showed  that  even  CareCore  considered  the  UPRIGHT(R)  MRI to be
medically  necessary  and that,  nonetheless,  CareCore  and its  owners  denied
patients the ability to benefit from these important diagnostic procedures."

GERMAN CUSTOMER BUYS 4TH FONAR UPRIGHT(R) Multi-Position(TM) MRI
(AUGUST 3, 2010)

FONAR  announced  the  purchase  of  an  UPRIGHT(R)  Multi-Position(TM)  MRI  by
Medserena,  of  Germany.  It is the  fourth  purchase  by  Medserena.  The other
UPRIGHT(R)  MRI scanners in Germany  owned by Medserena  are located in Cologne,
Hanover and Munich.

Matthias Schulz, CEO of Medserena, said, "The first three UPRIGHT(R) MRI centers
have had great  success.  With  physicians  all over  Germany  asking about this
technology,  it has  become  imperative  for us to expand  and  install a fourth
UPRIGHT(R)  scanner.  This is in spite of an  intensely  active  MRI  market  in
Germany, where there are already many conventional lie-down MRIs installed.  The
large number of requests  coming from our  physicians  in Germany,"  Mr.  Schulz
said,  "are  arising  because of the special  medical  need for  FONAR's  unique
technology.

"The  German  people  tend to  recognize  the  potential  of any new  technology
quickly.  We have been very  successful  in  Germany  with the FONAR  UPRIGHT(R)
Multi-Position(TM)  MRI and its power for scanning  patients in multiple UPRIGHT
and recumbent  positions  because our physicians  have quickly  appreciated  the
benefits of this new  technology and want their patients to have access to those
benefits as soon as possible.

"With  50% of  MRIs  being  of the  spine,  it is  self-evident  that  to make a
satisfactory  imaging  diagnosis of the spine,  the spine needs to be supporting
its normal weight load which the conventional  lie-down MRI does not permit.  We
firmly believe that the FONAR UPRIGHT(R) Multi-Position(TM) MRI it will become a
standard for MRI diagnostics in Europe, especially in evaluating the spine."

BREAKTHROUGH PUBLICATION (JULY 2010): FONAR UPRIGHT(R) MRI DETECTS INJURIES IN
SYMPTOMATIC MOTOR VEHICLE WHIPLASH PATIENTS MISSED BY CONVENTIONAL
RECUMBENT-ONLY MRI
(JULY 21, 2010)

FONAR   announces   new   breakthrough   results   for  the   FONAR   UPRIGHT(R)
Multi-Position(TM) MRI. The medical journal "Brain Injury" has just released the
exciting results of a study of 1200 neck pain patients.  The study was published
by 10 authors from  distinguished  universities in the U.S. and around the world
(University of Oregon,  University of Aarhus,  Denmark,  University of Aberdeen,
Scotland, Columbia University,  Portland State University) of their results from
the scans of 1200  patients.  Their  study  reported  that  150%  more  whiplash
patients had demonstrable  radiographic pathology when scanned UPRIGHT than when
they were scanned lying down (recumbent). Their investigation also reported that
"patients  with a history  of motor  vehicle  crash-associated  neck pain have a
substantially  higher frequency of cerebellar  tonsillar ectopia (CTE) of 1mm or
more than non-traumatic subjects" when examined by the FONAR UPRIGHT(R) MRI. The
authors were Michael D. Freeman,  Scott Rosa, David  Harshfield,  Francis Smith,
Robert Bennett,  Christopher J. Centeno,  Ezriel Kornel, Ake Nystrom, Dan Heffez
and Sean S. Kohles.

               THE FONAR UPRIGHT(R) MULTI-POSITION(TM) MRI SCANNER

FONAR's  UPRIGHT(R) MR technology is vital to patient needs worldwide.  Here are
some examples:

BACK PAIN

Back pain is the second most common  reason for  visiting  the  doctor's  office
after the common cold.  Close to one million spine  surgeries are performed each
year,  but the outcomes are not good with a failure rate that varies from 10% to
40% depending on the reported study.  Alf Nachemson,  M.D. refers to the saddest
group of these patients,  those who have undergone 4, 5, or 6 spine surgeries as
"multiply  operated  surgical  cripples."  The surgical  failure is commonly the
result of operating on the wrong spinal  segment (i.e.  not the one  responsible
for the  patient's  pain).  This occurs  because the origin of the pain is often
attributed  to the wrong  degenerative  change in the spine when the  patient is
imaged on a  recumbent-only  MRI.  Degenerative  changes in the adult  spine are
frequently  multiple  in  number.  The  suspected  pain  generating  anatomy  is
conventionally  identified  from recumbent  (conventional)  MRI images while the
patient's  pain often  occurs  only when the  patient  is  UPRIGHT  and when the
pathology  generating  it is visible  only when the patient is UPRIGHT and fully
weight-loaded.

The FONAR UPRIGHT(R) Multi-Position(TM) MRI enables the patient to place himself
in the position  that  generates his pain so that an MRI picture can be taken in
the same position that generated the patient's pain.  Correctly  identifying the
pain generating  pathology  markedly  improves  patient  surgical  outcomes.  In
addition, it enables the surgeon to see ALL the pathology he has to address, not
just the single position  non-weight-bearing  image provided by the conventional
MRI.  This  enables  the  surgeon  to see the  full  extent  to  which  the disk
herniation of his patient increases when he/she flexes or extends, or the extent
to which the patient's vertebra is sliding back and forth with body position and
generating pain.  Approximately one million spine surgeries are performed in the
U.S.  each year and  technology  to  improve  the  surgical  outcomes  for these
patients is a serious need.

SPECIAL PATIENT NEEDS

There is a wide range of other needs that patients  have for FONAR's  UPRIGHT(R)
Multi-Position(TM)  MR imaging technology.  Patients who have been hospitalized,
for example,  with congestive heart failure,  cannot lie down. In the absence of
UPRIGHT (R) MRI these patients are unable to receive MRI examinations  when they
are needed.

SCOLIOSIS

Patients with scoliosis,  which most commonly arises for the first time in young
adolescent  girls,  have been  reported  by the  National  Cancer  Institute  to
experience  a 70%  higher  incidence  of breast  cancer as adults  than the non-
scoliotic  population.  The  increased  incidence is  attributed to the multiple
annual chest x-rays (2-3 times per year) needed to monitor the child's scoliosis
until adulthood in order to assure satisfactory treatment.  The FONAR UPRIGHT(R)
Multi-Position(TM)  MRI  provides  the same  necessary  vertebral  angle  ("Cobb
angle")  measurements  as the x-ray  (plus the needed  measurements  of vertebra
rotation not supplied by x-ray),  thereby avoiding the annual  radiations of the
x-ray procedure and eliminating the danger of subsequent adult breast cancer.

PELVIC FLOOR DYSFUNCTION (PFD)

Women patients, as a result of the inherent trauma of childbirth to their pelvic
floor anatomy,  will commonly suffer the  consequences of PFD later in life. The
symptoms of PFD are cystic prolapse  ("falling urinary bladder") and its chronic
cystitis  symptoms of urinary  frequency,  burning on urination,  fever,  and if
unaddressed,  chronic kidney inflammation (pyelonephritis).  The patient must be
UPRIGHT to see it. It commonly  returns to its normal  position when the patient
is recumbent  and  therefore is not  diagnosed by the  patient's  physician  who
examines  her in the  recumbent  position.  It  affects 10  million  women.  The
UPRIGHT(R)  MRI readily  visualizes  the fallen  bladder when these patients are
UPRIGHT,  so that the surgeon has full image  visualization  of the anatomy that
has to be repaired.

WHIPLASH INJURIES

Another serious present need for the FONAR UPRIGHT(R)  Multi-Position(TM) MRI is
the rising body of patients  who are  sustaining  dislocations  of the  cervical
spine from  automobile  collision  whiplash  injuries of the head and neck.  The
UPRIGHT(R)  MRI is  needed  to  assess  the  extent  to which the brain has been
dislocated  [descent of the tonsils of the  cerebellum]  into the opening in the
bottom of the skull (foramen magnum).  This critical assessment of the extent of
brain  herniation into the opening at the base of the skull  (cerebellar  tonsil
ectopia, or CTE) can only be determined with the patient in the UPRIGHT position
so that the surgical  repair of this herniation and the patient's "drop attacks"
can be eliminated. (See FONAR July 21, 2010 press release above.)

CORRELATED SLICE PROFILING (CSP)

Correlated Slice Profiling (CSP) is a very convenient and highly effective means
of presenting the results of scanning  spine  patients  (cervical and lumbar) in
four positions:  neutral, flexion, extension and recumbent. The referring doctor
can view precisely the same longitudinal slice of the spine in all four postures
on a single sheet of film. CSP allows the referring  doctor to quickly  identify
and access position-related  pathology and judge for himself the inadequacies of
recumbent-only spinal imaging.  HMCA's Melville, New York location was the first
to offer CSP to its  physicians.  As it has been well  received  by the  medical
community, the program is now being introduced at other HMCA-managed facilities.

PATIENT-FRIENDLY MRI

In  addition  to  its  remarkable   diagnostic   value,   the  FONAR  UPRIGHT(R)
Multi-Position(TM)  MRI  remains  the most  patient*friendly  MRI scanner on the
market. Patients simply love it. Most patients are scanned seated while watching
their  choice of a TV program or DVD on a 42" TV. It's not unusual for  patients
in need of an MRI scan to drive long  distances to avoid being scanned in one of
our competitor's highly claustrophobic "tunnel" MRIs.

NASDAQ LETTER

On January 11,  2010,  FONAR  received a  determination  letter from the Listing
Qualifications  Staff of The NASDAQ Stock Market LLC  notifying the Company that
based upon the Company's non-compliance with a stockholders' equity requirement,
the Company's  securities  were subject to delisting.  Please be assured that we
have  formulated  a plan that we trust will  satisfy all parties  concerned  and
thereby prevent a delisting. (See FONAR's January 14, 2011 Press Release)

                                   CONCLUSION

We have an exceptional product. Its range of clinical applications  continues to
grow,  it is  steadily  gaining  recognition  in the medical  community,  and it
remains  the  patients'  favorite  MRI  scanner.  Together  with  the  financial
stability  now  provided  by our Field  Service  Division  and by HMCA,  our MRI
management subsidiary, we are able to prevail in a depressed sales environment.

I'll repeat what I said last year at this time, because I still believe it to be
true:  Once the impact of reduced  reimbursements  has been absorbed and once we
have fully emerged from the current  recession,  the medical community will once
again

be  purchasing   diagnostic  equipment  at  pre-recession  levels  or  higher  -
particularly  the FONAR UPRIGHT(R)  Multi-Position(TM)  MRI. Ours is the product
that physicians  desperately need to improve the outcomes of their patients, and
the product  that  patients  strongly  prefer  because of its  spaciousness  and
comfort.

As of today,  over 1.9 million  scans have been  performed  on FONAR  UPRIGHT(R)
Multi-Position(TM)  MRIs. I'm sure you will agree it is very  gratifying for all
of us,  stockholders  and  FONAR  employees,  to know that we have had a part in
helping so many people.

Thank you for your faithful support.

Sincerely,

Raymond V. Damadian
President and Chairman



           SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
                             _____________________

                                    FORM 10-K
                             _____________________

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES  EXCHANGE ACT OF 1934 [Fee Required]
         For the fiscal year ended June 30, 2010

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES AND EXCHANGE ACT OF 1934 [No Fee Required]
         For the transition period from ______ to ______

                           Commission File No. 0-10248
                           ___________________________

                                FONAR CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                                  11-2464137
       (State of incorporation)             (IRS Employer Identification Number)

110 Marcus Drive, Melville, New York                      11747
(Address of principal executive offices)               (Zip Code)

                                 (631) 694-2929
              (Registrant's telephone number, including area code)
              ____________________________________________________

          Securities registered pursuant to Section 12(b) of the Act:
                    Common Stock, par value $.0001 per share

          Securities registered pursuant to Section 12(g) of the Act:
                                      None
        ________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ___  No _X_

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ___ No _X_

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_ No ___

Indicate by check mark whether the registrant  (1) has submitted  electronically
and  posted on its  corporate  Web site,  if any,  every  Interactive  Data File
required  to be  submitted  and posted  pursuant to Rule 405 of  Regulation  S-T
(Section  232.405 of this  chapter)  during the preceding 12 months (or for such
shorter  period that the registrant was required to submit and post such files).
Yes ___ No ___

Indicate by check mark if disclosure of delinquent filers,  pursuant to Item 405
of Regulation S-K,  {section}229.405 of this Chapter, is not contained, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements  incorporated by reference in Part III of this 10-K or
any amendment to the Form 10-K. [X]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
definitions  of "large  accelerated  filer",  "accelerated  filer  and  "smaller
reporting  company"  in Rule  12b-2 of the  Exchange  Act.  (Check  one)
Large accelerated filer ____ Accelerated filer ____  Non-accelerated  filer ____
Smaller reporting company _X_

(Do not check if a smaller reporting company)
Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___ No _X_

The aggregate market value of the shares of Common Stock held by  non-affiliates
as of December  31,  2009 based on the closing  price of $1.57 per share on such
date as reported on the NASDAQ System, was approximately $7.5 million. The other
outstanding classes do not have a readily determinable market value.

As of September 30, 2010,  5,100,815 shares of Common Stock, 158 shares of Class
B Common  Stock,  382,513  shares of Class C Common Stock and 313,451  shares of
Class A Non-voting Preferred Stock of the registrant were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                      None

PART I
ITEM 1.  BUSINESS
GENERAL

Fonar  Corporation,  sometimes  referred to as the  "Company"  or "Fonar",  is a
Delaware corporation which was incorporated on July 17, 1978. Our address is 110
Marcus  Drive,  Melville,  New York 11747 and our  telephone  number is 631-694-
2929. Fonar also maintains a WEB site at www.Fonar.com. Fonar provides copies of
its filings with the Securities and Exchange  Commission on Forms 10-K, 10-Q and
8-K and amendments to these reports to stockholders on request.

We conduct our business in two segments.  The first,  conducted directly through
Fonar, is referred to as our medical equipment  segment.  The second,  conducted
through our wholly owned subsidiary Health Management Corporation of America, is
referred to as the physician management and diagnostic services segment.

MEDICAL EQUIPMENT SEGMENT

Fonar is  engaged in the  business  of  designing,  manufacturing,  selling  and
servicing  magnetic  resonance  imaging,  also  referred  to as  "MRI"  or "MR",
scanners  which utilize MRI  technology for the detection and diagnosis of human
disease.  Fonar's  founders built the first scanner in 1977 and Fonar introduced
the first  commercial MRI scanner in 1980.  Fonar is the originator of the iron-
core non-superconductive and permanent magnet technology.

Fonar's iron frame  technology made Fonar the originator of "open" MRI scanners.
We introduced the first "open" MRI in 1980. Since that time we have concentrated
on  further  application  of our  "open"  MRI,  introducing  most  recently  the
Upright(R) Multi-positional(R) MRI scanner (also referred to as the "Upright(R)"
or "Stand-Up(R)" MRI scanner) and the Fonar 360(TM) MRI scanner.

The product we are now most  vigorously  promoting  is our  Upright(R)  MRI. The
Upright(R)  MRI is  unique in the  industry  in that it  allows  patients  to be
scanned  in a fully  weight-bearing  condition,  such as  standing,  sitting  or
bending in any position that causes symptoms.  This means that an abnormality or
injury,  such as a slipped disk can be visualized where it may not be visualized
with the patient  lying down. We have  introduced  the name  "Upright(R)"  as an
alternative to  "Stand-UP(R)"  because of the multiplicity of positions in which
the patient may be scanned where the patient is not standing.

PHYSICIAN MANAGEMENT AND DIAGNOSTIC SERVICES SEGMENT

Health Management Corporation of America, which we sometimes refer to as "HMCA",
was  formed  by Fonar in March  1997 as a  wholly-owned  subsidiary  in order to
enable us to expand into the  business  of  providing  comprehensive  management
services to medical providers. HMCA provides management services, administrative
services,  billing and collection  services,  office space,  equipment,  repair,
maintenance  service and  clerical  and other  non-medical  personnel to medical
providers.  Since July 28, 2005,  following the sale of HMCA's physical  therapy
and rehabilitation  business, HMCA has elected to provide its services solely to
diagnostic imaging centers.

See Note 20 to the  Consolidated  Financial  Statements  for separate  financial
information  respecting  our medical  equipment  and  physician  and  diagnostic
management services segments.

FORWARD LOOKING STATEMENTS.

Certain statements made in this Annual Report on Form 10-K are  "forward-looking
statements",  within the meaning of the Private Securities Litigation Reform Act
of 1995, regarding the plans and objectives of Management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results,  performance or achievements to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by such forward-looking statements. These forward-looking statements are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions  involving the expansion
of business.  These  assumptions  involve judgments with respect to, among other
things,  future economic,  competitive and market conditions and future business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are beyond our control.  Although we believe that our  assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could  prove  inaccurate  and,  therefore,  there can be no  assurance  that the
forward-looking  statements  included  in this  Annual  Report  will prove to be
accurate.   In  light  of  the   significant   uncertainties   inherent  in  our
forward-looking  statements,  the  inclusion of such  information  should not be
regarded as a  representation  by us or any other person that our objectives and
plans will be achieved.

RECENT DEVELOPMENTS AND OVERVIEW.

Our products and  works-in-progress  are intended to  significantly  improve our
competitive position.  Our current products are the Upright(R) MRI and the Fonar
360(TM).

The Upright(R) MRI permits,  for the first time, MRI diagnoses to be made in the
weight-bearing  state.  The  Upright(R) MRI is the only MRI scanner which allows
patients to be scanned while standing, sitting or reclining, either horizontally
or at an angle.  This means  that an  abnormality  or injury,  such as a slipped
disk, will be able to be scanned under full weight-bearing  conditions and, more
often than not, in the position in which the patient experiences pain. A patient
handling  system built into the floor brings the patients to the desired  height
in the scanner.  An adjustable  bed allows the patients to stand,  sit or lie on
their  backs,  sides or stomachs at any angle.  The  Upright(R)  MRI may also be
useful for MRI guided interventional procedures.

An important application of the Fonar Upright(R) technology is in the evaluation
and diagnosis of patients  with the  Arnold-Chiari  syndrome  believed to affect
from 200,000 to 500,000  Americans.  In this syndrome brain stem compression and
entrapment of the brain at the base of the skull in the foramen magnum, which is
the  circular  bony opening at the base of the skull where the spinal cord exits
the skull.  Classic  symptoms of the Chiari syndrome  include the "drop attack",
where the erect patient  unexpectedly  experiences  an explosive rush or nervous
discharge  at  the  base  of  the  brain  which  rushes  down  the  body  to the
extremities,  causing  the  patient to  collapse  in a  transient  neuromuscular
paralysis which then subsides when the patient is in a horizontal position.

The Fonar  Upright(R)  MRI has  demonstrated  its key value on two patients with
Chiari syndrome  establishing that the conventional lie-down MRI scanners cannot
make an adequate  evaluation of their pathology since the patient's pathology is
most  visible and  symptoms  are most acute when the  patient is upright.  It is
critical  to have an image of the  patient  in an upright  position  so that the
neurosurgeons  can fully evaluate the extent of the brain stem compression which
is occurring so they can choose the most appropriate  surgical  approach for the
operative repair.

Another milestone in the sale and utilization of Fonar's  Upright(R)  technology
was the sale in  September,  2006 of an  Upright(R)  MRI  scanner to the largest
orthopedic   hospital  in  the  Netherlands,   the  St.   Maartenskliniek.   St.
Maartenskliniek has over 300 in-patient beds and an extensive  outpatient clinic
program that  diagnosis and treats  25,000  patients  with  orthopedic  problems
annually. In placing their order, St.  Maartenskliniek  announced from the point
of view of their internationally recognized "Spine Center" that "once Fonar made
available upright weight-bearing MRI imaging technology,  owning one for the St.
Maartenskliniek "Spine Center" was not optional but mandatory.  For our hospital
to continue  to engage in spine  surgery  without  it, once this new  technology
became  available,  was  unacceptable.  Once the means  were  available  to make
certain we were getting the complete  picture of the patient's  spine  pathology
before undertaking  surgery,  so that we could be certain we were not performing
surgery  based on a wrong  diagnosis  and  running  the risk of doing  the wrong
surgery,  we did not regard the  utilization  of this new  technology,  from our
patient's perspective as optional. It was mandatory."

We are vigorously  promoting  sales of the Upright(R) MRI which we regard as our
most  promising  product.  Revenues,   however,  recognized  from  the  sale  of
Upright(R) MRI scanners  decreased in fiscal 2010 by 52.7% over fiscal 2009 from
approximately  $16.6  million in fiscal 2009 to  approximately  $7.9  million in
fiscal 2010 under  present  market  conditions.  The  following  chart shows the
revenues attributable to our different model scanners for the fiscal years ended
June 30, 2009 and June 30, 2010. Note that we recognize  revenue on a percentage
of completion basis. Accordingly,  revenue is recognized as each sub-assembly of
a scanner is manufactured.  Consequently the revenues for a fiscal period do not
necessarily relate to orders placed in that period.


     Model              Revenues Recognized
                      Fiscal 2009     Fiscal 2010
                      -----------     -----------
     Upright(R)       $16,617,352     $7,855,087
     Fonar 360(TM)    $         0     $        0
     Other            $   558,065     $1,201,220

"Other" revenue includes upgrades and deinstallations of scanners.

The Fonar 360(TM) includes the Open Sky(TM) MRI. We received our first order for
a Fonar 360(TM) scanner in the first quarter of fiscal 2005. The magnet frame is
incorporated into the floor, ceiling and sidewalls of the scan room and is open.
Consequently,  physicians  and  family  members  can walk  inside  the magnet to
approach  the  patient.  The  Open  Sky(TM)  version  of the  Fonar  360(TM)  is
decoratively  designed so that it is incorporated  into the panoramic  landscape
that  decorates the walls of the scan room.  The ability of the Fonar 360(TM) to
give physicians direct 360 degree access to patients and the availability of MRI
compatible  interventional  instruments  such  as  needles,  catheters,  probes,
scalpels  and forceps,  will also enable the Fonar  360(TM) to be used for image
guided interventions.

Fonar's  showcase  installation  of the first  Fonar  360(TM)  MRI  scanner  was
completed at the Oxford Nuffield  Orthopedic  Center in Oxford,  United Kingdom.
Oxford-Nuffield  had two  objectives in the choice of the Fonar 360(TM) MRI. The
first was to have an open  mid-field  MRI imaging  scanner to meet their medical
imaging  needs.  The second was to have an open scanner that would enable direct
image guided surgical  intervention.  The Oxford-Nuffield  scanner is carrying a
full diagnostic imaging load daily.

Additionally,  development  of the works in  progress  Fonar  360(TM)  MRI image
guided  interventional  technology  is  actively  progressing.   Fonar  software
engineers have completed and installed their 2nd generation tracking software at
Oxford-Nuffield  which is designed to enable the surgeons to insert needles into
the patient and  accurately  advance them under direct visual image  guidance to
the target tissue, such as a tumor, so that therapeutic agents can be injected.

Health Management Corporation of America ("HMCA"), a wholly-owned  subsidiary of
Fonar,  currently is managing 10 diagnostic imaging centers located  principally
in New York and Florida.

Of these 10 centers, 9 are equipped with Upright(R) MRI scanners.  In the second
half of fiscal 2010, HMCA intensified its marketing efforts, among other things,
hiring  additional  marketers  and  supervisory  personnel.  Our objective is to
increase HMCA's revenues not only for the sake of promoting HMCA's profitability
but to provide  sufficient  revenues to support  both  segments of our  business
during times when MRI scanner sales are weak.

MEDICAL EQUIPMENT SEGMENT

PRODUCTS

Fonar's principal products are the Upright(R) MRI and the Fonar 360(TM).

The Upright(R) MRI is a whole-body  open MRI system that enables  positional MRI
(pMRI(R))  applications,  such as  weight-bearing  MRI  studies.  Operating at a
magnetic field strength of 0.6 Tesla, the scanner is a powerful,  diagnostically
versatile  and  cost-effective  open MRI that provides a broad range of clinical
capabilities  and a complete set of imaging  protocols.  Patients can be scanned
standing,  bending,  sitting,  upright at an intermediate angle or in any of the
conventional recumbent positions.  This multi-positional MRI system accommodates
an unrestricted  range of motion for flexion,  extension,  lateral bending,  and
rotation  studies of the cervical  (upper)and  lumbar (lower) spine.  Previously
difficult  patient  scanning  positions  can  be  achieved  using  the  system's
MRI-compatible,  three-dimensional, motorized patient handling system. Patients,
lying horizontally,  are placed into the magnet in the conventional  manner. The
system's lift and tilt functions then deliver the targeted  anatomical region to
the center of the magnet.  The ceiling and floor are recessed to accommodate the
full vertical travel of the table. True image orientation is assured, regardless
of the rotation angle, via computer read- back of the table's  position.  Spines
and extremities can be scanned in weight- bearing states;  brains can be scanned
with patients either standing or sitting.

This  capability of the Fonar  Upright(R)  technology has  demonstrated  its key
value on patients with the Arnold-Chiari  syndrome,  which is believed to affect
200,000 to 500,000  Americans.  In this  syndrome,  brain stem  compression  and
subsequent severe neurological symptoms occur in these patients, when because of
weakness in the support tissues within the skull, the brain stem descends and is
compressed at the base of the skull in the foramen magnum, which is the circular
bony  opening at the base of the skull  where the  spinal  cord exits the skull.
Conventional  lie-down MRI scanners  cannot make an adequate  evaluation  of the
pathology  since the  patient's  pathology is most visible and the symptoms most
acute when the patient is scanned in the upright weight-bearing position.

The Upright(R) MRI has also  demonstrated its value for patients  suffering from
scoliosis.  Scoliosis  patients have been  typically  subjected to routine x-ray
exams for years and must be imaged  upright for an adequate  evaluation of their
scoliosis.  Because the patient must be standing for the exam,  an x-ray machine
has been the only modality that could provide that service.  The Upright(R) MRI,
is the only MRI scanner  which  allows the patient to stand during the MRI exam.
Fonar has  developed a new RF receiver and scanning  protocol that for the first
time allows  scoliosis  patients to obtain  diagnostic  pictures of their spines
without the risks of x-rays.  A recent  study by the National  Cancer  Institute
(2000)of  5,466 women with  scoliosis  reported a 70% increase in breast  cancer
resulting from 24.7 chest x-rays these  patients  received on the average in the
course of their scoliosis treatment.

The Upright(R) MRI is exceptionally open, making it the most  non-claustrophobic
whole-body  MRI  scanner.  Patients  can walk into the magnet,  stand or sit for
their scans and then walk out.  From the patient's  point of view,  the magnet's
front-open  and  top-open  design  provides an  unprecedented  degree of comfort
because the scanner allows the patient an unobstructed  view of the scanner room
from  inside  the  magnet,  and there is  nothing in front of one's face or over
one's head.  The only thing in front of the patient's  face during the scan is a
very large (42")  panoramic TV (included with the scanner)  mounted on the wall.
The bed is tilted back five  degrees to  stabilize a standing  patient.  Special
coil fixtures,  a patient seat, Velcro straps,  and transpolar  stabilizing bars
are available to keep the patient  comfortable  and  motionless  throughout  the
scanning process.

Full-range-of-motion  studies  of the  joints in  virtually  any  direction  are
possible,  an especially  promising  feature for sports injuries.  Full range of
motion cines,  or movies,  of the lumbar spine will be achieved  under full body
weight.

The Upright(R) MRI will also be useful for MRI guided interventional  procedures
as  the  physician  would  have  unhindered   access  to  the  patient  with  no
restrictions in the vertical direction.

This easy-entry,  mid-field-strength  scanner should be ideal for trauma centers
where a quick MRI screening  within the first  critical  hour of treatment  will
greatly  improve  patients'  chances for  survival  and  optimize  the extent of
recovery.

The Fonar 360(TM) is an enlarged  room sized magnet in which the floor,  ceiling
and walls of the scan room are part of the magnet  frame.  This is made possible
by Fonar's  patented  Iron-Frame(TM)  technology  which allows our  engineers to
control,  contour and direct the magnet's lines of flux in the patient gap where
wanted and almost  none  outside  of the steel of the magnet  where not  wanted.
Consequently,  this  scanner  allows  360  degree  access  to the  patient,  and
physicians  and family  members are able to enter the scanner and  approach  the
patient.

The Fonar 360(TM) is presently marketed as a diagnostic scanner and is sometimes
referred to as the Open  Sky(TM) MRI. In its Open  Sky(TM)  capacity,  the Fonar
360(TM)  serves as an open  patient-friendly  scanner  which  allows  360 degree
access to the patient on the scanner bed.

To optimize the  patient-friendly  character of the Open Sky(TM) MRI, the walls,
floor, ceiling and magnet poles are decorated with landscape murals. The patient
gap is twenty inches and the magnetic field strength is 0.6 Tesla.

We also  expect to  enable  the  Fonar  360(TM)  to  function  as an MRI  guided
interventional   scanner,   for  the  purpose  of  performing   intra-operative,
interventional and therapeutic procedures with MR compatible instrumentation. In
this  capacity,  the  enlarged  room sized  magnet and 360 degree  access to the
patient afforded by the Fonar 360(TM) would permit full-fledged support teams to
walk into the magnet and perform MRI guided  interventions on the patient inside
the magnet.  Most importantly,  the exceptional quality of the MRI image and its
exceptional  capacity to exhibit  tissue  detail on the image,  by virtue of the
nuclear resonance signal's  extraordinary capacity to create image contrast, can
then be  obtained  very near real time to guide  the  physician  during  the MRI
guided  intervention.  Thus  MRI  compatible  instruments,  needles,  catheters,
endoscopes  and the like can be  introduced  directly  into the  human  body and
guided to the  malignant  lesion or other  pathology  by means of the MRI image.
Surgically inoperable lesions could be accessed through MRI guided catheters and
needles  making it  possible  to deliver  the  treatment  agent  directly to the
targeted tissue.

The first Fonar 360(TM) MRI scanner, installed at the Oxford-Nuffield Orthopedic
Center in Oxford,  United  Kingdom,  is now carrying a full  diagnostic  imaging
caseload.  In  addition,  however,  development  of the works in progress  Fonar
360(TM) MRI image  guided  interventional  technology  is actively  progressing.
Fonar  software  engineers  have  completed and installed  their 2nd  generation
tracking software at Oxford-Nuffield which is designed to enable the surgeons to
insert needles into the patient and accurately advance them, under direct visual
image  guidance,  to the target  tissue,  such as a tumor,  so that  therapeutic
agents can be injected.

With current treatment methods, such as chemotherapy taken by mouth, the therapy
must  always be  restricted  in the doses that can be  applied to the  malignant
tissue   because  of  the  adverse   effects  on  the  healthy   tissues.   Thus
chemotherapies must be limited at the first sign of toxic side effects. The same
is the case with  radiation  therapy.  Fonar expects that with the Fonar 360(TM)
treatment agents may be  administrated  directly to the malignant tissue through
small catheters or needles,  thereby allowing much larger doses of chemotherapy,
x-rays, laser ablation, microwave and other anti-neoplastic agents to be applied
directly and  exclusively to the malignant  tissue with more effective  results.
Since the interventional procedure of introducing a treatment needle or catheter
under image  guidance will be minimally  invasive,  the procedure can be readily
repeated should  metastases occur elsewhere,  with minimum impact on the patient
beyond a straightforward needle injection.  The presence of the MRI image during
treatment would enable the operator to make assessments during treatment whether
the treatment is being effective.

In addition to the patient  comfort and new  applications,  such as MRI directed
interventions,  made possible by our scanners'  open design,  the Upright(R) and
Fonar 360(TM) scanners are designed to maximize image quality through an optimal
combination of  signal-to-noise  (S/N) and  contrast-to-noise  (C/N) ratios. The
technical   improvements   realized  in  these   scanners'   design  over  their
predecessors  also  include  increased  image-processing  speed  and  diagnostic
flexibility.

MRI directed  interventions are made possible by the scanners' ability to supply
images to a monitor  positioned  next to the  patient,  enabling the operator to
view in process an interventional  procedure from an unlimited number of angles.
The  openness of Fonar's  scanners  would  enable a physician  to perform a wide
range of interventional procedures inside the magnet.

In the case of breast imaging the access by a physician  permits an image guided
biopsy to be performed  easily which is essential  once  suspicious  lesions are
spotted by any diagnostic  modality.  In addition to being far superior to x-ray
in  detecting  breast  lesions  because of the MRI's  ability to create the soft
tissue contrast  needed to see them,  where x-ray is deficient in its ability to
generate the needed contrast between cancer and normal tissue,  there is not the
painful compression of the breast characteristic of X-ray mammography.

The Upright(R) MRI and Fonar 360(TM) scanners share much of the same fundamental
technology  and offer the same  speed,  precision  and  image  quality.  Fonar's
scanners  initiated the new market  segment of high-field  open MRI.  High-field
open  MRIs  operate  at  significantly  higher  magnetic  field  strengths  and,
therefore,  produce  more  of the  MRI  image-producing  signal  needed  to make
high-quality MRI images (measured by signal-to-noise ratios, S/N).

The  Upright(R) MRI and Fonar 360(TM)  scanners  utilize a 6000 gauss (0.6 Tesla
field strength) iron core electromagnet.  The greater field strength of the 6000
gauss magnet, as compared to lower field open MRI scanners that operate at 3,000
gauss (0.3 Tesla) when enhanced by the electronics  already  utilized by Fonar's
scanners,  produces images of higher quality and clarity. Fonar's 0.6 Tesla open
scanner magnets are among the highest field "open MRI" magnets in the industry.

The  Upright(R)  MRI and Fonar 360(TM)  scanners are designed to maximize  image
quality through an optimal  combination of  signal-to-noise  (S/N) and contrast-
to-noise  (C/N)  ratios.  The technical  improvements  realized in the scanners'
design  over their  lower  field  predecessors  also  include  increased  image-
processing speed and diagnostic flexibility.

Several technological  advances have been engineered into the Upright(R) MRI and
Fonar 360(TM) scanners for extra  improvements in S/N,  including:  new high-S/N
Organ Specific(TM)  receiver coils; new advanced front-end electronics featuring
high-speed,  wide-dynamic-range  analog-to-digital conversion and a miniaturized
ultra-low-noise pre-amplifier;  high-speed automatic tuning, bandwidth-optimized
pulse  sequences,   multi-bandwidth   sequences,   and  off-center  FOV  imaging
capability.

In  addition  to the  signal-to-noise  ratio,  however,  the factor that must be
considered when it comes to image quality is contrast,  the quality that enables
reading  physicians  to clearly  distinguish  adjacent,  and  sometimes  minute,
anatomical  structures  from their  surroundings.  This  quality is  measured by
contrast-to-noise  ratios (C/N).  Unlike S/N, which  increases  with  increasing
field strength,  relaxometry  studies have shown that C/N peaks in the mid-field
range and  actually  falls off  precipitously  at higher  field  strengths.  The
Upright(R) MRI and Fonar 360(TM)  scanners  operate  squarely in the optimum C/N
range.

The  Upright(R)  MRI and Fonar 360(TM)  provide  various  features  allowing for
versatile  diagnostic  capability.  For example,  SMART(TM)  scanning allows for
same-scan  customization of up to 63 slices,  each slice with its own thickness,
resolution,  angle and position. This is an important feature for scanning parts
of the body that  include  small-structure  sub-regions  requiring  finer  slice
parameters.  There is also Multi-Angle  Oblique(TM)  (MAO) imaging,  and oblique
imaging.

The console for these scanners includes a mouse-driven,  multi-window  interface
for easy  operation  and a 19-inch,  1280 x 1024-pixel,  20-up,  high-resolution
image monitor with features such as electronic  magnifying  glass and real-time,
continuous zoom and pan.

The  predecessors of the Upright(R) MRI and Fonar 360(TM) were FONAR's  QUAD(TM)
scanner,  Ultimate(TM)  7000 scanner and  Beta(TM)  scanner.  The Beta(TM)  3000
scanner utilized a permanent magnet. The Beta(TM) 3000M scanner utilized an iron
core  electromagnet.  All of our  current  and  earlier  model  scanners  create
cross-sectional images of the human body.

During  fiscal  2010,  sales  of  our  Upright(R)  MRI  scanners  accounted  for
approximately  24.7% of our total  revenues  and 37.9% of our medical  equipment
revenues,  as compared to 41.8% of total revenues and 56.4% of medical equipment
revenues in fiscal  2009.  These  results  reflect the  decrease in our sales of
scanners.

During fiscal 2010 and fiscal 2009, we had no revenues  attributable to sales of
our Fonar 360(TM) scanner.

Our principal  selling,  marketing and advertising  efforts have been focused on
the Upright(R) MRI, which we believe is a particularly unique product, being the
only MRI scanner which is both open and allows for weight bearing imaging. Since
we perceive that the Upright(R) MRI is  successfully  penetrating the market and
enabled us to achieve  profitability  in fiscal 2009,  we expect to continue our
focus on the Upright(R) MRI in the immediate future,  notwithstanding the losses
incurred in fiscal 2010. We are optimistic  that the Fonar 360(TM) and our other
products and works in progress will also contribute to increased product sales.

The materials and components  used in the  manufacture of our products  (circuit
boards, computer hardware components,  electrical components, steel and plastic)
are  generally  available  at  competitive  prices.  We have not had  difficulty
acquiring such materials.

WORKS-IN-PROGRESS

All of our  products  and  works-in-progress  seek to  bring to the  public  MRI
products  that are  expected  to  provide  important  advances  against  serious
disease.

MRI takes  advantage of the nuclear  resonance  signal  elicited from the body's
tissues and the  exceptional  sensitivity of this signal for detecting  disease.
Much of the  serious  disease  of the body  occurs  in the soft  tissue of vital
organs.  The  principal  diagnostic  modality  currently  in use  for  detecting
disease,  as in the case of x-ray  mammography,  are diagnostic  x-rays.  X-rays
discriminate  soft tissues,  such as healthy breast tissue and cancerous  tissue
poorly,  because the x-ray  particle  traverses the various soft tissues  almost
equally  thereby  causing  target films to be nearly  equally  exposed by x-rays
passing through adjacent soft tissues and creating healthy and cancerous shadows
on the film  that  differ  little in  brightness.  The  image  contrast  between
cancerous  and healthy  breast  tissue is poor,  making the  detection of breast
cancers by the x-ray  mammogram  less than optimal and forcing the  mammogram to
rely   on   the   presence   or   absence   of    microscopic    stones   called
"microcalcifications"  instead of being able to "see" the breast cancer  itself.
If microcalcifications are not present to provide the missing contrast, then the
breast cancer goes  undetected.  They  frequently  are not present.  The maximum
contrast  available  by x-ray with which to  discriminate  disease is 4%.  Brain
cancers differ from surrounding healthy brain by only 1.6% while the contrast in
the brain by MRI is 25 times greater at 40%.  X-ray  contrasts  among the body's
soft  tissues are  maximally  4%.  Their  contrast by MRI is 32.5 times  greater
(130%).

The soft tissue contrasts with which to distinguish cancers on images by MRI are
up to 180%. In the case of cancer these contrasts can be even more marked making
cancers readily visible and detectable anywhere in the body. This is because the
nuclear resonance signals from the body's tissues differ so dramatically.  Liver
cancer and healthy liver signals differ by 180% for example.  Thus there is some
urgency to bring to market an MRI based  breast  scanner  that can  overcome the
x-ray  limitation and assure that  mammograms do not miss serious  lesions.  The
added  benefit  of  MRI  mammography  relative  to x-  ray  mammography  is  the
elimination  of the need for the patient to disrobe and the painful  compression
of the breast  typical  of the x-ray  mammogram.  The  patient is scanned in her
street clothes in MRI mammography. Moreover MRI mammogram scans the entire chest
wall  including  the axilla for the presence of nodes which the x-ray  mammogram
cannot reach.

We view our  Upright(R)  MRI as having the  potential  for being an ideal breast
examination  machine as it permits the patient to be seated for the examination,
which would allow easy access for an MRI guided breast  biopsy when needed.  The
Fonar 360(TM) MRI scanner would also be ideal for breast examinations.

PRODUCT MARKETING

The principal  markets for the Company's  scanners are private  scanning centers
and hospitals.

Our  internal  sales  force  handles  the  domestic  market.  We continue to use
independent manufacturer's representatives and distributors for foreign markets.
None of  Fonar's  competitors  are  entitled  to make the Fonar  Upright(R)  MRI
scanner.

Fonar's Website includes interactive product information for reaching customers.

Fonar  exhibited  its new  products  at the annual  meeting of the  Radiological
Society of North America ("RSNA") in Chicago from November 1995 through 2007 and
will consider attending RSNA meetings in future years.

Fonar has targeted  orthopedic  surgeons and  neurosurgeons,  particularly spine
surgeons,  as important markets for the Upright(R) MRI.  Accordingly,  Fonar has
exhibited at annual  meetings of The American  Academy of  Orthopaedic  Surgeons
(AAOS);  the North American Spine Society  (NASS);  the American  Association of
Neurological  Surgeons (AANS); and the Congress of Neurological  Surgeons (CNS).
In addition,  in 2007, Fonar attended the Global Health Care Expansion  Congress
and the Abu Dahabi International Surgical Conference abroad.

Fonar's success in targeting surgeons was most evident in the sale, in September
2006, of an  Upright(R)  MRI scanner to the largest  orthopedic  hospital in the
Netherlands,  the St.  Maartenskliniek  in Nijmegen.  In addition to being a key
sale to a prestigious  hospital,  the medical  conclusions reached and stated by
the buyer and the buyer's  intention to conduct  research  and publish  articles
concerning the Upright(R) technology, are a vital component to Fonar's objective
to prove to the medical community at large, insurers,  governmental agencies and
others the benefits,  if not the necessity of Upright(R) scanning. A Director of
St.  Maartenskliniek  and the Chairman of Spine  Surgery  stated that "We at St.
Maartenskliniek,  the biggest orthopedic  hospital in the Netherlands,  are very
much looking  forward to this new technology  from Fonar which will enable us to
evaluate  the spine  anatomy in the fully weight  bearing  state and in multiple
positions.  We expect  these  new  multi-position  capabilities  to lead to more
accurate  diagnosis and better  surgery  outcomes for patients.  Once our active
research  program has discovered  the benefits of this new Fonar  technology for
patients,  we intend to publish the results in a lot of peer reviewed scientific
journals." The Chairman  stated further "that once Fonar made available  upright
weight-bearing MRI imaging  technology,  owning one for the St.  Maartenskliniek
"Spine Center" was not optional but  mandatory.  For our hospital to continue to
engage in spine surgery without it, once this new technology  became  available,
was unacceptable".

Recognition  of the  importance  of  Fonar  Upright(R)  MRI  continues  to grow.
Medserena,  of Germany,  announced  in August,  2010 the  purchase of its fourth
Upright(R)  Multi-Position(TM)  MRI. CEO Matthais Schulz said, "The large number
of requests  coming from our  physicians  in Germany are arising  because of the
special  medical  need for  FONAR's  unique  technology.  This is in spite of an
intensely   active  MRI  market  in  Germany,   where  there  are  already  many
conventional lie-down MRIs installed."

Even  high-field  3.0 Tesla MRI scanners  cannot  overshadow  the  importance of
Fonar's unique  technology.  In August,  2010, a  distinguished  board-certified
radiologist in Florida, the owner/operator of two multi-modality imaging centers
equipped  with MRIs,  ordered a Fonar  Upright(R)  MRI. He initially  considered
purchasing  a 3.0 Tesla  lie-down  MRI,  but  decided  instead  to buy the Fonar
Upright(R)  Multi-Position(TM)  MRI when he  became  aware  of its  many  unique
imaging capabilities.

Fonar's advertising  strategy has been designed to reach key purchasing decision
makers with  information  concerning our flagship  product,  the Upright(R) MRI.
This has led to many  inquiries and to some sales of the  Upright(R) MRI scanner
and is intended  to increase  Fonar's  presence in the medical  market.  Fonar's
advertising  has  been  directed  at  four  target   audiences:   neurosurgeons,
orthopaedic surgeons, radiologists and physicians in general.

     1) Neurosurgeons and Orthopaedic  Surgeons:  These are the surgeons who can
most benefit from the superior  diagnostic  benefits of the Fonar Upright(R) MRI
with its  Multi-Position(R)  diagnostic  ability.  Advertisements  to them  have
appeared in the journal Spine, The Journal of  Neurosurgery,  and the Journal of
the American Academy of Orthopedic Surgery.

     2)  Radiologists:  This segment of the campaign is aimed at the  physicians
who  now  have  a  new  modality  to  offer  their  referring  physicians.   Our
advertisements  directed  to them have  appeared  in  Radiology  and  Diagnostic
Imaging.

     3) All  Physicians:  These  advertising  efforts have been  directed to the
total physician  audience,  so that the vast number of doctors who send patients
for MRI's are aware of the diagnostic  advantages of the Fonar Upright(R) Multi-
Position(R) MRI.  Advertisements  directed to this audience have appeared in the
Journal of the American Medical Association.

This advertising has featured a series of compelling messages. One advertisement
pointed out that the AMA book, Guides to the Evaluation of Permanent Impairment,
indicates  that  diagnosis  must be performed  upright in flexion and extension.
Another  advertisement  was  educational  and headlined,  "Discover the power of
Upright Imaging".  Fonar realizes that  peer-to-peer  communications is the most
powerful way to speak to physicians.  Consequently,  testimonials  from surgeons
and radiologists have been used to promote our Upright(R) MRI scanner. The first
such advertisement  featured five surgeons and two radiologists,  explaining the
Multi-Position(R)  diagnostic  benefits of the Fonar  Upright(R)  MRI scanner to
them.  Another  advertisement  featured a leading  radiologist,  telling  why he
bought 12 Fonar Upright(R) MRI scanners and planned to buy more.

Also,  our  advertising  for HMCA  also  serves  as  advertising  for  Fonar MRI
scanners. We have increased internet awareness of our product by driving patient
traffic to the Upright(R)  scanning centers we manage by installing Websites for
every location.  These websites and advertising  give  prospective  customers of
Upright(R)  MRI  scanners a view of  operating  Upright(R)  MRI  centers and the
benefits of using an Upright(R) MRI scanner.  The success of HMCA- managed sites
not only increases management fees to HMCA but encourages new sales for Fonar as
well.

To meet the demand for high-field  open MRI scanners,  Fonar plans to devote its
principal  efforts to marketing the  Upright(R)  MRI. The  Upright(R) MRI is the
only scanner in the industry that has the unique capability of scanning patients
under  weight-bearing  conditions  and in  various  positions  of pain or  other
symptoms. In addition we will continue to market our Fonar 360(TM) MRI scanners.
Utilizing a 6000 gauss (0.6 Tesla field strength) iron core  electromagnet,  the
Upright(R)  MRI and Fonar  360(TM)  scanner  magnets are among the highest field
"open MRI"  scanners in the industry.  Announcements  in the press have reported
the  occurrence  of MRI scanner  explosions  secondary to  entrapped  helium gas
evaporating  from the liquid helium that circulates in conventional MRI scanners
to refrigerate the  super-conducting  wire generating the magnet fields of these
magnets.  Fonar's  Upright(R)  MRI magnet does not utilize  liquid Helium and is
free of this liability as is the Fonar 360(TM).

The  Upright(R)  MRI is also  suited to fill a demand  for better  diagnoses  of
scoliosis  patients,  who must be standing for the exam.  Scoliosis patients are
typically  subjected  to routine  x-ray exams for years.  In the past,  an x-ray
machine was the only  modality  that could  provide  that  service.  Typical MRI
scanners  cannot provide this service because the patient cannot stand up inside
of them.  The Fonar  UPRIGHT(R) MRI scanner is the only MRI scanner which allows
the  patient  to stand  during the exam.  The Fonar  Upright(R)  Scanner  avoids
radiation of the x-ray machines  currently  used for scoliosis,  which have been
reported by the National Cancer Institute to cause a 70% increase in the risk of
breast cancer.  Other important new applications  are Upright(R)  imaging of the
pelvic floor and abdomen to image prolapses and inguinal hernias. Fonar has also
developed  the first  non-invasive  method to image the  prostate:  the  patient
simply sits on a flat, seat-like coil.

We also will seek to introduce  new MRI  applications  for our scanners  such as
MRI-directed interventions.

Our areas of operations are principally in the United States.  During the fiscal
year ended June 30, 2010,  11.9% of the  Company's  revenues  were  generated by
foreign sales, as compared to 13.2% for fiscal 2009.

We are  seeking  to  promote  foreign  sales and have sold  scanners  in various
foreign  countries.  Foreign  sales,  however,  have  not  yet  proved  to  be a
significant source of revenue.

SERVICE AND UPGRADES FOR MRI SCANNERS

Our  customer  base of installed  scanners  has been and will  continue to be an
additional source of income, independent of direct sales.

Income is generated  from the  installed  base in two  principal  areas  namely,
service  and  upgrades.  Service  and  maintenance  revenues  from our  external
installed base were approximately $11.1 million in fiscal 2010 and $10.5 million
in fiscal 2009. We expect service revenues to continue to increase as warranties
expire on previously  sold  scanners,  and the customers then enter into service
contracts.

We also  anticipate  that our new  scanners  will result in  upgrades  income in
future fiscal years. The potential for upgrades income, particularly in the form
of  new  patient   supporting  upright  imaging  fixtures  and  receiver  coils,
originates in the  versatility and  productivity  of the new Upright(R)  Imaging
technology.  New medical uses for MRI technology are constantly being discovered
and are anticipated for the Upright(R)  Imaging technology as well. New features
can often be added to the  scanner  by the  implementation  of little  more than
versatile new software packages. For example,  software can be added to existing
MRI angiography  applications to synchronize  angiograms with the cardiac cycle.
By doing so the dynamics of blood vessel  filling and emptying can be visualized
with movies.  Such  enhancements are attractive to end users because they extend
the useful life of the equipment and enable the user to avoid  obsolescence  and
the expense of having to purchase new equipment.

RESEARCH AND DEVELOPMENT

During  the fiscal  year  ended  June 30,  2010,  we  incurred  expenditures  of
$2,773,704,  $315,362 of which was capitalized,  on research and development, as
compared to $4,085,177, $491,707 of which was capitalized during the fiscal year
ended June 30, 2009.

Research and development activities have focused principally, on the development
and enhancement of the Upright(R) and Fonar 360(TM) MRI scanners. The Upright(R)
MRI and Fonar 360(TM) involve significant  software and hardware  development as
the new  products  represent  entirely  new  hardware  designs and  architecture
requiring a new operating software.  Our research activity includes developing a
multitude  of new features for upright  scanning  made  possible by the new high
speed data  processing  power of  Fonar's  newest  scanners.  In  addition,  the
Company's  research  and  development  efforts  include the  development  of new
software,  such  as its  Sympulse(TM)  software  and  hardware  upgrade  and the
designing  and  continuing  introduction  of new receiver  surface coils for the
Upright(R) MRI.

BACKLOG

Our backlog of unfilled  orders at September  28, 2010 was  approximately  $14.9
million, as compared to $25.7 million at September 26, 2009. It is expected that
a  substantial  portion of the existing  backlog of orders will be filled within
the 2010 fiscal year. Our contracts generally provide that if a customer cancels
an  order,  the  customer's   initial  down  payment  for  the  MRI  scanner  is
nonrefundable.

PATENTS AND LICENSES

We currently have numerous  patents in effect which relate to the technology and
components of the MRI scanners.  We believe that these patents, and the know-how
we have developed, are material to our business.

One of our  patents,  issued in the name of Dr.  Damadian and licensed to Fonar,
was United  States  patent No.  3,789,832,  Apparatus  and Method for  Detecting
Cancer in Tissue, also referred to as the "1974 Patent".  The development of our
MRI scanners have been based upon the 1974 Patent,  and we believe that the 1974
Patent  was the first of its kind to  utilize  MR to scan the human  body and to
detect cancer. The 1974 Patent was extended beyond its original 17-year term and
expired in February, 1992.

We have  significantly  enhanced our patent position within the industry and now
possesses a substantial  patent  portfolio which provides us, under the aegis of
United States patent law, "the  exclusive  right to make,  use and sell" many of
the scanner  features which Fonar  pioneered and which are now  incorporated  in
most MRI scanners  sold by the industry.  As of June 30, 2010,  164 patents have
been issued to Fonar,  and  approximately  30 patents are  pending.  A number of
Fonar's existing patents  specifically  relate to protecting Fonar's position in
the  high-field  iron frame open MRI  market.  The patents  further  enhance Dr.
Damadian's pioneer patent, the 1974 Patent,  that initiated the MRI industry and
provided the original  invention  of MRI  scanning.  The terms of the patents in
Fonar's portfolio extend to various times.

We also have patent cross-licensing agreements with other MRI manufacturers.

PRODUCT COMPETITION

MRI SCANNERS

A majority of the MRI scanners in use in hospitals and outpatient facilities and
at mobile  sites in the United  States  are based on high field air core  magnet
technology  while the  balance are based on open iron frame  magnet  technology.
Fonar's open iron frame MRI scanners are competing  principally  with high-field
air core scanners.  Fonar's open MRI scanners,  however, utilizing a 6,000 gauss
or 0.6 Tesla field strength,  iron core electromagnet,  were the first "open" MR
scanners at high field strength.

Fonar believes that its MRI scanners have significant  advantages as compared to
the high-field air core scanners of its competitors. These advantages include:

1. There is no expansive  fringe  magnetic  field.  High field air core scanners
require a more  expensive  shielded  room than is  required  for the iron  frame
scanners.  The shielded room required for the iron frame scanners is intended to
prevent interference from external radio frequencies.

2. They are more open and quiet.

3.  They  can  scan  the  trauma  victim,   the  cardiac  arrest  patient,   the
respirator-supported  patient,  and  premature and newborn  babies.  This is not
possible  with  high-  field air core  scanners  because  their  magnetic  field
interferes with conventional life-support equipment.

The  principal  competitive  disadvantage  of our  products is that they are not
"high field strength",  1.0 Tesla +, magnets. As a general principle, the higher
field  strength  can produce a faster  scan.  In some parts of the body a faster
scan can be traded for a clearer picture.  Although we believe that the benefits
of "openness"  provided by our scanners compensate for the lower field strength,
certain customers will still prefer the higher field strength.

Fonar  faces  competition  within  the MRI  industry  from such firms as General
Electric Company,  Philips N.V., Toshiba  Corporation,  Hitachi  Corporation and
Siemens A.G.  Most  competitors  have  marketing and  financial  resources  more
substantial  than those  available to us. They have in the past,  and may in the
future,  heavily  discount the sales price of their scanners.  Such  competitors
sell both high  field  air core  superconducting  MRI  scanners  and iron  frame
products.  Fonar's  original iron frame design,  ultimately  imitated by Fonar's
competitors to duplicate Fonar's origination of "Open" MRI magnets, gave rise to
current patient  protected  Upright(R) MRI technology with the result that Fonar
today is the unique and only  supplier  of the  highest  field MRI  magnets  (.6
Tesla)  that  are not  superconducting,  do not use  liquid  helium  and are not
therefore susceptible to explosion.

The iron frame,  because it could control the magnetic  lines of force and place
them where  wanted and remove them from where not  wanted,  such as in the Fonar
360(TM) where  physicians and staff are standing,  provide a much more versatile
magnet design than is possible with air core magnets.  Air core magnets  contain
no iron but consist entirely of turns of current carrying wire.

For an 11 year  period  from  1983-1994,  Fonar's  large  competitors,  with one
exception,  generally  rejected  Fonar's "open" design but by now all have added
the iron frame  "open"  magnet to their MRI product  lines.  One reason for this
market shift, in addition to patient  claustrophobia,  is the awareness that the
open  magnet  designs  permit  access  to the  patient  to  perform  MRI  guided
procedures,  a field which is now growing rapidly and is called  "interventional
MRI."

The Fonar 360(TM) scanner explicitly  addresses this growing market reception of
MRI guided interventions, and the first of these scanners was sold to a hospital
in  England.  Fonar's  Upright(R)  magnet  also  addresses  the  growing  market
reception   of  MRI  guided   interventions.   Although   not  enabling  a  full
interventional  theater as the Fonar 360(TM) does, the iron frame Upright(R) MRI
design  permits  ready  access  to the  patient  and  enables  a wide  range  of
interventional  procedures  such as biopsies  and needle or  catheter  delivered
therapies  to be  performed  under MRI image  guidance.  The  "tunnel"  air core
superconductive  scanners do not permit  access to the patient while the patient
is inside the scanner.

Fonar  expects  to be the leader  Upright(R)  Multi-Position  MRI for  providing
dynamic  visualization  of body parts such as the spine and other joints as well
as  dynamic  visualization  of the  heart  in its  upright  position  when it is
sustaining its full normal physiological load. No companies possess the patented
Upright(R)  MRI  technology  or the  Fonar  360(TM)'s  360  degree  full  access
interventional technology.

OTHER IMAGING MODALITIES

Fonar's MRI scanners also compete with other diagnostic imaging systems,  all of
which are based upon the ability of energy waves to  penetrate  human tissue and
to  be  detected  by  either   photographic  film  or  electronic   devices  for
presentation  of an image on a  television  monitor.  Three  different  kinds of
energy waves - X-ray,  gamma and sound - are used in medical imaging  techniques
which compete with MRI medical scanning, the first two of which involve exposing
the patient to potentially  harmful  radiation.  These other imaging  modalities
compete with MRI products on the basis of specific applications.

X-rays  are the most  common  energy  source  used in  imaging  the body and are
employed in three imaging modalities:

1. Conventional X-ray systems,  the oldest method of imaging, are typically used
to image bones and teeth. The image resolution of adjacent  structures that have
high  contrast,  such as bone adjacent to soft tissue,  is excellent,  while the
discrimination  between  soft  tissue  organs  is  poor  because  of the  nearly
equivalent penetration of x-rays.

2. Computerized  Tomography,  also referred to as "CT", systems couple computers
to x-ray  instruments  to produce  cross-sectional  images of  particular  large
organs or areas of the body. The CT scanner  addresses the need for images,  not
available  by  conventional  radiography,  that display  anatomic  relationships
spatially.  However, CT images are generally limited to the transverse plane and
cannot  readily be  obtained  in the two other  planes,  sagittal  and  coronal.
Improved picture resolution is available at the expense of increased exposure to
x-rays from multiple  projections.  Furthermore,  the pictures  obtained by this
method  are  computer  reconstructions  of a series  of  projections  and,  once
diseased  tissue has been  detected,  CT  scanning  cannot be  focused  for more
detailed pictorial analysis or obtain a chemical analysis.

3. Digital  radiography  systems add computer  image  processing  capability  to
conventional  x-ray  systems.  Digital  radiography  can be used in a number  of
diagnostic procedures which provide continuous imaging of a particular area with
enhanced image quality and reduced patient exposure to radiation.

Nuclear medicine systems,  which are based upon the detection of gamma radiation
generated by radioactive  pharmaceuticals  introduced into the body, are used to
provide  information  concerning  soft  tissue  and  internal  body  organs  and
particularly to examine organ function over time.

Ultrasound systems emit, detect and process high frequency sound waves reflected
from organ  boundaries and tissue  interfaces to generate  images of soft tissue
and internal body organs.  Although the images are  substantially  less detailed
than those  obtainable  with x-ray methods,  ultrasound is generally  considered
harmless and therefore has found particular use in imaging the pregnant uterus.

X-ray machines,  ultrasound  machines,  digital  radiography systems and nuclear
medicine compete with the MRI scanners by offering significantly lower price and
space  requirements.  However,  Fonar  believes  that the  quality of the images
produced by its MRI scanners is generally  superior to the quality of the images
produced by those other methodologies.

GOVERNMENT REGULATION

FDA Regulation

The Food and Drug  Administration  in  accordance  with  Title 21 of the Code of
Federal  Regulations  regulates the  manufacturing  and marketing of Fonar's MRI
scanners.  The  regulations  can be  classified  as either  pre-market  or post-
market.  The pre-market  requirements  include  obtaining  marketing  clearance,
proper device labeling,  establishment registration and device listing. Once the
products  are on the market,  Fonar must comply  with  post-market  surveillance
controls.  These requirements include the Quality Systems Regulation,  or "QSR",
also known as Current Good Manufacturing  Practices or CGMPs, and Medical Device
Reporting,  also referred to as MDR regulations.  The QSR is a quality assurance
requirement that covers the design,  packaging,  labeling and manufacturing of a
medical device. The MDR regulation is an adverse event-reporting program.

Classes of Products

Under the  Medical  Device  Amendments  of 1976 to the  Federal  Food,  Drug and
Cosmetic  Act, all medical  devices are  classified by the FDA into one of three
classes. A Class I device is subject only to general controls,  such as labeling
requirements  and  manufacturing  practices;  a Class II device must comply with
certain  performance  standards  established  by the FDA; and a Class III device
must obtain pre-market approval from the FDA prior to commercial marketing.

Fonar's products are Class II devices.  Class I devices are subject to the least
regulatory control.  They present minimal potential for harm to the user and are
often simpler in design than Class II or Class III devices.  Class I devices are
subject to "General  Controls"  as are Class II and Class III  devices.  General
Controls include:

1. Establishment  registration of companies which are required to register under
21 CFR Part 807.20,  such as manufacturers,  distributors,  re-packagers and re-
labelers.

2. Medical device listing with FDA of devices to be marketed.

3.  Manufacturing  devices in  accordance  with the Current  Good  Manufacturing
Practices Quality System Regulation in 21 CFR Part 820.

4. Labeling  devices in accordance with labeling  regulations in 21 CFR Part 801
or 809.

5. Submission of a Premarket Notification,  pursuant to 510(k), before marketing
a device.

Class II devices are those for which general  controls alone are insufficient to
assure safety and  effectiveness,  and existing methods are available to provide
such  assurances.  In addition to  complying  with  general  controls,  Class II
devices  are also  subject to special  controls.  Special  controls  may include
special  labeling  requirements,   guidance  documents,   mandatory  performance
standards and post-market surveillance.

We received  approval to market our Beta(TM) 3000 and Beta(TM) 3000M scanners as
Class III devices on September 26, 1984 and November 12, 1985. On July 28, 1988,
the  Magnetic  Resonance  Diagnostic  Device  which  includes  MR Imaging and MR
Spectroscopy  was  reclassified  by the FDA to  Class II  status.  Consequently,
Fonar's  products are now  classified  as Class II  products.  On July 26, 1991,
Fonar  received FDA  clearance  to market the  Ultimate(TM)  Magnetic  Resonance
Imaging Scanner as a Class II device. Fonar received FDA clearance to market the
QUAD(TM)  7000 in April 1995 and the QUAD(TM)  12000 in November  1995. On March
16,  2000,  Fonar  received  FDA  clearance  to  market  the Fonar  360(TM)  for
diagnostic  imaging,  the Open Sky(TM) version,  and on October 3, 2000 received
FDA clearance for the Upright(R) MRI.

Premarketing Submission

Each person who wants to market  Class I, II and some III devices  intended  for
human  use in the  U.S.  must  submit a  510(k)  to FDA at least 90 days  before
marketing  unless the device is exempt from 510(k)  requirements.  A 510(k) is a
pre-marketing  submission  made to FDA to  demonstrate  that  the  device  to be
marketed is as safe and effective, that is, substantially  equivalent,  SE, to a
legally  marketed  device  that is not  subject  to  pre-market  approval,  PMA.
Applicants  must  compare  their 510(k)  device to one or more  similar  devices
currently on the U.S. market and make and support their substantial  equivalency
claims.

The FDA is  committed  to a  90-day  clearance  after  submission  of a  510(k),
provided  the  510(k) is  complete  and  there is no need to  submit  additional
information or data.

The 510(k) is essentially a brief statement and  description of the product.  As
Fonar's  scanner  products are Class II products,  there are no pre-market  data
requirements and the process is neither lengthy nor expensive.

An  investigational  device  exemption,  also  referred  to as IDE,  allows  the
investigational  device to be used in a clinical  study pending FDA clearance in
order to collect safety and effectiveness data required to support the Premarket
Approval,  also  referred to as PMA,  application  or a  Premarket  Notification
pursuant  to 510(k),  submission  to the FDA.  Clinical  studies  are most often
conducted to support a PMA.

For the most part, however, we have not found it necessary to utilize IDE's. The
standard 90 day clearance for our new MRI scanner  products  classified as Class
II  products  makes the IDE  unnecessary,  particularly  in view of the time and
effort involved in compiling the information necessary to support an IDE.

Quality System Regulation

The  Quality  Management  System  is  applicable  to  the  design,  manufacture,
administration  of  installation  and  servicing of magnetic  resonance  imaging
scanner  systems.  The FDA has  authority  to conduct  detailed  inspections  of
manufacturing  plants, to establish Good  Manufacturing  Practices which must be
followed in the manufacture of medical devices, to require periodic reporting of
product  defects and to prohibit the  exportation of medical devices that do not
comply with the law.

Medical Device Reporting Regulation

Manufacturers   must  report  all  MDR  reportable   events  to  the  FDA.  Each
manufacturer  must review and evaluate all  complaints to determine  whether the
complaint  represents an event which is required to be reported to FDA.  Section
820.3(b) of the Quality Systems regulation defines a complaint as, "any written,
electronic  or oral  communication  that  alleges  deficiencies  related  to the
identity,  quality,   durability,   reliability,   safety,   effectiveness,   or
performance of a device after it is released for distribution."

A report is required  when a  manufacturer  becomes  aware of  information  that
reasonably suggests that one of their marketed devices has or may have caused or
contributed to a death, serious injury, or has malfunctioned and that the device
or a similar  device  marketed by the  manufacturer  would be likely to cause or
contribute to a death or serious injury if the malfunction were to recur.

Malfunctions  are not  reportable  if they are not  likely to result in a death,
serious injury or other significant adverse event experience.

A  malfunction  which is or can be corrected  during  routine  service or device
maintenance  still must be  reported if the  recurrence  of the  malfunction  is
likely to cause or contribute to a death or serious injury if it were to recur.

We have established and maintained  written procedures for implementation of the
MDR regulation. These procedures include internal systems that:

     provide  for  timely  and  effective   identification,   communication  and
     evaluation of adverse events;

     provide a  standardized  review  process  and  procedures  for  determining
     whether or not an event is reportable; and

     provide procedures to insure the timely transmission of complete reports.

These procedures also include documentation and record keeping requirements for:


     information that was evaluated to determine if an event was reportable;

     all medical device reports and information submitted to the FDA;

     any   information   that  was  evaluated   during   preparation  of  annual
     certification reports; and

     systems that ensure access to information that facilitates timely follow up
     and inspection by FDA.

FDA Enforcement

FDA may take the following actions to enforce the MDR regulation:

FDA-Initiated or Voluntary Recalls

Recalls are regulatory actions that remove a hazardous,  potentially  hazardous,
or a misbranded  product from the  marketplace.  Recalls are also used to convey
additional  information  to the user  concerning  the  safe use of the  product.
Either FDA or the manufacturer can initiate recalls.

There are three  classifications,  i.e., I, II, or III, assigned by the Food and
Drug  Administration  to a  particular  product  recall to indicate the relative
degree of health hazard presented by the product being recalled.

Class I

Is a situation  in which there is a reasonable  probability  that the use of, or
exposure to, a violative product will cause serious adverse health  consequences
or death.

Class II

Is a situation  in which use of, or exposure  to, a violative  product may cause
temporary or  medically  reversible  adverse  health  consequences  or where the
probability of serious adverse health consequences is remote.

Class III

Is a  situation  in which use of, or  exposure  to, a  violative  product is not
likely to cause adverse health consequences.

Fonar has initiated  five voluntary  recalls.  Four of the recalls were Class II
and one was Class III.  The recalls  involved  making minor  corrections  to the
product in the field. Frequently,  corrections which are made at the site of the
device are called field corrections as opposed to recalls.

Civil Money Penalties

The FDA,  after an  appropriate  hearing,  may impose civil money  penalties for
violations of the FD&C Act that relate to medical  devices.  In determining  the
amount of a civil penalty, FDA will take into account the nature, circumstances,
extent, and gravity of the violations, the violator's ability to pay, the effect
on the violator's  ability to continue to do business,  and any history of prior
violations.  The civil money penalty may not exceed  $15,000 for each  violation
and  may not  exceed  $1,000,000  for all  violations  adjudicated  in a  single
proceeding, per person.

Warning Letters

FDA issues written  communications to a firm, indicating that the firm may incur
more  severe  sanctions  if the  violations  described  in the  letter  are  not
corrected.  Warning letters are issued to cause prompt  correction of violations
that  pose a hazard  to  health  or that  involve  economic  deception.  The FDA
generally issues the letters before pursuing more severe sanctions.

Seizure

A seizure is a civil  court  action  against a specific  quantity of goods which
enables the FDA to remove these goods from commercial  channels.  After seizure,
no one may tamper with the goods except by  permission  of the court.  The court
usually gives the owner or claimant of the seized  merchandise  approximately 30
days to  decide a course  of  action.  If they take no  action,  the court  will
recommend   disposal  of  the  goods.  If  the  owner  decides  to  contest  the
government's charges, the court will schedule the case for trial. A third option
allows  the owner of the goods to request  permission  of the court to bring the
goods  into  compliance  with the law.  The  owner of the goods is  required  to
provide a bond or, security deposit, to assure that they will perform the orders
of the court,  and the owner must pay for FDA  supervision  of any activities by
the company to bring the goods into compliance.

Citation

A  citation  is a formal  warning to a firm of intent to  prosecute  the firm if
violations  of the  FD&C  Act  are  not  corrected.  It  provides  the  firm  an
opportunity to convince FDA not to prosecute.

Injunction

An  injunction  is a civil action filed by FDA against an individual or company.
Usually,  FDA  files  an  injunction  to  stop  a  company  from  continuing  to
manufacture, package or distribute products that are in violation of the law.

Prosecution

Prosecution  is a criminal  action filed by FDA against a company or  individual
charging violation of the law for past practices.

Foreign and Export Regulation

We obtain approvals as necessary in connection with the sales of our products in
foreign  countries.  In some cases, FDA approval has been sufficient for foreign
sales as well. Our standard  practice has been to require either the distributor
or the  customer to obtain any such foreign  approvals or licenses  which may be
required.

Legally  marketed  devices that comply with the  requirements of the Food Drug &
Cosmetic Act require a Certificate to Foreign  Government  issued by the FDA for
export.  Other  devices  that do not meet the  requirements  of the FD&C Act but
comply  with  the  laws  of  a  foreign  government  require  a  Certificate  of
Exportability  issued by the FDA. All products  which we sell have FDA clearance
and would fall into the first category.

Foreign governments have differing requirements concerning the import of medical
devices into their respective  jurisdictions.  The European Union, also referred
to as EU, made up of 27 individual  countries,  has some essential  requirements
described  in the EU's Medical  Device  Directive,  also  referred to as MDD. In
order  to  export  to one  of  these  countries,  we  must  meet  the  essential
requirements  of the  MDD  and  any  additional  requirements  of the  importing
country.  The  essential  requirements  are similar to some of the  requirements
mandated by the FDA. In addition the MDD requires that we enlist a Notified Body
to examine and assess our  documentation,  a Technical  Construction  File,  and
verify  that  the  product  has  been   manufactured   in  conformity  with  the
documentation.  The notified body must carry out or arrange for the  inspections
and tests  necessary  to verify that the  product  complies  with the  essential
requirements  of the  MDD,  including  safety  performance  and  Electromagnetic
Compatibility,  also  referred to as EMC.  Also  required  is a Quality  System,
ISO-9001,  assessment  by the  Notified  Body.  We were  approved  for ISO  9001
certification for its Quality Management System in April, 1999.

We received  clearances to sell the Fonar 360(TM) and Upright(R) MRI scanners in
the EU in May, 2002.

Other  countries  require  that  their  own  testing   laboratories  perform  an
evaluation of our devices. This requires that we must bring the foreign agency's
personnel to the USA to perform the evaluation at our expense before exporting.

Some  countries,  including  many in Latin  America  and  Africa,  have very few
regulatory requirements.

To date, Fonar has been able to comply with all foreign regulatory  requirements
applicable to its export sales.

Reimbursement to Medical Providers for MRI Scans

Effective  November  22,  1985,  the  Department  of Health  and Human  Services
authorized  reimbursement  of MRI scans under the Federal Medicare  program.  In
addition, most private insurance companies have authorized reimbursement for MRI
scans.

Anti-Kickback and Self-Referral Legislation

Proposed and enacted  legislation at the State and Federal levels has restricted
referrals by physicians to medical and diagnostic centers in which they or their
family members have an interest.  In addition,  regulations have been adopted by
the Secretary of Health and Human Services which provide  limited "safe harbors"
under the Medicare  Anti-Kickback  Statute. These safe harbors describe payments
and transactions  which are permitted between an entity receiving  reimbursement
under the Medicare  program and those having an interest in or dealings with the
entity.  Although the Company  cannot predict the overall effect of the adoption
of these regulations on the medical equipment industry, the use and continuation
of limited partnerships, where investors may be referring physicians, to own and
operate MRI scanners could be greatly diminished.

Deficit Reduction Act

The Deficit  Reduction Act, among other things,  limits  reimbursements  for MRI
scans  performed at MRI  facilities.  We believe that these  limitations  may be
having a general  negative  impact on the market for MRI  scanners,  but believe
that the unique  capabilities  of our products should counter any such effect on
Fonar as our marketing and advertising  campaigns reach  prospective  customers.
Our Upright(R) MRI is the only MRI scanner which enables  patients to be scanned
in a weight  bearing  position and the Fonar 360(TM) MRI is the only MRI scanner
which allows complete unobstructed 360 degree access to the patient.

HEALTH MANAGEMENT CORPORATION OF AMERICA
PHYSICIAN AND DIAGNOSTIC SERVICES MANAGEMENT BUSINESS

Health  Management  Corporation  of America,  formed under the name U.S.  Health
Management  Corporation and referred to as "HMCA",  was organized by us in March
1997.  HMCA is a  wholly-owned  subsidiary  which  engages  in the  business  of
providing comprehensive management services to imaging facilities.  The services
we  provide  include  development,  administration,  leasing  of  office  space,
facilities  and  medical   equipment,   provision  of  supplies,   staffing  and
supervision of non-medical personnel,  legal services,  accounting,  billing and
collection  and the  development  and  implementation  of  practice  growth  and
marketing strategies.

HMCA currently  manages 10 MRI facilities.  In April 2003, HMCA sold the portion
of its business which managed primary care medical practices,  and in July 2005,
HMCA sold the  portion of its  business  engaged in the  management  of physical
therapy and rehabilitation  practices. This was the result of HMCA's decision to
focus on  management  of MRI  facilities,  the  business  in which  HMCA is most
experienced. For the 2010 fiscal year, the revenues HMCA recognized from the MRI
facilities increased to $11.1 million,  notwithstanding  economic conditions and
in contrast to the decline in revenues  recognized  from scanner sales.  For the
2009 fiscal year,  the revenues HMCA  recognized  from the MRI  facilities  were
$10.3 million.

HMCA GROWTH STRATEGY

HMCA's  growth  strategy   focuses  on  upgrading  and  expanding  the  existing
facilities  it manages and expanding the number of facilities it manages for its
clients.  Our most  important  effort in this  regard  has been to  promote  and
facilitate the  replacement  of existing MRI scanners with new Fonar  Upright(R)
MRI  scanners.  Presently,  we have  Upright(R)  MRI  scanners at all of the MRI
facilities we manage with the exception of the one in Dublin, Georgia.

In  connection  with its focus on managing  only MRI  facilities,  HMCA sold its
business of managing physical therapy and  rehabilitation  practices on July 28,
2005 to Health Plus Management Services, L.L.C.

PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES

HMCA's  services to the  facilities it manages  encompass  substantially  all of
their  business  operations.  Each  facility  is  controlled,  however,  by  the
physician  owner,  not HMCA,  and all  medical  services  are  performed  by the
physicians and other medical personnel under the physician owner's  supervision.
HMCA is the  management  company and  performs  services  of a  non-professional
nature. These services include:

1. Offices and Equipment. HMCA identifies, negotiates leases for and/or provides
office  space  and  equipment  to its  clients.  This  includes  technologically
sophisticated medical equipment.  HMCA also provides improvements to leaseholds,
assistance in site  selection and advice on improving,  updating,  expanding and
adapting to new technology.

2. Personnel.  HMCA staffs all the non-medical positions of its clients with its
own  employees,  eliminating  the client's need to  interview,  train and manage
non-medical  employees.  HMCA processes the necessary  tax,  insurance and other
documentation relating to employees.

3.  Administrative.  HMCA  assists in the  scheduling  of patient  appointments,
purchasing  of office  and  medical  supplies  and  equipment  and  handling  of
reporting, accounting,  processing and filing systems. It prepares and files the
physician  portions  of complex  forms to enable its clients to  participate  in
managed care programs and to qualify for insurance reimbursement.  We assist the
clients  to  implement  programs  and  procedures  to  ensure  full  and  timely
regulatory   compliance  and  appropriate  cost  reimbursement   under  no-fault
insurance and workers' compensation guidelines, as well as compliance with other
applicable governmental requirements and regulations,  including HIPAA and other
privacy requirements.

4. Billing and  Collections.  HMCA is responsible for the billing and collection
of revenues from  third-party  payors  including  those governed by no-fault and
workers' compensation statutes. HMCA is presently using a third party to perform
its billing and  collection  services  for its  clients'  no-fault  and workers'
compensation scanning business.

5. Cost Saving  Programs.  Based on available  volume  discounts,  HMCA seeks to
assist  in  obtaining   favorable  pricing  for  office  and  medical  supplies,
equipment,  contrast  agents,  such as gadolinuim,  and other  inventory for its
clients.

6.  Diagnostic  Imaging  and  Ancillary  Services.  HMCA  can  offer  access  to
diagnostic  imaging equipment through  diagnostic imaging facilities it manages.
The Company may expand the ancillary  services offered in its network to include
CT-scans and x-rays,  if it is determined  that such  additions may be useful to
clients.

7. Marketing Strategies.  HMCA is responsible for developing marketing plans for
its clients.

8.  Expansion  Plans.  HMCA assists the clients in  developing  expansion  plans
including the opening of new or replacement facilities where appropriate.

HMCA advises  clients on all aspects of their  businesses,  including  expansion
where it is a reasonable  objective,  on a continuous basis. HMCA's objective is
to free physicians from as many non-medical duties as is practicable.  Practices
can treat  patients more  efficiently  if the  physicians can spend less time on
business and administrative matters and more time practicing medicine.

HMCA provides its services  pursuant to negotiated  contracts  with its clients.
While  HMCA  believes  it can  provide  the  greatest  value to its  clients  by
furnishing  the full range of services  appropriate  to that client,  HMCA would
also be willing to enter into contracts providing for a more limited spectrum of
management services.

The facilities enter into contracts with third party payors,  including  managed
care  companies.  Neither HMCA's  clients nor HMCA  participate in any capitated
plans or other risk sharing arrangements. Capitated plans are those HMO programs
where the provider is paid a flat monthly fee per patient.

As of June 22, 2007, Dr. Robert Diamond  purchased the stock of the professional
corporations  owning eight New York sites managed by HMCA,  previously  owned by
Dr.  Raymond V.  Damadian,  the  President,  Chairman of the Board and principal
stockholder  of Fonar.  Dr.  Diamond  has been  reading  scans for HMCA  managed
facilities  for  more  than  seven  years.  In  connection  with the  sale,  new
management  agreements were substituted for the existing management  agreements,
providing,  for the same management services.  The fees in fiscal 2008, however,
were flat monthly fees in the aggregate  amount of $682,500 per month.  The fees
in fiscal 2009 were flat monthly fees in the aggregate amount of $578,500 and in
fiscal 2010  increased to $696,000 in the  aggregate.  Fees under the management
agreements are subject to adjustment by mutual agreement on an annual basis.

Dr.  Damadian still owns the four MRI facilities in Georgia and Florida  managed
by HMCA. In the case of the Georgia facility,  fees are charged by HMCA based on
the number of procedures  performed.  These fees are subject to adjustment on an
annual  basis,  based on mutual  agreement.  The per  procedure  charges  to the
Georgia  facility  during  fiscal  2010 was $350 per MRI scan.  The fees for the
three sites in Florida owned by Dr.  Damadian are flat monthly fees ranging from
$113,000 to $195,000 per month.  No MRI  facilities or other medical  facilities
are owned by HMCA.

HMCA  entered into an agreement in  September,  2007 with  Integrity  Healthcare
Management,  Inc.,  also  referred  to as  "Integrity",  which  is  owned  by an
unrelated  party.  Under the terms of the  agreement,  Integrity  supervised and
directed HMCA and the management of the facilities  including the performance of
billing and collection services.  The existing management agreements between the
facilities and HMCA remained in place. As compensation Integrity was entitled to
an annual fee equal to one-half of the increase in the consolidated cash flow of
HMCA and the facilities over the period from July 1, 2006 through June 30, 2007.
The term of the agreement automatically renewed on a year to year basis, but was
terminated by HMCA as of the end of June, 2008.

Commencing  upon the  termination of this  agreement,  however,  we hired Health
Diagnostics,  LLC, the parent  company of Integrity,  to perform all billing and
collection procedures for HCMA's clients on HMCA's behalf for a fee of 6% of all
adjusted deposits for these services.  Effective May 1, 2009, this agreement was
terminated.  HMCA now contracts  with TriTech  (Plainview,  New York) to perform
billing and  collection  for its clients'  no-fault  and  workers'  compensation
business  for a fee of 6% of all adjusted  no-fault  and  workers'  compensation
claims. HMCA handles all of its clients' other billings and collections.

HMCA MARKETING

HMCA's  marketing  strategy is to expand the business and improve the facilities
which it manages.  HMCA will seek to increase  the number of  locations of those
facilities  where market  conditions  are promising and to promote growth of its
clients' patient volume and revenue.

DIAGNOSTIC IMAGING FACILITIES AND OTHER ANCILLIARY SERVICES

Diagnostic  imaging  facilities  managed  by  HMCA  provide  diagnostic  imaging
services to patients  referred by physicians who are either in private  practice
or affiliated with managed care providers or other payor groups.  The facilities
are operated in a manner which eliminates the admission and other administrative
inconveniences of in-hospital diagnostic imaging services.  Imaging services are
performed in an outpatient  setting by trained medical  technologists  under the
direction  of  physicians.  Following  diagnostic  procedures,  the  images  are
reviewed by the interpreting  physicians who prepare a report of these tests and
their  findings.  These  reports  are  transcribed  by HMCA  personnel  and then
delivered to the referring physician.

HMCA  develops  marketing  programs  in an  effort  to  establish  and  maintain
profitable  referring  physician  relationships  and to  maximize  reimbursement
yields.  These marketing approaches identify and target selected market segments
consisting of area physicians  with certain  desirable  medical  specialties and
reimbursement  yields.  Corporate and facility  managers  determine these market
segments  based  upon  an  analysis  of  competition,  imaging  demand,  medical
specialty  and  payor mix of each  referral  from the  local  market.  HMCA also
directs marketing efforts at managed care providers.

Managed care providers have become an important factor in the diagnostic imaging
industry.  To  further  its  position,  HMCA  will seek to  expand  the  imaging
modalities offered at its managed diagnostic imaging facilities.

REIMBURSEMENT

HMCA's  clients  receive  reimbursements  for their MRI scans through  Medicare,
Medicaid, managed care and private insurance.

Medicare.  The Medicare  program  provides  reimbursement  for  hospitalization,
physician, diagnostic and certain other services to eligible persons 65 years of
age and over and certain  other  individuals.  Providers are paid by the federal
government in  accordance  with  regulations  promulgated  by the  Department of
Health and Human  Services,  HSS, and generally  accept the payment with nominal
deductible  and  co-  insurance  amounts  required  to be  paid  by the  service
recipient,  as payment in full. Hospital inpatient services are reimbursed under
a prospective payment system.  Hospitals receive a specific  prospective payment
for inpatient treatment services based upon the diagnosis of the patient.

Under Medicare's prospective payment system for hospital outpatient services, or
OPPS,  a hospital is paid for  outpatient  services on a rate per service  basis
that varies according to the ambulatory payment classification group, or APC, to
which the service is assigned rather than on a hospital's  costs.  Each year the
Centers for Medicare and Medicaid Services, or CMS, publishes new APC rates that
are determined in accordance with the promulgated methodology.

Services  provided  in  non-hospital  based  freestanding  facilities,  such  as
independent  diagnostic  treatment  facilities,  are  paid  under  the  Medicare
Physician Fee  Schedule,  or MPFS.  All of HMCA's  clients are presently in this
category of independent diagnostic treatment facilities.  The MPFS is updated on
an annual basis.  Several years ago, CMS reduced the  reimbursement  for certain
diagnostic  procedures  performed  together  on the  same  day.  They  did so by
modifying  Medicare to pay 100% of the technical  component of the higher priced
procedure and 75% for the technical  component of each additional  procedure for
procedures  involving  contiguous  body  parts  within  a family  of codes  when
performed in the same  session.  Under the recently  enacted  healthcare  reform
legislation,  the Patient  Protection  and  Affordable  Care Act or, PPACA,  CMS
further  reduced the payment for  contiguous  body parts within the same session
from 75% to 50% for the technical component of CT, MRI and ultrasound  services,
effective July 1, 2010.  These reductions in payment by CMS may adversely impact
our financial  condition  and results of  operations  since they result in lower
reimbursement  for the services of our clients.  In fact, on June 25, 2010,  CMS
issued the proposed MPFS for 2011. Under the proposed rule, CMS is now proposing
to apply this  payment  reduction to the  technical  component of all studies of
these  three  imaging  modalities  that are  performed  on a patient in the same
session, even if they are non-contiguous.

We have experienced  reimbursement reductions for radiology services provided to
Medicare  beneficiaries,  including reductions pursuant to the Deficit Reduction
Act, or DRA. The DRA, which became effective in 2007, set  reimbursement for the
technical  component for imaging  services  (excluding  diagnostic and screening
mammography) in non-hospital based freestanding facilities at the lesser of OPPS
or the MPFS.

Medicare  reimbursement rates under the MPFS are calculated in accordance with a
statutory  formula.  As a result,  for calendar  years 2008,  2009 and 2010, CMS
published regulations  decreasing the fee schedule rates by 10.1% 5.4% and 21.2%
respectively.  In each instance,  Congress  enacted  legislation  preventing the
decreases from taking effect and in fact on June 25, 2010, the  "Preservation of
Access  to Care for  Medicare  Beneficiaries  and  Pension  Relief  Act of 2010"
prevented the rate  reduction and also  established a 2.2% payment rate increase
to the MPFS  retroactive  from June 1 through Nov. 30, 2010.  Under the proposed
MPFS for 2011,  however,  CMS proposes to reduce rates in 2011 by an  additional
6.1%. This cut does not account for the 2010 legislative changes to the MPFS and
would be added to the 21.2% cut that was previously  delayed. We anticipate that
CMS will continue to release  regulations  for  decreases in fee schedule  rates
under the MPFS  unless  and until  the  statutory  formula  is  changed  through
enactment of new legislation.  We do not know if Congress will continue to enact
legislation  to prevent future  decreases  under the statutory  formula,  but if
Congress failed to act, there could be significant decreases to the MPFS.

On Nov. 25, 2009, CMS released the 2010 MPFS final rule (the "Final Rule") which
updated the payment  policies and rates for the MPFS, for calendar year 2010. In
addition to other changes to the physician  payment  formulae,  the MPFS reduces
payment  rates for services  using  equipment  costing more than $1.0 million by
increasing the usage  assumptions from the current 50% usage rate to a 90% usage
rate.  This change in the usage rate was to be phased in over a four year period
and  primarily  impacted  MRI and CT  services.  The Final Rule was  superseded,
however,  by passage of PPACA,  but only with respect to the usage  assumptions.
All other CMS issued updates for 2010 remain in effect.  Under PPACA,  beginning
Jan. 1, 2011, the usage rate assumption for diagnostic  imaging equipment priced
at more than $1 million will be set at 75% for 2011 and subsequent years.

In  addition  to the  foregoing  changes  to the  usage  assumptions,  CMS' 2010
regulatory  changes to the MPFS also included a downward  adjustment to services
primarily  involving the  technical  component  rather than the  physician  work
component,  by adjusting downward malpractice  payments for these services.  The
reductions will affect the services we provide,  primarily  impacting  radiology
and other  diagnostic  tests.  As noted  above,  the changes to the MPFS will be
transitioned over a four-year period such that beginning in 2013, CMS will fully
implement  the revised  payment  rates.  This change to the MPFS,  could have an
adverse  effect on our financial  condition and results of  operations.  For our
fiscal year ended June 30, 2010,  Medicare  revenues  represented  approximately
17.3% of the  revenues  for  HMCA's  clients.  The  impact  of the new MPFS will
increase  over the  four-year  transition  period  unless  mitigated  by  future
legislation  (either  currently  proposed or pledged by Congress and the federal
government administration).

Many of PPACA's  provisions  will not take  effect for months or several  years,
while others are effective  immediately.  Many  provisions also will require the
federal  government and individual state  governments to interpret and implement
the new  requirements.  In addition,  PPACA  remains the subject of  significant
debate, and proposals to repeal,  block or amend the law have been introduced in
Congress  and many  state  legislatures.  Finally,  a number of state  attorneys
general have filed legal challenges to PPACA seeking to block its implementation
on constitutional grounds. Because of the many variables involved, we are unable
to  predict  how many of the  legislative  mandates  contained  in PPACA will be
implemented  or in what form,  whether  any  additional  or  similar  changes to
statutes or regulations (including  interpretations),  will occur in the future,
or what effect any future legislation or regulation would have on our business.

Medicaid.  The Medicaid  program is a  jointly-funded  federal and state program
providing  coverage for low-income  persons.  In addition to  federally-mandated
basic services,  the services offered and reimbursement  methods vary from state
to state. In many states, Medicaid reimbursement is patterned after the Medicare
program;  however,  an  increasing  number of  states  have  established  or are
establishing  payment  methodologies  intended to provide healthcare services to
Medicaid   patients   through  managed  care   arrangements.   In  fiscal  2010,
approximately  2.8% of the  revenues  of HMCA's  clients  were  attributable  to
Medicaid.

Managed Care and Private Insurance. Health Maintenance Organizations,  or HMO's,
Preferred Provider Organizations,  or PPOs, and other managed care organizations
attempt to control the cost of  healthcare  services  by a variety of  measures,
including imposing lower payment rates, preauthorization requirements,  limiting
services  and  mandating  less  costly  treatment  alternatives.   Managed  care
contracting is competitive and reimbursement  schedules are at or below Medicare
reimbursement  levels. Some managed care organizations have reduced or otherwise
limited,  and other managed care  organizations  may reduce or otherwise  limit,
reimbursement  in response to  reductions  in  government  reimbursement.  These
reductions  could have an adverse impact on our financial  condition and results
of operations.  These  reductions  have been, and any future  reductions may be,
similar  to the  reimbursement  reductions  proposed  by CMS,  Congress  and the
current  federal  government  administration.  The  development and expansion of
HMOs,  PPOs and other managed care  organizations  within our core markets could
have a negative  impact on utilization of our services in certain markets and/or
affect the revenues per procedure we can collect,  since such organizations will
exert greater control over patients' access to diagnostic imaging services,  the
selection of the provider of such services and the reimbursement thereof.


HMCA COMPETITION

The physician and diagnostic management services field is highly competitive.  A
number of large  hospitals  have acquired  medical  practices and this trend may
continue. HMCA expects that more competition will develop. Many competitors have
greater financial and other resources than HMCA.

With  respect  to  the  diagnostic  imaging  facilities  managed  by  HMCA,  the
outpatient  diagnostic  imaging  industry  is  highly  competitive.  Competition
focuses  primarily on attracting  physician  referrals at the local market level
and increasing referrals through  relationships with managed care organizations.
HMCA believes that principal  competitors for the diagnostic imaging centers are
hospitals  and  independent  or  management   company-owned   imaging   centers.
Competitive  factors include quality and timeliness of test results,  ability to
develop and maintain relationships with managed care organizations and referring
physicians,  type and quality of equipment,  facility  location,  convenience of
scheduling and availability of patient  appointment times. HMCA believes that it
will be able to effectively  meet the  competition in the outpatient  diagnostic
imaging industry with the new Fonar Upright(R) MRI scanners at its facilities.

GOVERNMENT REGULATION APPLICABLE TO HMCA

FEDERAL REGULATION

The healthcare  industry is highly regulated and changes in laws and regulations
can be significant.  Changes in the law or new  interpretation  of existing laws
can have a material  effect on our  permissible  activities,  the relative costs
associated with doing business and the amount of reimbursement by government and
other third-party payors.

Federal False Claims Act: The federal False Claims Act and, in  particular,  the
False  Claims  Act's  "qui tam" or  "whistleblower"  provisions  allow a private
individual  to bring  actions  in the  name of the  government  alleging  that a
defendant  has made false  claims for  payment  from  federal  funds.  After the
individual  has initiated the lawsuit,  the  government  must decide  whether to
intervene in the lawsuit and to become the primary prosecutor. If the government
declines  to join the  lawsuit,  the  individual  may  choose to pursue the case
alone,  although  the  government  must be kept  apprised of the progress of the
lawsuit,  and  may  intervene  later.  Whether  or not  the  federal  government
intervenes  in the case,  it will receive the majority of any  recovery.  If the
litigation is successful, the individual is entitled to no less than 15%, but no
more than 30%, of whatever amount the government recovers that is related to the
whistleblower's allegations.

When an entity is  determined  to have violated the federal False Claims Act, it
must pay three  times the  actual  damages  sustained  by the  government,  plus
mandatory  civil  penalties of between $5,500 to $11,000 for each separate false
claim, as well as the  government's  attorneys'  fees.  Liability arises when an
entity  knowingly  submits,  or causes someone else to submit, a false claim for
reimbursement to the federal  government.  The False Claims Act defines the term
"knowingly"  broadly,  though simple  negligence will not give rise to liability
under the False  Claims  Act.  Examples of the other  actions  which may lead to
liability under the False Claims Act:

     Failure to comply with the many technical billing  requirements  applicable
     to our Medicare and Medicaid business.

     Failure to comply with the prohibition against billing for services ordered
     or supervised  by a physician  who is excluded from any federal  healthcare
     program,  or the  prohibition  against  employing or  contracting  with any
     person or entity excluded from any federal healthcare program.

     Failure to comply with the Medicare physician supervision  requirements for
     the  services  we  provide,  or  the  Medicare  documentation  requirements
     concerning physician supervision.

The Fraud  Enforcement  and Recovery Act of 2009 expanded the scope of the False
Claims Act by, among other things, broadening protections for whistleblowers and
creating liability for knowingly retaining a government  overpayment,  acting in
deliberate ignorance of a government overpayment or acting in reckless disregard
of a government overpayment. The recently enacted healthcare reform bills in the
form of the Patient Protection and Affordable Care Act, as amended by the Health
Care and Education  Reconciliation Act of 2010 (collectively,  "PPACA") expanded
on changes  made by the 2009 Fraud  Enforcement  and Recovery Act with regard to
such "reverse  false  claims."  Under PPACA,  the knowing  failure to report and
return an overpayment  within 60 days of identifying  the  overpayment or by the
date a  corresponding  cost report is due,  whichever  is later,  constitutes  a
violation  of the False  Claims Act.  HMCA and its clients  have never been sued
under the False Claims Act and believe they are in compliance with the law.

Stark Law

Under the federal  Self-Referral Law, also referred to as the "Stark Law", which
is applicable to Medicare and Medicaid  patients,  and the self-referral laws of
various   States,   certain   health   practitioners,    including   physicians,
chiropractors and podiatrists,  are prohibited from referring their patients for
the provision of designated health services,  including  diagnostic  imaging and
physical  therapy  services,  to any entity  with which they or their  immediate
family  members have a financial  relationship,  unless the referral fits within
one  of the  specific  exceptions  in the  statutes  or  regulations.  Statutory
exceptions under the Stark Law include, among others, direct physician services,
in-office  ancillary  services  rendered  within  a group  practice,  space  and
equipment  rental and services  rendered to enrollees of certain  prepaid health
plans. Some of these exceptions are also available under the State self-referral
laws. HMCA believes that it and its clients are in compliance with these laws.

Anti-kickback Regulation

We are  subject to  federal  and state laws  which  govern  financial  and other
arrangements   between   healthcare   providers.   These   include  the  federal
anti-kickback  statute  which,  among other  things,  prohibits  the knowing and
willful solicitation,  offer, payment or receipt of any remuneration,  direct or
indirect,  in cash or in kind,  in  return  for or to  induce  the  referral  of
patients for items or services  covered by Medicare,  Medicaid and certain other
governmental  health  programs.  Under  PPACA,  knowledge  of the  anti-kickback
statute or the specific intent to violate the law is not required.  Violation of
the  anti-kickback  statute  may  result  in civil  or  criminal  penalties  and
exclusion from the Medicare, Medicaid and other federal healthcare programs, and
according to PPACA,  now provides a basis for  liability  under the False Claims
Act. In addition, it is possible that private parties may file "qui tam" actions
based on claims  resulting  from  relationships  that violate the  anti-kickback
statute, seeking significant financial rewards. Many states have enacted similar
statutes, which are not limited to items and services paid for under Medicare or
a federally funded  healthcare  program.  Neither HMCA nor its clients engage in
this practice.

In fiscal  2010,  approximately  17.3% of the  revenues of HMCA's  clients  were
attributable to Medicare and 2.8% were attributable to Medicaid. In fiscal 2009,
approximately  16.8% of the  revenues of HMCA's  clients  were  attributable  to
Medicare and 1.5% were attributable to Medicaid.

Deficit Reduction Act

The Deficit  Reduction Act, which among other things,  places limits on Medicare
reimbursements to MRI scanning  facilities,  has had a negative but not material
effect on the Medicare receipts of HMCA's clients.

Health Insurance Portability and Accountability Act

In 1996,  Congress passed the Health  Insurance  Portability and  Accountability
Act, or HIPAA.  Although  the main focus of HIPAA was to make  health  insurance
coverage portable,  HIPAA has become a short-hand reference to new standards for
electronic   transactions  and  privacy  and  security  obligations  imposed  on
providers and others who handle  personal  health  information.  HIPAA  requires
healthcare   providers  to  adopt   standard   formats  for  common   electronic
transactions  with health  plans,  and to maintain  the privacy and  security of
individual  patients'  health  information.  A  violation  of  HIPAA's  standard
transactions,  privacy and security  provisions may result in criminal and civil
penalties,  which could adversely affect our financial  condition and results of
operations.

Civil Money Penalty Law and Other Federal Statutes

The Civil Money Penalty, or CMP, law covers a variety of practices.  It provides
a  means  of  administrative  enforcement  of  the  anti-kickback  statute,  and
prohibits false claims, claims for medically unnecessary services, violations of
Medicare  participating  provider or assignment  agreements and other practices.
The statute  gives the Office of Inspector  General of the HHS the power to seek
substantial  civil fines,  exclusion and other  sanctions  against  providers or
others who violate the CMP prohibitions.

In addition, in 1996, Congress created a new federal crime: healthcare fraud and
false statements  relating to healthcare  matters.  The healthcare fraud statute
prohibits  knowingly and willfully  executing a scheme to defraud any healthcare
benefit  program,  including  private  payors.  A violation of this statute is a
felony  and may  result in fines,  imprisonment  or  exclusion  from  government
sponsored programs such as the Medicare and Medicaid programs.

We believe that our operations  comply with the CMP law and the healthcare fraud
and false statements statutes.

Certificates of Need: Some states require hospitals and certain other healthcare
facilities  and  providers to obtain a  certificate  of need, or CON, or similar
regulatory  approval  prior to  establishing  certain  healthcare  operations or
services,  incurring  certain  capital  projects and/or the acquisition of major
medical equipment  including MRI and PET/CT systems. We are not operating in any
such states.

Patient Protection and Affordable Care Act

On March 23, 2010, President Obama signed into law healthcare reform legislation
in the form of PPACA. The implementation of this law will likely have a profound
impact on the  healthcare  industry.  Most of the  provisions  of PPACA  will be
phased  in  over  the  next  four  years  and can be  conceptualized  as a broad
framework  not  only  to  provide  health  insurance  coverage  to  millions  of
Americans, but to fundamentally change the delivery of care by bringing together
elements of health  information  technology,  evidence-based  medicine,  chronic
disease  management,  medical "homes," care  collaboration  and shared financial
risk in a way that will accelerate industry adoption and change.  There are also
many provisions  addressing cost  containment,  reductions of Medicare and other
payments and heightened compliance requirements and additional penalties,  which
will create further challenges for providers.  We are unable to predict the full
impact of PPACA at this time due to the law's  complexity  and  current  lack of
implementing  regulations or interpretive  guidance.  Moving forward, we believe
that  the  federal  government  will  likely  have  greater  involvement  in the
healthcare industry than in prior years.

State Regulation

In addition to the federal self-referral law and federal Anti-kickback  statute,
many States,  including those in which HMCA and its clients operate,  have their
own versions of self-referral and anti-kickback laws. These laws are not limited
in their  applicability,  as are the federal  laws, to specific  programs.  HMCA
believes that it and its clients are in compliance with these laws.

Various States prohibit business corporations from practicing medicine.  Various
States  also  prohibit  the  sharing  of  professional  fees  or fee  splitting.
Consequently,  HMCA leases space and  equipment to clients and provides  clients
with a range of non-medical  administrative  and managerial  services for agreed
upon  fees.  HMCA does not  engage in the  practice  of  medicine  or  establish
standards  of medical  practice  or  policies  for its clients in any State even
where permitted.

HMCA's clients generate revenue from patients covered by no-fault  insurance and
workers'  compensation  programs.  For the  fiscal  year  ended  June  30,  2010
approximately  35.7% of our clients'  receipts were from patients covered by no-
fault  insurance  and  approximately  5.9% of our  client's  receipts  were from
patients covered by workers'  compensation  programs.  For the fiscal year ended
June 30,  2009,  approximately  39.6% of  HMCA's  clients'  receipts  were  from
patients covered by no-fault insurance and approximately 6.7% of HMCA's clients'
receipts were from patients covered by workers'  compensation  programs.  In the
event  that  changes  in these  laws  alter the fee  structures  or  methods  of
providing service, or impose additional or different requirements, HMCA could be
required to modify its  business  practices  and  services in ways that could be
more costly to HMCA or in ways that  decrease the revenues  which HMCA  receives
from its clients.

HMCA believes that it and its clients are in compliance with applicable Federal,
State  and  local  laws.  HMCA  does not  believe  that  such laws will have any
material effect on its business.

EMPLOYEES

As of July 1, 2010, we employed 238 persons on a full-time and part-time  basis.
Of such  employees,  7 were engaged in marketing  and sales,  17 in research and
development,   25  in  production,  36  in  customer  support  services,  27  in
administration,  89 on site at facilities and offices, 19 performing billing and
collection  functions managed by HMCA and 18 performing  transcription  services
for those facilities.


ITEM 2. PROPERTIES

Fonar leases approximately  117,000 square feet of office and plant space at its
principal  offices in Melville,  New York and at one other location in Melville,
New York at a current  aggregate  annual  rental rate of  $1,239,979,  excluding
utilities,  taxes  and other  related  expenses.  The term of one of the  leases
includes  options  to renew up  through  2016 and the terms of the other  leases
extend to 2013.  Fonar plans to vacate 29,000 square feet of space in a building
adjacent  to its  principal  offices  as part of its  continuing  efforts to cut
costs,  thereby saving an additional  $249,694  annually  (excluding  savings on
utilities,  taxes and other  related  expenses).  Management  believes  that the
premises will be adequate for its current needs.  HMCA already has  consolidated
its  headquarters  with those of Fonar as part of Fonar's cost cutting  program.
HMCA  maintains  leased  office  premises for its clients at the clients'  sites
having an aggregate  annual rental rate of  approximately  $875,000 under leases
having various terms.


ITEM 3. LEGAL PROCEEDINGS

On or about June 30, 2010, one of Fonar's  customers,  Golden Triangle  Company,
commenced an action against Fonar and certain individual  defendants employed or
formerly  employed by Fonar, in the United States District Court for the Eastern
District of New York based on the alleged wrongful failure of Fonar to deliver a
scanner in Kuwait.  The claim alleges various causes of action  including breach
of  contract,  fraud,  conspiracy  to defraud and  conversion.  Golden  Triangle
Company v. Fonar Corporation et al, CV10-2933. The plaintiff seeks relief in the
amount of  $5,000,000.  Fonar believes that the  plaintiff's  claims are without
merit and is seeking to make a motion to dismiss the complaint.

In addition,  we are party to five additional less significant  actions in which
the customers are seeking to obtain a return of their deposits for MRI scanners.
EAB Leasing  Corp et al v.  Farolan,  District  Court of Hidalgo  County,  Texas
($169,500),  Upright MRI of Chicago, LLC v. Fonar, Circuit Court of Cook County,
Illinois ($310,000),  Matt Malek Madison v. Fonar, U.S. District Court, Northern
District of California  ($300,000),  Jack Shapiro v. Fonar Corporation,  Supreme
Court,  Nassau  County,  New York  ($500,000  although  the actual  deposit  was
$323,000),  and  Anchorage  Neurological  Associates,  Inc.,  Superior  Court of
Alaska, Third Judicial District at Anchorage  ($155,000).  Fonar's down payments
are generally non-refundable,  but in some instances, where specified conditions
are met,  Fonar will  refund a down  payment.  In the  Farolan  case,  the Court
granted  Fonar's  motion for summary  judgment,  but the  plaintiff  is pursuing
additional proceedings. In the Upright MRI of Chicago case, the down payment was
specifically  stated to be  non-refundable  and the case is  proceeding.  In the
Madison case, the Court  recently  granted  summary  judgment to Madison for the
deposit and prejudgment interest. We strongly disagree with the decision and are
considering  our options.  In the Shapiro  case,  Shapiro,  who was also a sales
representative for Fonar, and Fonar are attempting to negotiate a settlement. In
the Anchorage  Neurological  case, which was commenced on October 7, 2010, Fonar
had agreed to refund the $155,000 down payment if the  plaintiff  were unable to
negotiate a satisfactory  lease with its current landlord to accommodate the MRI
scanner.  Anchorage  demanded  the down  payment,  but  declined  to provide any
specifics concerning the matter.


Part II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common  Stock is traded in the Nasdaq  SmallCap  market  under the  National
Association of Securities Dealers Automated  Quotation System,  also referred to
as "NASDAQ", symbol FONR. The following table sets forth the high and low trades
reported in NASDAQ System for the periods shown.

Fiscal Quarter                   High   Low
--------------                   ----   ----
January  -  March        2008    5.45   2.38
April    -  June         2008    4.20   2.21
July     -  September    2008    2.43   1.35
October  -  December     2008    3.49   0.66
January  -  March        2009    1.38   0.62
April    -  June         2009    3.92   0.82
July     -  September    2009    2.47   1.60
October  -  December     2009    4.60   1.55
January  -  March        2010    3.81   1.19
April    -  June         2010    2.24   1.40
July     -  September 30 2010    1.94   1.31

On September 30, 2010, we had approximately  4,376 stockholders of record of our
Common  Stock,  12  stockholders  of  record  of our  Class B  Common  Stock,  3
stockholders  of record of our Class C Common  Stock and 3,860  stockholders  of
record of our Class A Non-voting Preferred Stock.

At the  present  time,  the only class of our  securities  for which  there is a
market is the Common Stock.

We paid cash  dividends  in fiscal 1998 and the first  three  quarters of fiscal
1999 on monies we received from the enforcement of our patents. Except for these
dividends,  we have not paid any cash dividends.  Except for these dividends, we
expect that we will retain  earnings to finance the development and expansion of
our business.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.

INTRODUCTION.

Fonar was formed in 1978 to engage in the business of  designing,  manufacturing
and selling MRI scanners. In 1997, we formed a wholly-owned  subsidiary,  Health
Management Corporation of America, also referred to as "HMCA", formerly known as
U.S. Health  Management  Corporation,  in order to expand into the physician and
diagnostic management services business.

Fonar's  principal  MRI  products are its  Stand-Up(R)/Upright(R)  MRI and Fonar
360(TM) MRI scanners.  The Stand-Up(R) MRI allows patients to be scanned for the
first time under weight-bearing  conditions. The Stand-Up(R) MRI is the only MRI
capable of producing images in the weight bearing state.

At 0.6 Tesla field  strength,  the Upright(R) MRI and Fonar 360(TM)  magnets are
among the  highest  field  open MRI  scanners  in the  industry,  offering  non-
claustrophobic  MRI together with  high-field  image  quality.  Fonar's open MRI
scanners were the first high field strength MRI scanners in the industry.

HMCA commenced  operations in July,  1997 and generates  revenues from providing
comprehensive  management  services,   including  development,   administration,
accounting, billing and collection services, together with office space, medical
equipment,  supplies and non-medical  personnel to its clients.  Revenues are in
the form of fees which are earned under  contracts  with HMCA's  clients.  Since
July 2005, HMCA has engaged only in the management of MRI facilities.

For the fiscal  years  ended June 30, 2010 and June 30,  2009,  34.1% and 28.4%,
respectively,  of HMCA's  revenues were derived from contracts  with  facilities
owned by Dr. Raymond V. Damadian,  the President of Fonar and HMCA and principal
stockholder of Fonar. The agreements with these MRI facilities are for one- year
terms which renew automatically on an annual basis, unless terminated.  The fees
are  based on the  number of  procedures  performed  in the case of one  scanner
located  in  Georgia  at the rate of $350 per MRI  scan.  The fees for the sites
owned by Dr.  Damadian in Florida are flat monthly fees ranging from $113,000 to
$195,000.  The balance of HMCA's  revenues are derived from  contracts  with MRI
facilities purchased by Dr. Robert Diamond from Dr. Damadian. The MRI facilities
owned by Dr. Diamond are charged a flat fee, pursuant to new contracts  executed
in connection with the sale of the MRI facilities at the end of fiscal 2007. The
fees are  reviewed  and if  appropriate,  adjusted on an annual  basis by mutual
agreement.  During  fiscal  2010,  these fees ranged  from  $79,000 per month to
$183,000 per month.

Critical Accounting Policies
----------------------------

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these consolidated  financial statements requires
us to make estimates and judgments  that affect the reported  amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and  liabilities.  On an on-going  basis,  we evaluate our estimates,  including
those related to investments, intangible assets, income taxes, contingencies and
litigation.  We base our  estimates  on  historical  experience  and on  various
assumptions  that we  believe  to be  reasonable  under the  circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

We  believe  the  following  critical   accounting   policies  affect  our  more
significant  judgments and estimates used in the preparation of our consolidated
financial  statements.  We recognize  revenue and related  costs of revenue from
sales contracts for our MRI scanners, under the percentage-of-completion method.
Under this method,  we recognize  revenue and related costs of revenue,  as each
sub-assembly is completed.  Amounts  received in advance of our  commencement of
production are recorded as customer advances.

We record a valuation  allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized.  As of June 30, 2010, we recorded a
valuation  allowance which reduced our deferred tax assets to equal our deferred
tax liability.

We amortize our  intangible  assets,  including  patents,  purchased  management
agreements and capitalized  software  development costs, over the shorter of the
contractual/legal life or the estimated economic life. Our amortization life for
patents  and  capitalized  software  development  costs is 15 to 17 years  and 5
years, respectively.

We  periodically  assess the  recoverability  of  long-lived  assets,  including
property and equipment,  intangibles and management  agreements,  when there are
indications of potential  impairment,  based on estimates of undiscounted future
cash flows.  The amount of impairment  is  calculated  by comparing  anticipated
discounted  future cash flows with the carrying value of the related  asset.  In
performing this analysis,  management considers such factors as current results,
trends, and future prospects, in addition to other economic factors.

RESULTS OF OPERATIONS. FISCAL 2010 COMPARED TO FISCAL 2009

In fiscal 2010,  we  experienced a net loss of $3.0 million on revenues of $31.8
million,  as  compared  to a net  income of $1.1  million on  revenues  of $39.7
million  for fiscal  2009.  This  represents  a decrease  in  revenues of 19.9%.
Included in net income for fiscal 2009 is a gain of $1.4 million  recognized  by
the Company on the sale of a consolidated subsidiary.  Decreased unrelated party
product sales of 47.3% was the  principal  factor  accounting  for the decreased
revenues  of the  Company.  Related  management  fees  increased  by  30.0%.  In
addition,  total  costs  and  expenses  decreased  by  14.9%.  Our  consolidated
operating  results worsened by $1.9 million to an operating loss of $2.6 million
for fiscal 2010 as compared to an operating loss of $704,000 for fiscal 2009.

Discussion of Operating Results of Medical Equipment Segment
Fiscal 2010 Compared to Fiscal 2009
------------------------------------------------------------

Revenues  attributable to our medical  equipment  segment  decreased by 29.7% to
$20.7  million in fiscal 2010 from $29.5  million in fiscal  2009,  with product
sales  revenues  decreasing  47.3%  from $17.2  million  in fiscal  2009 to $9.1
million in fiscal 2010. Service revenue, however,  increased by 5.2%, from $10.5
million in fiscal 2009 to $11.1 million in fiscal 2010. The decrease in revenues
was  attributable  to a decrease  in sales of our  Upright(R)  MRI to  unrelated
parties, offset by an increase in service and repair fees.

The  Upright(R)  MRI is unique in that it permits MRI scans to be  performed  on
patients  upright in the  weight-bearing  state and in multiple  positions  that
correlate  with  symptoms.  An important  event in our ongoing effort to educate
both the medical community and payors about the benefits,  if not necessity,  of
utilizing  Upright(R)  MRI  scanning,  occurred  in fiscal  2007 when we sold an
Upright(R) MRI scanner to the largest  orthopedic  hospital in the  Netherlands,
St.  Maartenskliniek.  Upon placing the order,  the Chairman of Spine Surgery at
St.  Maartenskliniek  expressed the view that for their  hospital to continue to
engage in spine surgery without Fonar's  Upright(R) MRI technology,  now that it
was available was  "unacceptable" and that owning the scanner "was not optional,
but  mandatory".  He further stated that "once our active  research  program has
discovered the benefits of this new Fonar technology for patients,  we intend to
publish the results in a lot of peer reviewed scientific journals".

In addition,  significant progress is being made in developing the Fonar 360(TM)
MRI  scanner  so  that  it can be  used  in  interventional  procedures.  At the
Oxford-Nuffield  site in the United Kingdom,  where we installed the first Fonar
360(TM) MRI,  Fonar  software  engineers  have  completed  and installed our 2nd
generation tracking software, which is designed to enable the surgeons to insert
needles into the patient and  accurately  advance them under direct visual image
guidance to the target tissue,  such as a tumor, in order to inject  therapeutic
agents directly into the tissue.

Product sales to unrelated  parties decreased by 47.3% in fiscal 2010 from $17.2
million in fiscal  2009 to $9.1  million in fiscal  2010.  There were no product
sales to related parties in fiscal 2010 or 2009.

We believe that one of our  principal  challenges  in achieving  greater  market
penetration  is  attributable  to the better name  recognition  and larger sales
forces of our larger  competitors such as General  Electric,  Siemens,  Hitachi,
Philips  and  Toshiba  and  the  ability  of some of our  competitors  to  offer
attractive   financing  terms  through   affiliates,   such  as  G.E.   Capital.
Nevertheless, no other competitor offers a whole body weight bearing MRI scanner
such as the Upright(R) MRI.

The  operating  results  for the medical  equipment  segment  decreased  by $1.1
million  from an income of $27,000 in fiscal  2009 to a loss of $1.1  million in
fiscal 2010. This decrease is attributable  most  significantly to a decrease in
our scanner sales offset by a smaller decrease in our total costs and expenses.

We  recognized  revenues of $7.9  million  from the sale of our  Upright(R)  MRI
scanners in fiscal 2010 While in fiscal 2009,  we  recognized  revenues of $16.6
million from the sale of Upright(R) MRI scanners.

None of our revenues for fiscal 2010 and fiscal 2009 were  attributable to sales
to related parties.

License and  royalty  revenue in fiscal 2010  decreased  to $585,000  million as
compared  to  $1.8  million  in  fiscal  2009.   The  license  has  expired  and
consequently we expect no license and royalty revenue in 2011.

Research and development expenses,  net of capitalized costs, decreased by 31.6%
to $2.5 million in fiscal 2010 as compared to $3.6  million in fiscal 2009.  Our
expenses  for fiscal 2010  represented  continued  research and  development  of
Fonar's scanners, Fonar's new hardware and software product, Sympulse(R) and new
surface coils to be used with the Upright(R) MRI scanner.

Discussion of Operating Results of Physician and Diagnostic Services Management
Segment.
Fiscal 2010 Compared to Fiscal 2009
-------------------------------------------------------------------------------

Revenues  attributable  to  the  Company's  physician  and  diagnostic  services
management segment, HMCA, increased by 8.1% to $11.1 million in fiscal 2010 from
$10.3 million in fiscal 2009.  The increase in revenues was primarily due to the
renegotiation of some of the management  contracts between HMCA and its clients.
Presently,  9 of the 10 MRI  facilities  managed  by HMCA  have  Upright(R)  MRI
scanners.

Cost of revenues as a percentage  of the related  revenues for our physician and
diagnostic  services  management segment increased from $7.3 million or 71.2% of
related  revenues for the year ended June 30, 2009 to $8.3 million,  or 75.0% of
related  revenue  for the year  ended  June 30,  2010.  The  increased  revenues
resulted from these increased marketing efforts.

Operating  results of this segment  decreased from an operating loss of $731,000
in fiscal 2009 to operating  loss of $1.5  million in fiscal 2010.  We attribute
the decrease to an increase in our cost of revenues greater than our increase in
revenues.

Discussion of Certain Consolidated Results of Operations
Fiscal 2010 Compared to Fiscal 2009
--------------------------------------------------------

Interest and investment income decreased in 2010 compared to 2009. We recognized
interest  income of $260,216  in 2010 as  compared  to $346,506 in fiscal  2009,
representing a decrease of 24.9%.

Interest  expense of $387,902  was  recognized  in fiscal  2010,  as compared to
$333,229 in fiscal 2009, representing a increase of 14.1%.

While revenue decreased by 19.9%, selling,  general and administrative expenses,
decreased by 11.1% to $11.9  million in fiscal 2010 from $13.4 million in fiscal
2009.

Compensatory element of stock issuances also increased from approximately $4,000
in fiscal  2009 to $99,000 in fiscal  2010.  This  reflected  Fonar's  policy to
refrain from using its stock bonus plans to pay employees  and others,  in order
to prevent dilution of its outstanding  stock, even though there was an increase
in the use of bonus stock in fiscal 2010.

The higher provision for bad debts of $1.4 million in fiscal 2010 as compared to
$1.3  million in fiscal  2009,  reflected  an  increase  in  reserves of certain
indebtedness in fiscal 2010 by our physician and diagnostic  services management
segment.  In fiscal 2010,  the three  Florida  sites managed by HMCA jointly and
severally  guaranteed  the  payment of their  management  fees to HMCA,  further
securing HMCA's management fee receivables.

Revenue from service and repair fees increased from $10.5 million in fiscal 2009
and to $11.1  million  in fiscal  2010 as  scanners  previously  under  warranty
entered into service agreements with HMCA.

Continuing  our  tradition  as the  originator  of MRI, we remain  committed  to
maintaining  our  position  as the leading  innovator  of the  industry  through
investing  in  research  and  development.  In  fiscal  2010  we  continued  our
investment in the  development  of our new MRI scanners,  together with software
and upgrades,  with an  investment  of  $2,773,704 in research and  development,
$315,362 of which was capitalized, as compared to $4,085,177,  $491,707 of which
was capitalized,  in fiscal 2009. The research and development expenditures were
approximately  11.9% of revenues  attributable to our medical equipment segment,
and 7.7% of total  revenues,  in 2010 and  12.2% of  medical  equipment  segment
revenues,  and 9.0% of total revenues in fiscal 2009.  This  represented a 31.6%
decrease in research and development  expenditures in fiscal 2010 as compared to
fiscal 2009,  necessitated  by our cost cutting  programs.  Notwithstanding  the
decrease  in research  and  development  expenditures,  in  connection  with our
overall  cost cutting  programs,  we remain fully  committed to  developing  new
features, software and upgrades to improve its products.

The  physician  and  diagnostic  services  management  segment,  HMCA,  revenues
increased,  from $10.3 in fiscal 2009 to $11.1  million in fiscal 2010.  This is
primarily  attributable to the  renegotiating  of several  management  contracts
between HMCA and its clients.

We have been taking steps to improve  HMCA  revenues by our  marketing  efforts,
which focus on the unique  capability  of our  Upright(R)  MRI  scanners to scan
patients in different positions.

Marketing  expenditures  are likely to increase,  as the Company  continues  its
efforts to promote sales.

In the beginning of fiscal 2006,  in July of 2005,  HMCA sold the portion of its
business  engaged in the  management  of  physical  therapy  and  rehabilitation
facilities to Health Plus Management  Services,  L.L.C.  for a purchase price of
$6.6  million,  payable  pursuant to a  promissory  note  payable in 120 monthly
installments.

The first twelve  installments were interest only and the remaining 108 payments
were to consist of equal installments of principal and interest in the amount of
$76,014 each. Pursuant to a Modification  Agreement dated August 8, 2008, Health
Plus made a  prepayment  of  $2,000,000  on the note and  received a discount of
$1,000,000  in  return.  A  new  note  was  executed  for  the  balance  of  the
indebtedness  remaining,   in  the  amount  of  $2,378,130,   providing  for  60
consecutive equal monthly payments of principal and interest of $47,090 each.

In October,  2009 an additional  discount of $350,000 was given and the note was
paid in  full.  The note was  repaid  by  Mountain  Crest  Ventures,  of which a
principal member is a related party.

In fiscal 2009 and 2010, HMCA received no revenue from the physical  therapy and
rehabilitation business.

The Company's management fees are dependent on collection by its clients of fees
from reimbursements  from Medicare,  Medicaid,  private insurance,  no fault and
workers'  compensation  carriers,  self-pay and other  third-party  payors.  The
health  care  industry  is  experiencing  the  effects of the  federal and state
governments'  trend toward cost  containment,  as  governments  and other third-
party  payors  seek to impose  lower  reimbursement  and  utilization  rates and
negotiate  reduced  payment  schedules  with  providers.   The  cost-containment
measures,  consolidated with the increasing influence of managed-care payors and
competition for patients,  have resulted in reduced rates of  reimbursement  for
services  provided by the  Company's  clients from time to time.  The  Company's
future  revenues and results of operations  may be adversely  impacted by future
reductions in reimbursement rates.

Certain  third-party payors have proposed and implemented changes in the methods
and rates of reimbursement that have had the effect of substantially  decreasing
reimbursement  for diagnostic  imaging services that HMCA's clients provide.  To
the extent  reimbursement  from third- party  payors is reduced,  it will likely
have an  adverse  impact on the rates  they pay us, as they would need to reduce
the management fees they pay HMCA to offset such decreased  reimbursement rates.
Furthermore, many commercial health care insurance arrangements are changing, so
that individuals bear greater financial  responsibility  through high deductible
plans,  co-insurance  and  higher  co-payments,  which may  result  in  patients
delaying or foregoing medical procedures.  We expect that any further changes to
the  rates  or  methods  of  reimbursement   for  services,   which  reduce  the
reimbursement per scan of our clients may partially offset the increases in scan
volume we are working to achieve for our clients,  and indirectly will result in
a decline in our revenues.

In 2009, the Obama administration announced its intentions for healthcare reform
in the United States. Legislation adopting healthcare reform was passed in 2010.
On March 23, 2010, President Obama signed into law healthcare reform legislation
in the form of the Patient  Protection  and Affordable  Care Act, or PPACA.  The
implementation  of this law will likely have a profound impact on the healthcare
industry.  Most of the  provisions of PPACA will be phased in over the next four
years and can be  conceptualized as a broad framework not only to provide health
insurance  coverage to millions of Americans,  but to  fundamentally  change the
delivery of care by bringing together elements of health information technology,
evidence-based  medicine,  chronic  disease  management,  medical  "homes," care
collaboration  and shared financial risk in a way that will accelerate  industry
adoption and change. There are also many provisions addressing cost containment,
reductions of Medicare and other payments and heightened compliance requirements
and additional penalties, which will create further challenges for providers. We
are  unable to  predict  the full  impact of PPACA at this time due to the law's
complexity  and  current  lack  of  implementing   regulations  or  interpretive
guidance.  Moving  forward,  we believe that the federal  government will likely
have greater involvement in the healthcare industry than in prior years.

In addition,  the use of radiology benefit  managers,  or RBM's has increased in
recent years.  It is common practice for health  insurance  carriers to contract
with RBMs to manage  utilization  of  diagnostic  imaging  procedures  for their
insureds.  In many cases, this leads to lower utilization of imaging  procedures
based on a determination of medical  necessity.  The efficacy of RBMs is still a
high controversial  topic. We cannot predict whether the healthcare  legislation
or the use of RBMs will negatively impact our business,  but it is possible that
our financial position and results of operations could be negatively affected.

At the present time  healthcare  reform has not directly  affected our business,
but we believe  uncertainty  as to the  ultimate  impact of  healthcare  reform,
taxes, and the state of the economy have hurt our scanner sales.

There can be no assurance that the impact of health care legislation or possible
reimbursement changes will not adversely affect our business.

As a result of our loss for the year,  Fonar  does not  expect to meet  NASDAQ's
criteria  for  continued  listing and  anticipates  that  NASDAQ  will  commence
delisting proceedings. Fonar will attempt to avoid delisting and seek additional
time to come into  compliance  or an  exemption  if  possible.  If Fonar  cannot
maintain  its  NASDAQ  listing it will seek to qualify  for  inclusion  in other
trading markets.

LIQUIDITY AND CAPITAL RESOURCES

Cash,  cash  equivalents and marketable  securities  increased by 6.3% from $1.2
million at June 30, 2009 to $1.3 million at June 30, 2010.

Marketable  securities  approximated $28,000 as of June 30, 2010, as compared to
$23,000 as of June 30, 2009.

Cash used in operating  activities  for fiscal 2010  approximated  $1.5 million.
Cash used in operating  activities  was  attributable  to a decrease in cost and
estimated  earnings  in excess of  billings  on  uncompleted  contracts  of $1.2
million and a decrease in billings in excess of costs and estimated  earnings on
uncompleted contracts of $717,000, offset by the net loss of $3.0 million and an
decrease in customer advances of $4.4 million.

Cash provided by investing activities for fiscal 2010 approximated $1.2 million.
The principal uses of cash from investing  activities were purchases of property
and equipment of $24,000,  costs of capitalized software development of $204,000
and costs of patents and  copyrights of $196,000.  The principal  source of cash
provided by investing  activities was the proceeds from note receivables of $1.6
million.

Cash provided in financing activities for fiscal 2010 approximated $418,000. The
principal  sources of cash in financing  activities  were proceeds from the long
term debt of $580,000 and proceeds of $76,000 from repayment of notes receivable
by employee  stockholders,  offset by the  repayment of  borrowings  and capital
lease obligations of $238,000.

Total  liabilities  decreased by 12.4% during  fiscal 2010,  from  approximately
$31.2 million at June 30, 2009 to approximately  $27.4 million at June 30, 2010.
The decrease in total liabilities  reflected principally an increase in billings
in excess of costs and estimated earnings on uncompleted contracts of 35.4% from
$2.0  million  at June 30,  2009 to $2.7  million at June 30,  2010  offset by a
decrease  in customer  advances  of 47.9% from $9.2  million at June 30, 2009 to
$4.8 million at June 30, 2010, resulting from our decreased backlog.

As at June 30, 2010,  our  obligations  included  approximately  $2.6 million in
various state sales taxes.

At June 30, 2010,  however,  we had a working capital  deficit of  approximately
$10.0 million as compared to a working  capital deficit of $10.8 million at June
30,  2009 and a  stockholders'  deficiency  of $5.9  million at June 30, 2010 as
compared to a stockholders' deficiency of $2.9 million at June 30, 2009. For the
year ended June 30, 2010, we realized a net loss of $3.0 million, which included
non-cash charges of approximately $3.7 million.

Our principal source of liquidity has been derived from revenues,  as well as by
cash provided by the sale of certain assets.

Effective  September 30, 2008, a wholly-owned  subsidiary of HMCA sold its 92.3%
equity interest in an entity providing  management services to a scanning center
in Bensonhurst, New York for approximately $2.3 million.

In August,  2008, the Company entered into a modification  agreement with regard
to the asset purchase agreement with Health Plus Management Services, L.L.C. The
Company  received a $2,000,000  payment on the note issued by Health  Plus.  The
note was repaid in full by Mountain Crest Ventures,  of which a related party is
a member.

Our  business  plan  includes  an program  for  manufacturing  and  selling  our
Upright(R)  MRI  scanners.   In  addition,  we  are  enhancing  our  revenue  by
participating  in the  physician and  diagnostic  services  management  business
through our subsidiary,  HMCA and have upgraded the facilities which it manages,
most  significantly  by the  replacement  of  existing  MRI  scanners  with  new
Upright(R) MRI scanners.  Presently, of the 10 MRI facilities managed by HMCA, 9
are  equipped  with  Upright(R)  MRI  scanners.  We have  also  intensified  our
marketing  activities  through  the hiring of  additional  marketers  for HMCA's
clients and increasing their commissions.

Our  business  plan also  calls  for a  continuing  emphasis  on  providing  our
customers  with enhanced  equipment  service and  maintenance  capabilities  and
delivering  state-of-the-art,  innovative and high quality equipment upgrades at
competitive prices. Fees for on-going service and maintenance from our installed
base of scanners  were $10.5  million for the year ended June 30, 2009 and $11.1
million for the year ended June 30, 2010.

In order to reduce  our net  losses  and  demands  on our cash and other  liquid
reserves,  we  instituted  an  aggressive  program  of cost  cutting  during and
following the end of fiscal 2008. These measures included  consolidating  HMCA's
office space with Fonar's office space, reductions in the size of our workforce,
compensation  and benefits,  as well as across the board  reduction of expenses.
The cost  reductions  were  intended  to enable us to  withstand  periods of low
volumes of MRI  scanner  sales,  by keeping  expenditures  at levels  which,  if
necessary,  can be supported by service revenues and HMCA revenues.  We are also
seeking  equity and debt  financing  and have been engaged in  discussions  with
several possible sources.

In order to promote sales, we are continuing to focus on marketing  campaigns to
strengthen the demand for our products and services. Management anticipates that
Fonar's  capital  resources  will improve if Fonar's MRI scanner  products  gain
wider market  recognition  and acceptance  resulting in both  increased  product
sales and scan volumes.  If we are not successful with our marketing  efforts to
increase sales, we will experience a shortfall in cash, and it will be necessary
to further reduce operating  expenses in a manner or obtain funds through equity
or debt  financing  in  sufficient  amounts  to avoid  the need to  curtail  our
operations  subsequent to June 30, 2011. Current economic credit conditions have
contributed to a slowing business  environment.  Given such liquidity and credit
constraints in the markets,  the business may suffer,  should the credit markets
not improve in the near future.  The direct  impact of these  conditions  is not
fully known. However,  there can be no assurance that we would be able to secure
additional  funds if needed and that if such funds were  available,  whether the
terms or conditions  would be  acceptable to us. In such case,  the reduction in
operating  expenses  might need to be  substantial  in order for us to  generate
positive cash flow to sustain our operations.

If we are unable to meet expenditures with revenues or financing then it will be
necessary to reduce expenses further, or seek other sources of funds through the
issuance  of debt or equity  financing  in order to  conduct  operations  as now
conducted subsequent to fiscal 2011.

Capital expenditures for fiscal 2010 approximated $24,000.  Capitalized software
costs  were   approximately   $204,000,   and  capitalized   patent  costs  were
approximately $196,000.

Fonar has not committed to making capital expenditures in the 2011 fiscal year.

The  accompanying  financial  statements  have been prepared in accordance  with
accounting  principals  generally  accepted in the United  States of America and
assume  that the  Company  will  continue  as a going  concern.  The Company has
suffered  recurring losses from operations,  continues to generate negative cash
flows from  operating  activities and had negative  working  capital at June 30,
2010. These conditions raise  substantial  doubt about the Company's  ability to
continue  as a going  concern.  The  accompanying  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Fonar's  investments  in  fixed  rate  instruments.   None  of  the  fixed  rate
instruments in which we invest extend beyond June 30, 2011.

All of our revenue,  expense and capital purchasing activities are transacted in
United States dollars.

See  Note  13 to  the  consolidated  Financial  Statements  for  information  on
long-term debt.


Item 8.
                             FINANCIAL STATEMENTS
                      FONAR CORPORATION AND SUBSIDIARIES
                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                       Page No.
                                                       -------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS
  At June 30, 2010 and 2009

CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Years Ended June 30, 2010 and 2009

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
  For the Years Ended June 30, 2010 and 2009

CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Years Ended June 30, 2010 and 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
FONAR Corporation and Subsidiaries

We  have  audited  the  accompanying   consolidated   balance  sheets  of  FONAR
Corporation and  Subsidiaries  (the "Company") as of June 30, 2010 and 2009, and
the  related   consolidated   statements  of  operations,   comprehensive  loss,
stockholders'  deficiency  and  cash  flows  for the  years  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor  were we  engaged  to  perform,  an audit of  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of FONAR
Corporation  and  Subsidiaries  at June 30, 2010 and 2009, and the  consolidated
results  of its  operations  and its cash  flows for the years  then  ended,  in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
that FONAR  Corporation and  Subsidiaries  will continue as a going concern.  As
more fully described in Note 1, the Company has suffered  recurring  losses from
operations, continues to generate negative cash flows from operating activities,
has negative working capital at June 30, 2010 and is dependent on asset sales to
fund its shortfall from operations.  These conditions  raise  substantial  doubt
about the Company's ability to continue as a going concern.  Management's  plans
in  regard  to these  matters  are also  described  in Note 1. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainity.


/s/ Marcum, LLP
New York, New York
October 13, 2010



                       FONAR CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------


                                                              June 30,
                                                     --------------------------
                                                         2010           2009
                                                     ------------  ------------
Current Assets:
  Cash and cash equivalents                          $  1,299,493  $  1,225,619
  Marketable securities                                    27,613        22,652
  Accounts receivable - net of allowances for
    doubtful accounts of $2,289,049 and $2,393,326
    at June 30, 2010 and 2009, respectively             4,820,541     5,391,822
  Medical receivables - net of allowances for
    doubtful accounts of $1,622,000 and $1,343,500
    at June 30, 2010 and 2009, respectively                25,225       374,225
  Management fee receivable - net of allowances for
    doubtful accounts of $5,808,345 and $5,093,345
    at June 30, 2010 and 2009, respectively             2,568,526     3,273,756
  Management fee receivable - related medical
    practices - net of allowances for doubtful
    accounts of $1,129,818 and $1,094,818 at
    June 30, 2010 and 2009, respectively                1,921,983     2,196,580
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                     277,384     1,475,706
  Inventories                                           2,826,211     3,172,397
  Current portion of advances and notes to related
    medical practices                                      83,423       164,611
  Current portion of note receivable - net of
    allowances for doubtful accounts of $115,000
    and $65,000 at June 30, 2010 and at
    June 30, 2009, respectively                           271,796       517,934
  Prepaid expenses and other current assets               552,800       472,397
                                                      -----------   -----------
      Total Current Assets                             14,674,995    18,287,699

Property and Equipment - Net                            2,108,556     2,892,380

Advances and Notes to Related Medical Practices -
  net of allowances for doubtful accounts of
  $264,791 at June 30, 2010 and at June 30, 2009            -            89,032

Notes Receivable                                             -        1,778,626

Other Intangible Assets - Net                           4,291,419     4,920,241

Other Assets                                              553,875       391,237
                                                     ------------  ------------
      Total Assets                                   $ 21,628,845  $ 28,359,215
                                                     ============  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                   LIABILITIES
                                   -----------


                                                              June 30,
                                                     --------------------------
                                                         2010           2009
                                                     ------------  ------------
Current Liabilities:
  Current portion of long-term debt and capital
    leases                                           $    579,436  $    277,494
  Current portion of long-term debt - related party        87,835        79,509
  Accounts payable                                      3,191,960     3,518,609
  Other current liabilities                             8,065,069     8,460,042
  Unearned revenue on service contracts                 5,219,547     5,526,006
  Customer advances                                     4,813,327     9,237,921
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                   2,743,398     2,026,441

                                                     ------------  ------------
      Total Current Liabilities                        24,700,572    29,126,022
                                                     ------------  ------------
Long-Term Liabilities:
  Accounts payable                                         62,622       184,168
  Due to related medical practices                        527,891       643,135
  Long-term debt and capital leases, less
    current portion                                     1,566,622       759,211
  Long-term debt, less current
    portion - related party                                72,341       160,176
  Other liabilities                                       474,763       427,365
                                                     ------------  ------------
      Total Long-Term Liabilities                       2,704,239     2,174,055
                                                     ------------  ------------
      Total Liabilities                                27,404,811    31,300,077
                                                     ------------  ------------
Commitments, Contingencies and Other Matters

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                            STOCKHOLDERS' DEFICIENCY
                            ------------------------


                                                              June 30,
                                                     --------------------------
                                                         2010           2009
                                                     ------------  ------------
Stockholders' Deficiency:
  Class A non-voting preferred stock - $.0001
    par value; authorized - 1,600,000 shares;
    issued and outstanding - 313,451 shares
    at June 30, 2010 and 2009                        $         31  $         31
  Preferred stock - $.001 par value;
    authorized - 2,000,000 shares; issued
    and outstanding - none                                   -             -
  Common stock - $.0001 par value; authorized -
    30,000,000 shares at
    June 30, 2010 and 2009, respectively;
    issued - 4,985,850 and 4,917,918 shares
    at June 30, 2010 and 2009, respectively;
    outstanding - 4,974,207 and 4,906,275
    shares at June 30, 2010 and 2009, respectively            497           491
  Class B common stock (10 votes per share) -
    $.0001 par value; authorized - 800,000
    shares; issued and outstanding - 158 shares
    at June 30, 2010 and 2009                              -             -
  Class C common stock (25 votes per share) -
    $.0001 par value; authorized - 2,000,000
    shares; issued and outstanding - 382,513
    shares at June 30, 2010 and 2009                           38            38
  Paid-in capital in excess of par value              172,379,863   172,280,600
  Accumulated other comprehensive loss                    (18,489)      (20,995)
  Accumulated deficit                                (177,271,349) (174,258,607)
  Notes receivable from employee stockholders            (191,167)     (267,030)
  Treasury stock, at cost - 11,643 shares
    of common stock at June 30, 2010 and 2009            (675,390)     (675,390)
                                                     ------------  ------------
      Total Stockholders' Deficiency                   (5,775,966)   (2,940,862)
                                                    ------------  ------------
      Total Liabilities and Stockholders'
        Deficiency                                   $ 21,628,845  $ 28,359,215
                                                     ============  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    For the Years Ended June 30,
                                                    ---------------------------
                                                         2010           2009
                                                    ------------   ------------
Revenues
  Product sales - net                               $  9,056,307   $ 17,175,417
  Service and repair fees - net                       10,864,927     10,345,091
  Service and repair fees - related parties - net        220,000        192,500
  Management and other fees                            7,302,216      7,342,614
  Management and other fees - related
    medical practices - net                            3,786,612      2,911,318
  License fees and royalties                             585,493      1,755,493
                                                    ------------   ------------
      Total Revenues - Net                            31,815,555     39,722,433
                                                    ------------   ------------
Costs and Expenses
  Costs related to product sales                       7,248,756     10,758,201
  Costs related to service and repair fees             3,026,598      3,992,557
  Costs related to service and repair fees
    - related parties                                     61,284         74,293
  Costs related to management and other fees           5,320,756      4,507,587
  Costs related to management and other fees
    - related medical practices                        2,962,826      2,790,745
  Research and development                             2,458,342      3,593,470
  Selling, general and administrative,
    inclusive of compensatory element of
    stock issuances of $99,269 and $4,061
    for the years ended June 30,
    2010 and 2009, respectively                       11,939,223     13,423,066
  Provision for bad debts                              1,378,500      1,286,451
                                                    ------------   ------------
      Total Costs and Expenses                        34,396,285     40,426,370
                                                    ------------   ------------
      Loss from Operations                            (2,580,730)      (703,937)

Other Income and (Expenses):
  Interest expense                                      (313,416)      (333,229)
  Interest expense - related parties                     (74,486)         -
  Investment income                                      249,290        325,688
  Interest income - related parties                       10,926         20,818
  Other income - net                                      45,674        399,662
  Loss on note receivable                               (350,000)         -
  Gain on sale of consolidated subsidiary                  -          1,448,196
                                                    ------------   ------------
      (Loss) Income Before Provision For
          Income Taxes                                (3,012,742)     1,157,198

Provision for Income Taxes                                 -             35,931
                                                    ------------   ------------
       Net (Loss) Income                            $ (3,012,742)  $  1,121,267
                                                    ============   ============

        Net Income Available to Class C
          Common Stockholders                             N/A      $     21,181
                                                    ============   ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                    For the Years Ended June 30,
                                                    ---------------------------
                                                         2010           2009
                                                    ------------   ------------

Net (Loss) Income Available to Common Stockholders  $ (3,012,742)  $  1,032,717
                                                    ============   ============
Basic Net (Loss) Income Per Common Share
Available to Common Stockholders                      $(0.61)        $ 0.21
                                                    ============   ============
Diluted Net (Loss) Income Per Common Share
Available to Common Stockholders                      $(0.61)        $ 0.21
                                                    ============   ============
Basic and Diluted Income Per Share - Common C          N/A             0.06
                                                    ============   ============
Weighted Average Basic Shares Outstanding              4,932,044      4,904,358
                                                    ============   ============
Weighted Average Diluted Shares Outstanding            4,932,044      5,031,862
                                                    ============   ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2010


                                                Class A
                                               Non-Voting      Common Stock
                                               Preferred    -------------------
                                                 Stock       Shares     Amount
                                               ----------   ---------  --------
Balance - June 30, 2009                        $       31   4,906,275  $    491

Net loss                                             -           -         -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax                      -           -         -
Stock issued to employees under stock
  bonus plans                                        -         67,932         6
Payments on notes receivable
  from employee stockholders                         -           -         -
                                               ----------   ---------  --------

Balance - June 30, 2010                        $       31   4,974,207  $    497
                                               ==========   =========  ========

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2010

                                                                    Paid-in
                                              Class B    Class C    Capital in
                                              Common     Common     Excess of
                                              Stock      Stock      Par Value
                                             ---------  ---------  ------------
                                              Shares
                                             ---------
Balance - June 30, 2009                            158   $    38   $172,280,600

Net loss                                          -         -              -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax                   -         -              -
Stock issued to employees under stock
  bonus plans                                     -         -            99,263
Payments on notes receivable from employee
  stockholders                                    -         -              -
                                             ---------  ---------  ------------
Balance - June 30, 2010                            158   $    38   $172,379,863
                                             =========  =========  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2010

                                                         Notes
                                                      Receivable    Accumulated
                                                         From          Other
                                         Treasury      Employee    Comprehensive
                                            Stock    Stockholders      Loss
                                        -----------  ------------  -------------
Balance - June 30, 2009                 $ (675,390)  $  (267,030)  $    (20,995)

Net loss                                      -             -              -

Other comprehensive loss, net of tax:
  Unrealized gains on securities
    arising during the year, net of tax       -             -             2,506
Stock issued to employees under stock
  bonus plans                                 -             -              -
Payments on notes receivable from
  employee stockholders                       -           75,863           -
                                        -----------  ------------  -------------
Balance - June 30, 2010                 $ (675,390)  $  (191,167)  $    (18,489)
                                        ===========  ============  =============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2010

                                       Accumulated                 Comprehensive
                                         Deficit        Total      Income (Loss)
                                     --------------  ------------  -------------
Balance - June 30, 2009              $(174,258,607)  $(2,940,862)  $      -

Net loss                                (3,012,742)   (3,012,742)   (3,012,742)

Other comprehensive loss, net of tax:
   Unrealized gains on securities
      arising during the year,
        net of tax                            -            2,506        2,506

Stock issued to employees under
   stock bonus plans                          -           99,269         -
Payments on notes receivable from
   employee stockholders                      -           75,863         -
                                     --------------  ------------  -------------
Balance - June 30, 2010              $(177,271,349)  $(5,775,966)  $(3,010,236)
                                     ==============  ============  =============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2009

                                                Class A
                                               Non-Voting      Common Stock
                                               Preferred    -------------------
                                                 Stock       Shares     Amount
                                               ----------   ---------  --------
Balance - June 30, 2008                        $       31   4,904,275  $    490

Net loss                                             -           -         -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax                      -           -         -
Stock issued to employees under stock
  bonus plans                                        -          2,000         1
Payments on notes receivable
  from employee stockholders                         -           -         -
                                               ----------   ---------  --------

Balance - June 30, 2009                        $       31   4,906,275  $    491
                                               ==========   =========  ========




                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2009

                                                                    Paid-in
                                              Class B    Class C    Capital in
                                              Common     Common     Excess of
                                              Stock      Stock      Par Value
                                             ---------  ---------  ------------
                                              Shares
                                             ---------
Balance - June 30, 2008                            158   $    38   $172,276,540

Net loss                                          -         -              -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax                   -         -              -
Stock issued to employees under stock
  bonus plans                                     -         -             4,060
Payments on notes receivable from employee
  stockholders                                    -         -              -
                                             ---------  ---------  ------------
Balance - June 30, 2009                            158   $    38   $172,280,600
                                             =========  =========  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2009

                                                         Notes
                                                      Receivable    Accumulated
                                                         From          Other
                                         Treasury      Employee    Comprehensive
                                            Stock    Stockholders      Loss
                                        -----------  ------------  -------------
Balance - June 30, 2008                 $ (675,390)  $  (394,141)  $    (72,723)

Net loss                                      -             -              -

Other comprehensive loss, net of tax:
  Unrealized gains on securities
    arising during the year, net of tax       -             -            51,728
Stock issued to employees under stock
  bonus plans                                 -             -              -
Payments on notes receivable from
  employee stockholders                       -          127,111           -
                                        -----------  ------------  -------------
Balance - June 30, 2009                 $ (675,390)  $  (267,030)  $    (20,995)
                                        ===========  ============  =============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                        FOR THE YEAR ENDED JUNE 30, 2009

                                       Accumulated                 Comprehensive
                                         Deficit        Total      Income (Loss)
                                     --------------  ------------  -------------
Balance - June 30, 2008              $(175,379,874)  $(4,245,029)  $      -

Net income                               1,121,267     1,121,267     1,121,267

Other comprehensive loss, net of tax:
   Unrealized gains on securities
      arising during the year,
        net of tax                            -           51,728        51,728

Stock issued to employees under
   stock bonus plans                          -            4,061          -
Payments on notes receivable from
   employee stockholders                      -          127,111          -
                                     --------------  ------------  -------------
Balance - June 30, 2009              $(174,258,607)  $(2,940,862)  $  1,172,995
                                     ==============  ============  =============



See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    For the Years Ended June 30,
                                                    ---------------------------
                                                         2010           2009
                                                    ------------   ------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) income                                 $ (3,012,742)  $  1,121,267

 Adjustments to reconcile net (loss)
    income to net cash used in
    Operating activities:
      Depreciation and amortization                    1,445,065      1,733,499
      Abandoned patents written off                      391,415         46,327
      Provision for bad debts                          1,378,500      1,286,451
      Compensatory element of stock
        issuances                                         99,269          4,061
      Gain on sale of consolidated
        subsidiary                                         -         (1,448,196)
      Loss on note receivable                            350,000          -

  (Increase) decrease in operating
    assets, net:
      Accounts, management fee and
        medical receivable                               435,498       (642,004)
      Notes receivable                                   180,012        508,306
      Costs and estimated earnings in excess
        of billings on uncompleted contracts           1,198,322     (1,469,421)
      Inventories                                        346,186         83,518
      Prepaid expenses and other current assets          (80,403)       338,375
      Other assets                                      (162,638)       166,032
      Advances and notes to related
        parties medical practices                        170,220        223,724
  Increase (decrease) in operating
    liabilities, net:
      Accounts payable                                  (448,195)      (132,713)
      Other current liabilities                          (13,390)       476,140
      Customer advances                               (4,424,594)    (5,038,390)
      Billings in excess of costs and estimated
        earnings on uncompleted contracts                716,957     (3,746,845)
      Other liabilities                                   47,398       (145,283)
      Due to related medical practices                  (115,244)       545,472
                                                     ------------   ------------
        NET CASH USED IN
          OPERATING ACTIVITIES                        (1,498,364)    (6,089,680)
                                                     -----------    -----------

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                    For the Years Ended June 30,
                                                    ---------------------------
                                                         2010           2009
                                                    ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Sales of marketable securities                    $     (2,455)  $  1,097,244
  Purchases of property and equipment                    (24,339)       (28,076)
  Costs of capitalized software development             (203,644)      (491,707)
  Proceeds from note receivable                        1,580,862      2,000,000
  Proceeds from cash surrender
     value of life insurance                                -         1,344,901
  Cost of patents                                       (195,851)      (331,300)
  Proceeds from sale of consolidated
     subsidiary                                             -         2,293,013
                                                    ------------   ------------
        NET CASH PROVIDED BY
          INVESTING ACTIVITIES                         1,154,573      5,884,075
                                                    ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from debt                                     580,000        258,000
  Repayment of borrowings and capital lease
     obligations                                        (238,198)      (279,399)
  Repayment of notes receivable from
     employee stockholders                                75,863        127,111
                                                    ------------   ------------
        NET CASH PROVIDED BY
          FINANCING ACTIVITIES                           417,665        105,712
                                                    ------------   ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                        73,874        (99,893)

CASH AND CASH EQUIVALENTS - BEGINNING OF
  YEAR                                                 1,225,619      1,325,512
                                                    ------------   ------------
CASH AND CASH EQUIVALENTS - END OF YEAR             $  1,299,493   $  1,225,619
                                                    ============   ============

See accompanying notes to consolidated financial statements.

                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010

NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY AND CAPITAL RESOURCES

Description of Business
-----------------------

FONAR  Corporation (the "Company" or "FONAR") is a Delaware  corporation,  which
was   incorporated  on  July  17,  1978.  FONAR  is  engaged  in  the  research,
development,  production and marketing of medical scanning equipment, which uses
principles of Magnetic Resonance Imaging ("MRI") for the detection and diagnosis
of human diseases.  In addition to deriving revenues from the direct sale of MRI
equipment,  revenue  is also  generated  from its  installed-base  of  customers
through its service and upgrade programs.

FONAR,  through its wholly-owned  subsidiary  Health  Management  Corporation of
America  ("HMCA")  provides  comprehensive  management  services  to  diagnostic
imaging  facilities.  The services provided by the Company include  development,
administration,  leasing of office  space,  facilities  and  medical  equipment,
provision of supplies,  staffing and supervision of non-medical personnel, legal
services,   accounting,   billing  and  collection  and  the   development   and
implementation of practice growth and marketing strategies. As of June 30, 2010,
HMCA manages 10 diagnostic imaging facilities located in the states of New York,
Georgia and Florida.

Liquidity and Going Concern
---------------------------

At June 30, 2010,  the Company had a working  capital  deficit of  approximately
$10.0 million and stockholders'  deficiency of approximately  $5.8 million.  For
the year ended June 30, 2010, the Company  incurred a net loss of  approximately
$3.0 million, which included non-cash charges of approximately $3.7 million. The
Company  has funded  its cash flow  deficit  for the year  ended  June 30,  2010
through  $1.6  million of proceeds  from the  collection  of principal on a note
receivable.

The Company continues to focus its efforts on increased  marketing  campaigns to
strengthen the demand for its products and services. Management anticipates that
its capital  resources  will improve if Fonar's MRI scanner  products gain wider
market  recognition  and acceptance  resulting in increased  product sales.  The
Company's  subsidiary,  Health  Management  Corporation  ("HMCA") will focus its
efforts to market the  scanning  services  of its  customers  (related  and non-
related professional  corporations or "PCs") and to expand the number of PCs for
which it performs management  services.  Current economic credit conditions have
contributed to a slowing business  environment.  Given such liquidity and credit
constraints in the markets, the business has and may continue to suffer,  should
the credit  markets not improve in the near future.  The direct  impact of these
conditions  is not fully  known.  However,  there can be no  assurance  that the
Company  would be able to secure  additional  funds if  needed  and that if such
funds were available, whether the terms or conditions would be acceptable to the
Company.  In such case, the further  reduction in operating  expenses as well as
possible sale of other  operating  subsidiaries  might need to be substantial in
order for the Company to generate  positive cash flow to sustain the  operations
of the Company.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Going Concern (Continued)
---------------------------

In January 2010, the Company  implemented  substantial  cost  reductions,  which
included a reduction in personnel  and  significant  reductions in the remaining
employees' compensation and other costs.

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America  ("US  GAAP") and  assume  that the  Company  will  continue  as a going
concern. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying  consolidated financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of FONAR Corporation,
its majority and  wholly-owned  subsidiaries and  partnerships.  All significant
intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates
----------------

The  preparation of the  consolidated  financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities in
the  consolidated   financial   statements  and  accompanying  notes.  The  most
significant  estimates  relate to  accounts  receivable  allowances,  intangible
assets,  income taxes,  useful lives of property and  equipment,  contingencies,
revenue recognition and litigation. In addition, healthcare industry reforms and
reimbursement practices will continue to impact the Company's operations and the
determination of contractual and other allowance estimates. Actual results could
differ from those estimates.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment in Marketable Securities
-----------------------------------

The Company accounts for its investments  using Financial  Accounting  Standards
Board ("FASB"),  Accounting Standard Codification ("ASC") Topic 820, "Fair Value
Measurements  and  Disclosures".  This  standard  requires that certain debt and
equity  securities  be  adjusted to market  value at the end of each  accounting
period.  Unrealized  market value gains and losses are charged to  operations if
the securities  are traded for short-term  profit.  Otherwise,  such  unrealized
gains and losses are charged or credited to other comprehensive income (loss).

Management  determines the proper  classifications of investments in obligations
with fixed maturities and marketable  equity  securities at the time of purchase
and  re-evaluates  such  designations as of each balance sheet date. At June 30,
2010 and 2009, all securities  covered by Topic 820 were designated as available
for sale.  Accordingly,  these securities are stated at fair market value,  with
unrealized  gains and losses reported in comprehensive  income (loss).  Realized
gains  and  losses  on  sales  of  investments,  as  determined  on  a  specific
identification  basis,  are included in  investment  income in the  accompanying
consolidated statements of operations.

Inventories
-----------

Inventories  consist of purchased  parts,  components  and supplies,  as well as
work-in-process, and are stated at the lower of cost determined on the first-in,
first-out method or market.

Property and Equipment
----------------------

Property and  equipment  procured in the normal  course of business is stated at
cost.  Property and equipment  purchased in connection  with an  acquisition  is
stated at its estimated fair value,  generally  based on an appraisal.  Property
and equipment is being depreciated for financial  accounting  purposes using the
straight-line method over the shorter of their estimated useful lives, generally
five to seven years,  or the term of a capital lease,  if applicable.  Leasehold
improvements  are being  amortized  over the  shorter of the useful  life or the
remaining lease term. Upon retirement or other disposition of these assets,  the
cost and related  accumulated  depreciation of these assets are removed from the
accounts  and the  resulting  gains or losses are  reflected  in the  results of
operations.  Expenditures for maintenance and repairs are charged to operations.
Renewals  and  betterments  are  capitalized.  Maintenance  and repair  expenses
totaled  approximately  $282,000  and $228,000 for the years ended June 30, 2010
and 2009, respectively.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Other Intangible Assets
-----------------------

1)  Capitalized Software Development Costs

Capitalization  of software  development  costs begins upon the establishment of
technological feasibility.  Technological feasibility for the Company's computer
software is generally based upon  achievement of a detail program design free of
high risk  development  issues and the completion of research and development on
the  product  hardware  in  which  it  is  to  be  used.  The  establishment  of
technological  feasibility  and the  ongoing  assessment  of  recoverability  of
capitalized computer software development costs require considerable judgment by
management with respect to certain external factors,  including, but not limited
to,  technological  feasibility,  anticipated  future gross  revenue,  estimated
economic life and changes in software and hardware technology. Prior to reaching
technological  feasibilty  those costs are  expensed as incurred and included in
research and development.

Amortization  of  capitalized  software  development  costs  commences  when the
related products become available for general release to customers. Amortization
is  provided  on a product by product  basis.  The  annual  amortization  is the
greater of the amount  computed  using (a) the ratio that current  gross revenue
for a product bear to the total of current and anticipated  future gross revenue
for that product,  or (b) the straight-line  method over the remaining estimated
economic life of the product.

The  Company  periodically  performs  reviews  of  the  recoverability  of  such
capitalized software development costs. At the time a determination is made that
capitalized  amounts are not recoverable based on the estimated cash flows to be
generated from the applicable  software,  any remaining  capitalized amounts are
written off.

2)  Patents and Copyrights

Amortization is calculated on the straight-line basis over a period ranging from
15 to 17 years.

Long-Lived Assets
-----------------

The Company  periodically  assesses the  recoverability  of  long-lived  assets,
including property and equipment and intangibles,  when there are indications of
potential impairment,  based on estimates of undiscounted future cash flows. The
amount of impairment is calculated by comparing  anticipated  discounted  future
cash flows with the carrying  value of the related  asset.  In  performing  this
analysis,  management  considers such factors as current  results,  trends,  and
future prospects, in addition to other economic factors.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition
-------------------

Revenue on sales  contracts  for  scanners,  included in "product  sales" in the
accompanying  consolidated  statements of  operations,  is recognized  under the
percentage-of-completion  method.  The Company  manufactures  its scanners under
specific   contracts  that  provide  for  progress   payments.   Production  and
installation  take  approximately   three  to  six  months.  The  percentage  of
completion  is  determined  by the ratio of costs  incurred to date on completed
sub-assemblies  to the total  estimated  cost for each scanner.  Contract  costs
include purchased parts and components,  direct labor and overhead. Revisions in
cost estimates and provisions for estimated losses on uncompleted contracts,  if
any,  are made in the period in which such  losses  are  determined.  The asset,
"Costs and Estimated  Earnings in Excess of Billings on Uncompleted  Contracts",
represents  revenues  recognized  in excess of amounts  billed.  The  liability,
"Billings in Excess of Costs and Estimated  Earnings on Uncompleted  Contracts",
represents amounts billed in excess of revenues recognized.

Revenue on scanner service contracts is recognized on the  straight-line  method
over the related contract period, usually one year.

Revenue from sales of other items is recognized upon shipment.

Revenue  under  management   contracts  is  recognized  based  upon  contractual
agreements  for  management  services  rendered by the Company  primarily  under
various  long-term  agreements with various medical providers (the "PCs"). As of
June 30, 2010, the Company has ten management  agreements of which four are with
PC's owned by Raymond V. Damadian,  M.D., President and Chairman of the Board of
FONAR ("the Related  medical  practices")  and six are with PC's,  which are all
located in the state of New York ("the New York PC's"),  owned by one  unrelated
radiologist.  The  contractual  fees for  services  rendered to the New York PCs
consists of fixed  monthly fees per  diagnostic  imaging  facility  ranging from
approximately $79,000 to $195,000. The contractual fees for services rendered to
the related medical practices are primarily calculated on activity based efforts
at pre-determined rates per unit of activity. All fees are re- negotiable at the
anniversary of the agreements and each year thereafter.

Research and Development Costs
------------------------------

Research and development costs are charged to expense as incurred.  The costs of
materials  and  equipment  that are  acquired or  constructed  for  research and
development activities, and have alternative future uses (either in research and
development,  marketing or production), are classified as property and equipment
and depreciated over their estimated useful lives.

Advertising Costs
-----------------

Advertising  costs are expensed as incurred.  Advertising  expense  approximated
$415,000 and $261,000 for the years ended June 30, 2010 and 2009, respectively.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Shipping Costs
--------------

The Company's  shipping and handling  costs are included  under costs related to
product sales.

Income Taxes
------------

Deferred  tax assets and  liabilities  are  determined  based on the  difference
between the  financial  statement  carrying  amounts and tax basis of assets and
liabilities  using  enacted  tax  rates in  effect  in the  years  in which  the
differences are expected to reverse.

Customer Advances
-----------------

Cash  advances and progress  payments  received on sales orders are reflected as
customer advances until such time as revenue recognition begins.

Earnings (Loss) Per Share
-------------------------

Basic earnings  (loss) per share ("EPS") is computed  based on weighted  average
shares outstanding and excludes any potential  dilution.  In accordance with ASC
topic 260-10,  "Participating  Securities and the Two-Class Method". The Company
uses the two-class method to calculate the effect of the Company's participating
convertible  securities  on basic  EPS,  which  include  the Class A  Non-voting
Preferred  stock,  Class B  common  stock  and  Class C  common  stock,  and the
if-converted method is used to calculate the effect of participating convertible
securities on diluted EPS. These participating  convertible  securities were not
included  in the  computation  of basic  EPS for the year  ended  June 30,  2010
because the  participating  securities did not have a contractual  obligation to
share in the  losses of the  Company.  For the year  ended  June 30,  2009,  the
Company used the Two-Class  method for calculating  basic earnings per share and
applied the if converted method in calculating diluted earnings per share.

Diluted EPS reflects the  potential  dilution from the exercise or conversion of
all dilutive  securities  into common stock based on the average market price of
common  shares  outstanding  during  the  period.  The  number of common  shares
potentially  issuable upon the exercise of options and warrants or conversion of
the participating convertible securities that were excluded from the diluted EPS
calculation,  because they are  antidilutive as a result of the net losses,  was
195,896 as of June 30,  2010.  For the year ended June 30,  2009,  the number of
common  shares  potentially  issuable  upon the  exercise of certain  options of
96,014 have not been included in the computation of diluted EPS since the effect
would be antidilutive.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings (Loss) Per Share (Continued)
-------------------------

                            June 30, 2010                June 30, 2009
                            -------------      ---------------------------------
                                                                         Class C
                                                              Common     Common
                                                 Total        Stock       Stock
                                               ----------   ----------   -------
Basic
-----
Numerator:
 Net (loss) income
  available to common
  stockholders              $ (3,012,742)      $1,053,898   $1,032,717   $21,181
                            =============      ==========   ==========   =======

Denominator:
 Weighted average
  shares outstanding           4,932,044                     4,904,358   382,513
                            =============                   ==========   =======

Basic (loss) income per
  common share available to
  common stockholders       $   (0.61)                      $   0.21     $ 0.06
                            =============                   ==========   =======

Diluted
-------
Denominator:
 Weighted average
  shares outstanding           4,932,044        4,904,358    4,904,358   382,513
  Stock options                     -                -            -         -
  Convertible C Stock               -             127,504      127,504      -
                            -------------      ----------   ----------   -------
Total Denominator for
 diluted earnings per share    4,932,044        5,031,862    5,031,862   382,513
                            =============      ==========   ==========   =======

Diluted income (loss)
 per common share available
 to common stockholders           $(0.61)                       $0.21     $0.06
                            =============                   ==========   =======


Cash and Cash Equivalents
-------------------------

The Company considers all short-term  highly liquid  investments with a maturity
of three months or less when purchased to be cash or cash equivalents.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentration of Credit Risk
----------------------------

Cash: The Company maintains its cash and cash equivalents with various financial
institutions, which exceed federally insured limits throughout the year. At June
30, 2010, the Company had cash on deposit of approximately $856,000 in excess of
federally insured limits of $250,000.

Related Parties:  Net revenues from related parties  accounted for approximately
13% and 8% of the  consolidated  net  revenues for the years ended June 30, 2010
and 2009, respectively.  Net management fee receivables from the related medical
practices  accounted for approximately 19% and 20% of the consolidated  accounts
receivable for the years ended June 30, 2010 and 2009, respectively.

Fair Value of Financial Instruments
-----------------------------------

The financial  statements  include various  estimated fair value  information at
June 30, 2010 and 2009,  as required by ASC topic 820,  "Disclosures  about Fair
Value  of  Financial  Instruments".  Such  information,  which  pertains  to the
Company's financial instruments,  is based on the requirements set forth in that
Statement  and does not purport to represent the aggregate net fair value to the
Company.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and cash equivalents:  The carrying amount  approximates fair value because
of the short-term maturity of those instruments.

Accounts receivable and accounts payable:  The carrying amounts approximate fair
value because of the short maturity of those instruments.

Investments  and advances and notes to related medical  practices:  The carrying
amount  approximates fair value because the discounted present value of the cash
flow  generated by the related  parties  approximates  the carrying value of the
amounts due to the Company.

Long-term debt, notes payable and accounts payable: The carrying amounts of debt
and notes payable  approximate  fair value due to the length of the  maturities,
the interest rates being tied to market indices and/or due to the interest rates
not being significantly different from the current market rates available to the
Company.

All of the  Company's  financial  instruments  are held for purposes  other than
trading.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accumulated Other Comprehensive Loss
------------------------------------

Accumulated other  comprehensive  loss generally  includes all changes in equity
during a period,  except those resulting from  investments by  stockholders  and
distributions to stockholders.

Recent Accounting Pronouncements
---------------------------------

In September  2006, the Financial  Accounting  Standard  Board  ("FASB")  issued
Accounting  Standards  Codification  ("ASC")  topic 820  (formerly  Statement of
Financial  Accounting  Standards  ("SFAS") No. 157, "Fair Value  Measurements").
This  statement  provides a single  definition  of fair value,  a framework  for
measuring  fair  value,   and  expanded   disclosures   concerning  fair  value.
Previously,  different  definitions  of fair  value  were  contained  in various
accounting   pronouncements   creating   inconsistencies   in  measurement   and
disclosures.  ASC topic 820 applies under those previously issued pronouncements
that  prescribe  fair value as the  relevant  measure of value,  except SFAS No.
123(revised  2004),  "Share-Based  Payment",  and  related  interpretations  and
pronouncements  that require or permit measurement similar to fair value but are
not intended to measure fair value. The Company adopted ASC topic 820 on July 1,
2008, as required for its financial assets and financial  liabilities.  However,
the FASB deferred the effective date of ASC topic 820 for one year as it relates
to fair value measurement  requirements for nonfinancial assets and nonfinancial
liabilities  that are not  recognized  or disclosed at fair value on a recurring
basis.  The  adoption  of the  provisions  of ASC  topic  820 for the  Company's
financial assets and financial liabilities did not have a material impact on its
consolidated  financial  statements.  The Company is  evaluating  the effect the
implementation  of ASC topic 820 for its  nonfinancial  assets and  nonfinancial
liabilities will have on the Company's consolidated financial statements.

In  December  2007,  the FASB  issued  ASC topic 810  (formerly  SFAS No.  160),
"Noncontrolling Interests in Consolidated Financial Statements - An Amendment of
ARB No. 51". ASC topic 810  establishes  accounting and reporting  standards for
the noncontrolling  interest in a subsidiary (previously referred to as minority
interests).  ASC topic 810 also requires that a retained noncontrolling interest
upon the  deconsolidation  of a  subsidiary  be  initially  measured at its fair
value.  Upon  adoption of ASC topic 810,  the Company will be required to report
its noncontrolling  interests as a separate  component of stockholders'  equity.
The  Company  will also be  required  to  present  net income  allocable  to the
noncontrolling  interest and net income  attributable to the stockholders of the
Company separately in its consolidated statements of income. Currently, minority
interests  are reported as a liability  in the  Company's  consolidated  balance
sheets  and  the  related  income  attributable  to the  minority  interests  is
reflected as an expense in arriving at net loss.  ASC topic 810 is effective for
fiscal years,  and interim  periods  within those fiscal years,  beginning on or
after  December 15, 2008.  ASC topic 810  requires  retroactive  adoption of the
presentation and disclosure  requirements for existing minority  interests.  All
other requirements of ASC topic 810 shall be applied prospectively.  The Company
adopted  ASC topic 810 for our  fiscal  year  beginning  July 1,  2009,  and the
adoption  did  not  have  any  material  impact  on the  Company's  consolidated
financial position, results of operations or cash flows.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
--------------------------------

In October 2008, the FASB issued ASC topic 820 (formerly FASB Staff Position No.
FAS 157-3), "Determining the Fair Value of a Financial Asset in a Market That Is
Not Active",  which  clarifies the  application of ASC topic 820 when the market
for a financial asset is inactive. Specifically, ASC topic 820 clarifies how (1)
management's  internal  assumptions should be considered in measuring fair value
when observable data are not present,  (2) observable market information from an
inactive  market should be taken into account,  and (3) the use of broker quotes
or  pricing  services  should  be  considered  in  assessing  the  relevance  of
observable  and  unobservable  data to measure  fair value.  The guidance in ASC
topic 820 is  effective  immediately  and did not have a material  impact on the
Company's consolidated financial statements.

In June 2008, the FASB issued ASC topic 815 (formerly  Emerging Issue Task Force
07-5), "Determining Whether an Instrument (or an Embedded Feature) is Indexed to
an Entity's Own Stock". ASC topic 815 provides framework for determining whether
an  instrument  is indexed to an entity's own stock.  ASC topic 815 is effective
for fiscal years  beginning  after  December 15, 2008. The adoption of ASC topic
815 did not have a material impact on its  consolidated  financial  position and
results of operations.

In April 2009,  the FASB issued ASC topic 270 (formerly FAS 107-1 and APB 28-1),
Interim Disclosures about Fair Value of Financial Instruments. SFAS 107-1 amends
FASB No. 107, Disclosures about Fair Value of Financial Instruments,  to require
disclosures  about fair value of  financial  instruments  for interim  reporting
periods of publicly traded companies as well as in annual financial  statements.
SFAS also amends APB Opinion No. 28,  Interim  Financial  Reporting,  to require
those  disclosures  in summarized  financial  information  at interim  reporting
periods.  ASC topic 270 is effective for interim  reporting periods ending after
June 15, 2009.  The adoption of this standard did not have a material  impact on
the Company's  consolidated  financial position,  results of operations and cash
flows.  The carrying value of our cash and cash  equivalents  approximates  fair
value because  these  instruments  have  original  maturities of three months or
less.

In February 2010,  the FASB amended ASC 855,  "Subsequent  Events-Amendments  to
Certain Recognition and Disclosure Requirements".  This amends the subtopic that
requires an SEC filer to evaluate  subsequent  events  through the date that the
financial  statements are issued, and no longer requires  disclosure of the date
through which subsequent events have been evaluated.  This alleviates  potential
conflicts between the Subtopic 855-10 and the SEC's requirements.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
--------------------------------

In June 2009, the FASB issued ASC topic 105 (formerly  SFAS No. 168),  "The FASB
Accounting  Standards  Codification  and the  Hierarchy  of  Generally  Accepted
Accounting  Principles".  ASC  topic  105  will  become  the  single  source  of
authoritative  nongovernmental  U.S.  generally accepted  accounting  principles
("GAAP"),  superseding  existing FASB,  American  Institute of Certified  Public
Accountants ("AICPA"),  EITF, and related accounting  literature.  ASC topic 105
reorganizes  the  thousand of GAAP  pronouncements  into  roughly 90  accounting
topics and displays them using a consistent structure. Also included is relevant
Securities and Exchange  Commission  guidance  organized  using the same topical
structure in separate  sections.  ASC topic 105 will be effective  for financial
statements  issued for reporting  periods that end after  September 15, 2009. As
the codification was not intended to change or alter existing U.S. GAAP, it will
not  have  any  impact  on  our  consolidated  financial  position,  results  of
operations and cash flows.

In April  2008,  the  FASB  issued  ASC  topic  350  (formerly  FSP FAS  142-3),
"Determination  of the Useful Life of Intangible  Assets".  ASC topic 350 amends
the  factors  that  should be  considered  in  developing  renewal or  extension
assumptions  used to determine the useful life of an intangible asset under SFAS
No. 142,  "Goodwill  and Other  Intangibles"  (SFAS 142).  ASC topic 350 aims to
improve  the  consistency  between  the useful  life of an  intangible  asset as
determined  under SFAS 142 and the period of expected cash flows used to measure
the fair value of the asset under SFAS No.  141,  "Business  Combinations",  and
other  applicable  accounting  literature.  ASC topic 350 will be effective  for
financial  statements issued for fiscal years beginning after December 15, 2008,
and  interim   periods   within  those  fiscal  years.   The  adoption  of  this
pronouncement  did not have a  material  impact  on the  Company's  consolidated
financial statements.

In June 2009, the FASB issued ASC 860 (formerly SFAS No. 166),  "Accounting  for
Transfers of Financial Assets" - an amendment of FASB Statement No. 140, ASC 860
requires additional disclosures concerning a transferor's continuing involvement
with  transferred  financial  assets.  ASC  860  eliminates  the  concept  of  a
"qualifying   special-purpose   entity"  and  changes   the   requirements   for
derecognizing  financial assets. ASC 860 is effective for fiscal years beginning
after November 15, 2009. The Company is currently evaluating the impact that the
adoption of ASC 860 will have on its consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
--------------------------------

In June 2009,  the FASB issued ASC 810 (formerly  SFAS No. 167),  "Amendments to
FASB  Interpretation  ("FIN") No.  46(R)," which changes how a reporting  entity
determines  when  an  entity  that  is  insufficiently  capitalized  or  is  not
controlled  through  voting (or  similar  rights)  should be  consolidated.  The
determination of whether a reporting  entity is required to consolidate  another
entity is based on, among other things,  the other  entity's  purpose and design
and the reporting  entity's ability to direct the activities of the other entity
that most significantly impact the other entity's economic performance.  ASC 810
will  require a reporting  entity to provide  additional  disclosures  about its
involvement with variable interest entities and any significant  changes in risk
exposure  due to that  involvement.  A  reporting  entity  will be  required  to
disclose  how its  involvement  with a  variable  interest  entity  affects  the
reporting entity's financial  statements.  ASC 810 is effective for fiscal years
beginning  after  November 15,  2009,  and interim  periods  within those fiscal
years.  Management is currently  evaluating the requirements of SFAS No. 167 and
has not yet  determined  the  impact  on the  Company's  consolidated  financial
statements.

In September 2009, the FASB reached final consensus on a new revenue recognition
standard,  ASC topic 815 (formerly EITF Issue No. 08-1),  "Revenue  Arrangements
with Multiple Deliverables". ASC topic 815 addresses how to determine whether an
arrangement  involving  multiple  deliverables  contains  more  than one unit of
accounting,  and how the arrangement consideration should be allocated among the
separate units of accounting. This Issue is effective for fiscal years beginning
after June 15, 2010 and may be applied  retrospectively or prospectively for new
or materially modified arrangements.  In addition,  early adoption is permitted.
The Company is currently evaluating the potential impact of ASC topic 815 on its
consolidated financial statements.

In September 2009, the EITF reached final consensus on a new revenue recognition
standard, ASC topic 350 (formerly EITF Issue No. 09-3),  "Applicability of AICPA
Statement  of  Position  97-2 to  Certain  Arrangements  That  Contain  Software
Elements".  ASC topic 350 amends the scope of AICPA  Statement of Position 97-2,
Software Revenue  Recognition to exclude tangible products that include software
and  non-software  components  that  function  together to deliver the product's
essential functionality.  This Issue shall be applied on a prospective basis for
revenue  arrangements  entered  into or  materially  modified  in  fiscal  years
beginning on or after June 15, 2010. Earlier  application is permitted as of the
beginning of a company's  fiscal year  provided  the company has not  previously
issued financial statements for any period within that year. An entity shall not
elect early application of this Issue unless it also elects early application of
Issue 08-1.  The Company is currently  evaluating  the  potential  impact of ASC
topic 350 on its consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
--------------------------------

In January  2010,  the FASB  issued  Accounting  Standards  Update  No.  2010-6,
Improving  Disclosures  about  Fair  Value  Measurements.  The  Update  provides
amendments to FASB ASC 820-10 that require  entities to disclose  separately the
amounts of  significant  transfers  in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers.  In addition the Update
requires  entities to present  separately  information  about purchases,  sales,
issuances,  and settlements in the  reconciliation  for fair value  measurements
using  significant  unobservable  inputs (Level 3). The  disclosures  related to
Level 1 and Level 2 fair value  measurements  are  effective  for the Company in
2010  and the  disclosures  related  to  Level  3 fair  value  measurements  are
effective for the Company in 2011. The Update requires new disclosures only, and
will have no impact on the Company's condensed  consolidated financial position,
results of operations, or cash flow.

Reclassifications
-----------------

Certain prior year amounts have been reclassified to conform to the current year
presentation.  The  reclassifications  did not have any effect on  reported  net
losses for any periods presented.

NOTE 3 - MEDICAL RECEIVABLES

The  Company  was  assigned  medical  receivables  valued  at  $11,775,000,   in
connection with the  satisfaction  of the management  fees and termination  fees
related to a  Termination  and  Replacement  Agreement  dated May 23, 2005.  The
balance of the net medical  receivables as of June 30, 2010 and 2009 was $25,225
and $374,225, respectively. As of June 30, 2010 and June 30, 2009, the Company's
allowance for doubtful accounts totaled $1,622,000 and $1,343,500, respectively,
on these receivables.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 4 - MARKETABLE SECURITIES

The following is a summary of marketable securities at June 30, 2010 and 2009:

                                        June 30, 2010
                         ------------------------------------------
                                         Unrealized     Fair Market
                             Cost           Loss           Value
                         ------------   ------------   ------------
      Equities - other    $   46,102     $  (18,489)    $   27,613
                         ============   ============   ============

                                        June 30, 2009
                         ------------------------------------------
                                         Unrealized     Fair Market
                             Cost           Loss           Value
                         ------------   ------------   ------------
      Equities - other    $   43,647     $ ( 20,995)    $   22,652
                         ============   ============   ============

All marketable securities are deemed to be available for sale.



NOTE 5 - MANAGEMENT FEE RECEIVABLE AND ACCOUNTS RECEIVABLE

The Company's customers are concentrated in the healthcare industry.

Management Fee Receivable
-------------------------

The  Company's  receivables  from  the  related  and  non-related   professional
corporations ("PCs") substantially consists of fees outstanding under management
agreements.  Payment of the  outstanding  fees is dependent on collection by the
PCs of fees from third party medical  reimbursement  organizations,  principally
insurance companies and health management organizations.

Collection by the Company of its management fee  receivables  may be impaired by
the  uncollectibility  of  the  PCs'  medical  fees  from  third  party  payors,
particularly   insurance  carriers  covering  automobile  no-fault  and  workers
compensation  claims due to longer  payment  cycles and  rigorous  informational
requirements and certain other  disallowed  claims.  Approximately  42% and 46%,
respectively,  of the PCs' 2010 and 2009 net revenues were derived from no-fault
and personal injury  protection  claims.  The Company considers the aging of its
accounts receivable in determining the amount of allowance for doubtful accounts
and contractual  allowances.  The Company  generally takes all legally available
steps to collect its receivables.  Credit losses associated with the receivables
are provided for in the consolidated  financial statements and have historically
been within management's expectations.

Net  revenues  from  management  and other fees  charged to the related  medical
practices  accounted  for  approximately  12% and 7%,  of the  consolidated  net
revenues for the years ended June 30, 2010 and 2009, respectively.

Effective June 30, 2009,  Tallahassee  Magnetic Resonance Imaging,  PA, Stand Up
MRI of Boca Raton, PA  and Stand Up MRI &  Diagnostic  Center,  PA (all  related
medical  practices)  entered into a guaranty  agreement,  pursuant to which they
cross  guaranteed  all management  fees which are payable to the Company,  which
have arisen under each individual management agreement.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 5 - MANAGEMENT FEE RECEIVABLE AND ACCOUNTS RECEIVABLE (Continued)

Accounts Receivable
-------------------

Credit risk with respect to the Company's accounts receivable related to product
sales and  service  and repair  fees is  limited  due to the  customer  advances
received prior to the  commencement of work performed and the billing of amounts
to customers as sub-assemblies are completed. Service and repair fees are billed
on a monthly or  quarterly  basis and the Company  does not  continue  providing
these  services if accounts  receivable  become past due.  The Company  controls
credit risk with  respect to accounts  receivable  from  service and repair fees
through its credit evaluation process, credit limits,  monitoring procedures and
reasonably  short   collection   terms.  The  Company  performs  ongoing  credit
authorizations  before a product  sales  contract is entered into or service and
repair fees are provided.


NOTE 6 - COSTS AND  ESTIMATED  EARNINGS ON  UNCOMPLETED  CONTRACTS  AND CUSTOMER
ADVANCES

1)   Information relating to uncompleted  contracts as of June 30, 2010 and 2009
     is as follows:

                                      As of June 30,
                               --------------------------
                                   2010           2009
                               -----------    -----------


Costs incurred on
  uncompleted contracts        $ 6,115,699    $10,140,938
Estimated earnings               3,659,324      7,349,914
                               -----------    -----------
                                 9,775,023     17,490,852
Less: Billings to date          12,241,037     18,041,587
                               -----------    -----------
                               $(2,466,014)   $(  550,735)
                               ===========    ===========


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 6 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS AND CUSTOMER
      ADVANCES (Continued)

Included in the  accompanying  consolidated  balance  sheets under the following
captions:

                                      As of June 30,
                               --------------------------
                                  2010           2009
                               -----------    -----------
Costs and estimated earnings
  in excess of billings on
  uncompleted contracts        $   277,384    $ 1,475,706
Less:  Billings in excess
  of costs and estimated
  earnings on uncompleted        2,743,398      2,026,441
  contracts
                               -----------    -----------
                               $(2,466,014)   $(  550,735)
                               ===========    ===========


2)  Customer advances consist of the following:

                                        As of June 30, 2010
                              -----------------------------------------
                                               Related
                                 Total         Parties         Other
                              -----------    -----------    -----------
Total advances                $17,054,364    $    -         $17,054,364
Less: Advances on contracts
        under construction     12,241,037         -          12,241,037
                              -----------    -----------    -----------
                              $ 4,813,327    $    -         $ 4,813,327
                              ===========    ===========    ===========

                                        As of June 30, 2009
                              -----------------------------------------
                                               Related
                                 Total         Parties         Other
                              -----------    -----------    -----------
Total advances                $27,279,508    $     -        $27,279,508
Less: Advances on contracts
        under construction     18,041,587          -         18,041,587
                              -----------    -----------    -----------
                              $ 9,237,921    $     -        $ 9,237,921
                              ===========    ===========    ===========


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2010

NOTE 7 - INVENTORIES

Inventories included in the accompanying consolidated balance sheets consist of:

                                      As of June 30,
                               --------------------------
                                  2010           2009
                               -----------    -----------
Purchased parts, components
  and supplies                 $ 1,774,958    $ 2,065,528
Work-in-process                  1,051,253      1,106,869
                               -----------    -----------
                               $ 2,826,211    $ 3,172,397
                               ===========    ===========


NOTE 8 - PROPERTY AND EQUIPMENT

Property and equipment, at cost, less accumulated depreciation and amortization,
at June 30, 2010 and 2009, is comprised of:

                                      As of June 30,
                               --------------------------
                                  2010           2009
                               -----------    -----------
Diagnostic equipment under
  capital leases               $   633,675    $   633,675
Diagnostic equipment             1,641,808      2,878,528
Research, development and
  demonstration equipment        9,605,961      9,605,961
Machinery and equipment          3,583,929      3,583,929
Furniture and fixtures           1,995,636      2,066,833
Equipment under capital leases   1,504,123      1,504,123
Leasehold improvements           4,785,102      4,981,658
Building                           939,614        939,614
                               -----------    -----------
                                24,689,848     26,194,321
Less: Accumulated depreciation
        and amortization        22,581,292     23,301,941
                               -----------    -----------
                               $ 2,108,556    $ 2,892,380
                               ===========    ===========


Depreciation and amortization of property and equipment for the years ended June
30, 2010 and 2009 was $808,163 and $1,067,496, respectively.

Equipment  under  capital  leases has a net book value of $3,532 and $135,597 at
June 30, 2010 and 2009, respectively.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 9 - OTHER INTANGIBLE ASSETS

Other intangible assets, net of accumulated  amortization,  at June 30, 2010 and
2009 are comprised of:

                                      As of June 30,
                               --------------------------
                                   2010           2009
                               -----------    -----------
Capitalized software development
  costs                        $ 6,301,702    $ 6,098,057
Patents and copyrights           3,975,327      4,170,892
                               -----------    -----------
                                10,277,029     10,268,949
Less: Accumulated amortization   5,985,610      5,348,708
                               -----------    -----------
                                $4,291,419    $ 4,920,241
                               ===========    ==========

Information related to the above intangible assets for the years ended June 30,
2010 and 2009 is as follows:

                                   2010           2009
                               -----------    -----------
Balance - Beginning of Year    $ 4,920,241    $ 4,809,564

Amounts capitalized                399,495        823,007
Abandon patents written off       (391,415)       (46,327)
Amortization                      (636,902)      (666,003)
                               -----------    -----------
Balance - End of Year          $ 4,291,419    $ 4,920,241
                               ===========    ===========

Amortization  of patents  and  copyrights  for the years ended June 30, 2010 and
2009 amounted to $134,001 and $147,530,  respectively. The Company also recorded
a write off of abandon  patents in the amount of  $391,415  and  $46,327 for the
years ended June 30, 2010 and June 30, 2009, respectively.

Amortization of capitalized  software development costs for the years ended June
30, 2010 and 2009 was $502,901 and $518,473, respectively.

The estimated  amortization of patents and copyrights and  capitalized  software
development  costs for the five years ending June 30, 2015 and  thereafter is as
follows:

  For the                                    Capitalized
  Years                         Patents       Software
  Ending                          and        Development
 June 30,         Total       Copyrights        Costs
-----------    -----------    -----------    -----------
   2011         $  602,232     $  148,074     $  454,158
   2012            531,003        159,737        371,266
   2013            473,134        175,871        297,263
   2014            425,860        192,005        233,855
   2015            389,093        200,072        189,021
Thereafter       1,870,097      1,516,137        353,960
-----------    -----------    -----------    -----------
                $4,291,419     $2,391,896     $1,899,523
               ===========    ===========    ===========

The weighted  average  amortization  period for other  intangible  assets is 9.3
years and has no expected residual value.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 10 - NOTES RECEIVABLE

Notes receivable as of June 30, 2010 and 2009 consist of the following:

                                      As of June 30,
                                  2010           2009
                               -----------    -----------
Note Receivable -
  Sale of assets (a)           $      -       $ 2,037,100
Note Receivable - (b)               65,000         65,000
Note Receivable - (c)              185,686        259,460
Note Receivable                    136,110           -
                               -----------    -----------
Total Notes Receivable             386,796      2,361,560
Allowance                         (115,000)       (65,000)
                               -----------    -----------
Net Notes Receivable           $   271,796    $ 2,296,560
                                ===========   ===========
Current Portion                $   271,796    $   517,934
Long-Term Portion              $      -       $ 1,778,626


a) On October 27, 2009,  the Company  entered into an  agreement  with  Mountain
Crest Ventures LLC to assign the promissory  note from Health Plus for the Asset
Purchase  Agreement.  The Company  received  $1,580,862,  which  represented the
remaining  principal  balance  (after  principal  payments of  $106,238)  less a
discount of $350,000.  Mountain  Crest Ventures LLC retains all rights under the
original  promissory  note to collect all  remaining  payments  due. The Company
recorded the $350,000 loss in the financial  statements  for the year ended June
30, 2010.

On August 8, 2008, the Company  signed a modification  agreement with regards to
the Asset Purchase Agreement with Health Plus. Under the modification  agreement
Health  Plus made a  $2,000,000  principal  payment  on the  promissory  note in
exchange for a discount on the original note of $1,000,000.

The original  promissory note ("Note") was modified to $2,378,130  payable in 60
consecutive  months in equal  installments of principal and interest of $47,090.
The Note provides for interest at 7% per annum. The Company recorded a charge to
earnings for the discount on the Note of $658,351  during the quarter ended June
30, 2008.

b) This note  receivable  represents a note due from a customer for the purchase
of a system.  The note is payable  over two years.  The Company has an allowance
for doubtful accounts of $65,000 as of June 30, 2010 and 2009 on this note.

c) This note  receivable  represents a note due from a customer for the purchase
of an Upright MRI system.  The note is payable in 48  consecutive  equal monthly
payments of principal and interest of $8,426. This note was revised January 2010
requiring 2 payments of  principal  and  interest of $8,500 due January 29, 2010
and February 26, 2010  followed by a payment of $210,000 due March 31, 2010.  An
allowance  for doubtful  accounts of $50,000 was recorded  during the year ended
June 30, 2010.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 11 - ADVANCES AND NOTES TO RELATED MEDICAL PRACTICES

The Company had advanced a former  subsidiary,  Tallahassee  Magnetic  Resonance
Imaging, P.A., $546,183.  This balance was evidenced by a promissory note and is
payable as follows:  $546,183 in 40 monthly  installments  commencing  September
2007,  including  interest at 6%. The balance due under this note as of June 30,
2010 was $83,423 and is due in the next year.  Interest  income on this note for
the  years  ended  June 30,  2010 and 2009  amounted  to  $10,926  and  $20,818,
respectively.

NOTE 12 - CAPITAL STOCK

Common Stock
------------

Cash  dividends  payable on the common  stock shall,  in all cases,  be on a per
share basis,  one hundred twenty percent (120%) of the cash dividend  payable on
shares of Class B common stock and three  hundred  sixty  percent  (360%) of the
cash dividend payable on a share of Class C common stock.


Class B Common Stock
--------------------

Class B common stock is convertible into shares of common stock on a one-for-one
basis.  Class B common  stock has 10 votes  per  share.  There  were 158 of such
shares outstanding at June 30, 2010 and 2009.

Class C Common Stock
--------------------

On April 3, 1995, the  stockholders  ratified a proposal  creating a new Class C
common stock and  authorized  the  exchange  offering of three shares of Class C
common stock for each share of the Company's  outstanding  Class B common stock.
The Class C common  stock has 25 votes per share,  as  compared  to 10 votes per
share for the Class B common stock and one vote per share for the common  stock.
The Class C common stock was offered on a three-for-one  basis to the holders of
the Class B common stock.  Although  having greater voting power,  each share of
Class C common  stock  has only  one-third  of the  rights of a share of Class B
common stock to dividends and distributions. Class C common stock is convertible
into shares of common stock on a three-for-one basis.

Class A Non-Voting Preferred Stock
----------------------------------

On April 3,  1995,  the  stockholders  ratified  a  proposal  consisting  of the
creation  of a new class of Class A  non-voting  preferred  stock  with  special
dividend rights and the declaration of a stock dividend on the Company's  common
stock  consisting of one share of Class A non-voting  preferred  stock for every
five shares of common stock. The stock dividend was payable to holders of common
stock on October 20, 1995. Class A non-voting preferred stock issued pursuant to
such stock dividend approximates 313,000 shares.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 12 - CAPITAL STOCK (Continued)

Class A Non-Voting Preferred Stock (Continued)
----------------------------------

The Class A non-voting  preferred stock is entitled to a special  dividend equal
to 3-1/4% of first $10 million, 4-1/2% of next $20 million and 5-1/2% on amounts
in excess  of $30  million  of the  amount  of any cash  awards  or  settlements
received  by the  Company  in  connection  with the  enforcement  of five of the
Company's  patents in its patent  lawsuits,  less the revised  special  dividend
payable on the common stock with respect to one of the Company's patents.

The Class A non-voting  preferred stock participates on an equal per share basis
with the common  stock in any  dividends  declared  and ranks  equally  with the
common stock on  distribution  rights,  liquidation  rights and other rights and
preferences (other than the voting rights).

Options
-------

The Company has stock option plans,  which provide for the awarding of incentive
and non-qualified stock options to employees,  directors and consultants who may
contribute  to the  success of the  Company.  The  options  granted  vest either
immediately  or ratably over a period of time from the date of grant,  typically
three or four  years,  at a price  determined  by the  Board of  Directors  or a
committee of the Board of  Directors,  generally the fair value of the Company's
common  stock at the date of grant.  The options  must be  exercised  within ten
years from the date of grant.

FONAR's 1997 Nonstatutory Stock Option Plan, adopted on May 9, 1997, permits the
issuance of stock  options  covering an  aggregate  of 200,000  shares of common
stock of FONAR. The options may be issued at such prices and upon such terms and
conditions as are determined by FONAR.  The 1997 Plan terminated on May 8, 2007.
During the year ended June 30, 2010, 24,390 options were forfeited, therefore of
the options granted under this plan 52,672 remain outstanding.

FONAR's 2002  Incentive  Stock  Option Plan (the "FONAR 2002 Plan"),  adopted on
July 1, 2002,  is intended to qualify as an  incentive  stock  option plan under
Section 422A of the Internal  Revenue Code of 1954,  as amended.  The FONAR 2002
Plan  permits the  issuance of stock  options  covering an  aggregate of 100,000
shares of common stock of FONAR. The options have an exercise price equal to the
fair market value of the underlying stock on the date the option is granted, are
nontransferable, are exercisable for a period not exceeding ten years and expire
upon the voluntary termination of employment. The FONAR 2002 Plan will terminate
on June 30, 2012.  As of June 30,  2010,  options to purchase  50,943  shares of
common stock of FONAR were  available  for future grant under this plan.  During
the year ended June 30, 2010,  3,390 options were  forfeited,  therefore  15,562
shares remain outstanding.



                    FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2010

NOTE 12 - CAPITAL STOCK (Continued)

Options (Continued)
-------

FONAR's 2005  Incentive  Stock  Option Plan (the "FONAR 2005 Plan"),  adopted on
February  16,  2005,  is intended to qualify as an  incentive  stock option plan
under Section 422A of the Internal  Revenue Code of 1954, as amended.  The FONAR
2005 Plan permits the issuance of stock options  covering an aggregate of 80,000
shares of common stock of FONAR. The options have an exercise price equal to the
fair market value of the underlying stock on the date the option is granted, are
non-transferable,  are  exercisable  for a period not exceeding  ten years,  and
expire upon the voluntary  termination of  employment.  The FONAR 2005 Plan will
terminate  on February 14, 2015.  As of June 30, 2010,  80,000  shares of common
stock of FONAR were available for future grant under this Plan.

Stock option activity and weighted average exercise prices under these plans and
grants for the years ended June 30, 2010 and 2009 were as follows:

                                                Weighted
                                                Average       Aggregate
                                Number of       Exercise      Intrinsic
                                 Options         Price          Value
                               -----------    -----------    -----------
Outstanding, June 30, 2008          97,401          30.66           -
Granted                                  -            -             -
Exercised                                -            -             -
Forfeited / Expired               (  1,387)         28.77           -
                               -----------    -----------    -----------
Outstanding, June 30, 2009          96,014          30.69           -
Granted                                  -            -             -
Exercised                                -            -             -
Forfeited / Expired               ( 27,780)         26.27           -
                               -----------    -----------    -----------
Outstanding, June 30, 2010          68,234          29.63           -
                               ===========    ===========    ===========

Exercisable at:
  June 30, 2009                     96,014         $30.69
  June 30, 2010                     68,234         $29.63


The range of exercise prices for options  outstanding as of June 30, 2010 was as
follows:

                                                Weighted
                                                Average
                                Number of       Remaining
                                 Options       Contractual
Range of Exercise Price        Outstanding    Life in Years
-----------------------        -----------    -------------

$25.00 - $28.13                     51,181         0.8
$29.00 - $37.50                     13,242         2.5
$46.88                               3,811         1.1
                               -----------
                                    68,234
                               ===========



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 12 - CAPITAL STOCK (Continued)

Options (Continued)
-------

HMCA Stock Options
------------------

Stock option share activity and weighted  average exercise prices under the HMCA
stock option plans for the year ended June 30, 2009 was as follows:

                                               Weighted
                                               Average        Aggregate
                                Number of      Exercise       Intrinsic
                                 Options         Price          Value
                               -----------    -----------    -----------
Outstanding, June 30, 2008         660,000        $1.00           -
Expired                           (660,000)                       -
                               -----------    -----------    -----------
Outstanding, June 30, 2009            -             -             -
                               ===========    ===========
Exercisable at: June 30, 2009        -


Stock Bonus Plans
-----------------

On August 9, 2007,  the Company  filed a  registration  statement on Form S-8 to
register  100,000  shares under  FONAR's  2007 Stock Bonus Plan.  As of June 30,
2010,  no shares of common stock of FONAR were  available for future grant under
this plan. 67,932 shares were issued during the year ended June 30, 2010.

On April 23,  2010,  the Board  approved  the 2010 Stock  Bonus  Plan.  The plan
entitles the Company to reserve  2,000,000 shares of common stock. On August 10,
2010, the Company filed Form S-8 to register the 2,000,000 shares.

Warrants
--------

On May 24,  2009,  warrants  of 42,000  shares of common  stock with an exercise
price of $19.75 expired and no warrants remain outstanding.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 13 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES

Long-term debt, notes payable and capital leases consist of the following:

                                                              June 30,
                                                    ---------------------------
                                                         2010           2009
                                                    ------------   ------------

Capital lease requiring  monthly payments of $13,623,
including  interest  at a rate of  10.51%  per  annum
through July 2010. The lease was restructured in July
2008,  requiring  twelve  monthly  payments of $6,923
followed  by 31 monthly  payments  of $9,585  through
January 2012, including interest at a rate of 11.82%.
The lease is collateralized by the related equipment. $  181,033    $   254,989

Notes  payable of $580,000  entered  into in order to
pay back a  customer  deposit of  $580,000  requiring
aggregate  monthly  payments  of  $20,106,  including
interest  at a rate of 15%  per  annum  through  June
2013. Amount due to a related party is $80,000.          580,000           -

Note payable  requiring  monthly payments of interest
at a  rate  of 7%  until  May  2009  followed  by 240
monthly  payments of $4,472 through October 2026. The
loan is collateralized by the related building.          519,203        535,684

Note payable  requiring  monthly payments of $12,150,
including  interest at a rate of 5% per annum through
August  2014  and  a  final   payment  of  $5,091  in
September 2014.                                          659,992           -

Note payable  requiring  monthly  payments of $8,325,
including interest at a rate of 10% per annum through
April 2012. The loan is from a related party.            160,176        239,685

Other  (including  capital  leases for  property  and
equipment).                                              205,830        246,032
                                                    ------------   ------------
                                                       2,306,234      1,276,390
Less: Current portion                                    667,271        357,003
                                                    ------------   ------------
                                                    $  1,638,963   $    919,387
                                                    ============   ============


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 13 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (Continued)

The  maturities of long-term debt over the next five years and thereafter are as
follows:

                          Years Ending
                          June 30,
                          ------------
                              2011          $  667,271
                              2012             492,371
                              2013             370,412
                              2014             250,686
                              2015              89,815
                            Thereafter         435,679
                                          ------------
                                           $ 2,306,234
                                          ============

NOTE 14 - INCOME TAXES

Effective  January 1, 2007, the Company  adopted the provisions of ASC topic 740
(formerly FASB  Interpretation  No. 48/FASB  Statement No. 109,  "Accounting for
Uncertainty in Income Taxes"). ASC topic 740 prescribes a recognition  threshold
and  a  measurement  attribute  for  the  financial  statement  recognition  and
measurement  of tax  positions  taken or expected to be taken in a corporate tax
return.  For those  benefits  to be  recognized,  a tax  position  must be more-
likely-than-not  to  be  sustained  upon  examination  by  taxing   authorities.
Differences  between tax positions taken or expected to be taken in a tax return
and the benefit  recognized  and  measured  pursuant to the  interpretation  are
referred to as "unrecognized  benefits". A liability is recognized (or amount of
net operating loss  carryforward  or amount of tax refundable is reduced) for an
unrecognized tax benefit because it represents an enterprise's  potential future
obligation to the taxing authority for a tax position that was not recognized as
a result of applying the provisions of ASC topic 740.

In accordance  with ASC topic 740,  interest costs related to  unrecognized  tax
benefits are required to be calculated (if  applicable)  and would be classified
as "Interest  expense,  net".  Penalties if incurred  would be  recognized  as a
component of "Selling, general and administrative" expenses.

The Company files  corporate  income tax returns in the United States  (federal)
and in various state and local jurisdictions.  In most instances, the Company is
no longer  subject to federal,  state and local income tax  examinations  by tax
authorities for years prior to 2005.

Upon the adoption and as of June 30, 2010,  no liability  for  unrecognized  tax
benefits  was  required  to  be  recorded.  The  Company  does  not  expect  its
unrecognized tax benefit position to change during the next 12 months.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010

NOTE 14 - INCOME TAXES (Continued)

The  Company  recognized  a deferred  tax asset of $757,525  and a deferred  tax
liability of $757,525 as of June 30, 2010,  primarily  relating to net operating
loss  carryforwards  of  approximately  $166,360,000  available to offset future
taxable income  through 2030.  The net operating  losses begin to expire in 2012
for federal tax purposes and in 2012 for state income tax purposes.

The ultimate  realization  of deferred tax assets is dependent on the generation
of future taxable income during the periods in which those temporary differences
become deductible. The Company considers projected future taxable income and tax
planning strategies in making this assessment.  At present, the Company does not
have a sufficient history of income to conclude that it is  more-likely-than-not
that the  Company  will be able to realize  all of its tax  benefits in the near
future and therefore a valuation allowance was established for the full value of
the deferred tax asset.

A valuation  allowance will be maintained  until  sufficient  positive  evidence
exists to support the  reversal of any portion or all of the  valuation.  Should
the Company become  profitable in future periods with  supportable  trends,  the
valuation allowance will be reversed accordingly.

Components  of the  current  provision  (benefit  from) for income  taxes are as
follows:

                              Years Ended June 30,
                          ----------------------------
                              2010            2009
                          ------------    ------------
Current:
  Federal                  $     -         $     -
  State                          -             35,931
                          ------------    ------------
                           $     -         $   35,931
                          ============    ============


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 14 - INCOME TAXES (Continued)

A  reconciliation  of the  federal  statutory  income tax rate to the  Company's
effective tax rate as reported is as follows:

                                               Years Ended June 30,
                                               --------------------
                                                 2010       2009
                                               ---------  ---------
           Taxes at federal statutory Rate      (34.0)%     34.0%
           State and local income Taxes
            (benefit), net of Federal benefit
           Permanent differences (Decrease)      (6.0)       6.0
            increase in the valuation             1.1        4.1
             allowance and true ups              38.9      (41.0)
                                               ---------  ---------
           Effective income tax rate              0.0%       3.1%
                                               =========  =========

As of June 30, 2010, the Company has net operating loss ("NOL") carryforwards of
approximately  $166,360,000  that will be  available  to offset  future  taxable
income.  The  utilization  of certain of the NOLs is limited by separate  return
limitation year rules pursuant to Section 1502 of the Internal Revenue Code. The
expiration dates of NOL carryforwards are as follows:

                            June 30,
                          ------------
                              2012        $  3,953,000
                              2013             845,000
                              2019          15,801,000
                              2020          18,718,000
                              2021          19,657,000
                              2022          19,667,000
                              2023          16,114,000
                              2024           9,257,000
                              2025              44,000
                              2026          27,001,000
                              2027          22,706,000
                              2028          10,710,000
                              2030           1,887,000
                                          ------------
                                          $166,360,000
                                          ============



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 14 - INCOME TAXES (Continued)

The Company has, for federal income tax purposes,  research and  development tax
credit carryforwards  aggregating $4,078,750,  which are accounted for under the
flow-through method. The tax credit carryforwards expire as follows:

                            June 30,
                          ------------
                              2012          $   70,145
                              2013             402,590
                              2019             432,195
                              2020             378,193
                              2021             448,221
                              2022             441,865
                              2023             444,970
                              2024             440,499
                              2025             285,564
                              2026             245,053
                              2027              62,208
                              2028             290,090
                              2029             117,808
                              2030              19,349
                                          ------------
                                            $4,078,750
                                          ============

In addition,  for New York State income tax purposes, the Company has tax credit
carryforwards,  aggregating  approximately  $1,098,000,  which are accounted for
under the flow-through  method. The tax credit  carryforwards  expire during the
years ending June 30, 2012 to June 30, 2030.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 14 - INCOME TAXES (Continued)

Significant  components of the Company's  deferred tax assets and liabilities at
June 30, 2010 and 2009 are as follows:

                                           June 30,
                                  -------------------------
                                      2010            2009
                                  -----------   -----------


Deferred tax assets:
  Allowance for doubtful accounts $ 4,453,601   $ 4,111,445
  Non-deductible accruals             227,547       233,338
  Net operating carryforwards      66,544,239    65,789,317
  Tax credits                       5,177,209     5,176,360
  Inventory capitalization for
    tax purposes                         -           39,320
  Property and equipment and
    depreciation                    1,456,302     1,315,706
  Other                                  -            3,600
                                  -----------   -----------
                                   77,858,898    76,669,086
Valuation allowance               (77,101,373)  (75,792,218)

Net deferred tax assets           -----------   -----------
                                      757,525       876,868
                                  -----------   -----------
Deferred tax liabilities:
  Capitalized software development
    Costs
                                     (757,525)     (876,868)
Gross deferred tax liabilities    -----------   -----------
                                     (757,525)     (876,868)
Net deferred tax liabilities      -----------   -----------
                                  $      -      $      -
                                  ===========   ===========

The net change in the valuation  allowance for deferred tax assets  increased by
approximately  $1,309,000  during the year ended June 30, 2010 and  decreased by
approximately $120,000 during the year ended June 30, 2009.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 15 - OTHER CURRENT LIABILITIES

Included in other current liabilities are the following:

                                                June 30,
                                      ----------------------------
                                          2010            2009
                                      ------------    ------------
            Royalties                 $      -        $    622,780
            Accrued salaries,
              commissions and
                payroll taxes              637,856         882,038
            Accrued interest               991,795         901,286
            Litigation accruals            193,349         193,349
            Sales tax payable            2,597,352       2,433,773
            Legal and other
              professional fees            736,622         674,501
            Accounting fees                474,590         480,000
            Insurance premiums              45,989          30,336
            Penalty - Sales tax            817,353         682,500
            Penalty - 401k plan            250,000         250,000
            Purchase scanners              390,000         440,000
            Rent                           356,247         287,409
            Other                          573,916         582,070
                                       -----------     -----------
                                       $ 8,065,069     $ 8,460,042
                                       ===========     ===========


NOTE 16 - COMMITMENTS AND CONTINGENCIES

Leases
------

The Company rents its operating  facilities and certain  equipment,  pursuant to
operating  lease  agreements  expiring at various dates through March 2016.  The
leases for certain  facilities  contain escalation clauses relating to increases
in real property taxes as well as certain maintenance costs.

In March 2008, HMCA entered into a s sub-lease agreement with a third party. The
sub-lease agreement expired on April 30, 2009. Rental income under the sub-lease
agreement  for the year ended June 30,  2009  amounted to  $131,724.  The rental
income is included in the  consolidated  statements  of  operations  under costs
related to management and other fees - unrelated medical practices.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)

Future minimum  operating lease  commitments  consisted of the following at June
30, 2010:

                                           Facilities
                                              And
                                           Equipment
                           Year Ending     (Operating
                            June 30,         Lease)
                          ------------    ------------
                              2011         $ 2,115,057
                              2012           2,190,401
                              2013           2,200,164
                              2014           1,657,153
                              2015           1,443,857
                           Thereafter        1,096,807
                                         ------------
            Total minimum obligations      $10,703,439
                                          ============

Rent expense for operating leases approximated $2,162,000 and $1,796,000 for the
years ended June 30, 2010 and 2009, respectively.

License Agreements
------------------

The Company had a license agreement, which required the Company to pay a royalty
on the  Company's  future sales of certain MRI imaging  apparatus.  The licensor
claimed that the Company  breached  its  contract  and was owed certain  amounts
under this  agreement.  During  September  2009,  the  Company  entered  into an
understanding regarding this matter with the licensor. On February 12, 2010, the
Company  signed a settlement  agreement  and release with this licensor in which
the Company will pay $711,448. The Company has agreed to pay this amount plus 5%
interest  over a term  beginning  February  2010 to  September  2014.  The first
payment in  February  2010 was in the amount of $15,000  and then  beginning  in
March 2010 the monthly  payment amount is $12,150 with a final payment of $5,091
payable September 2014.

In July 2000,  the Company  entered into a  non-exclusive  sales  representative
agreement with an unrelated third party. The agreement  requires the third party
to sell at least two Fonar MRI  scanners or if it does not,  pay an amount equal
to the Company's gross margin on the unsold MRI scanners.  The Company  received
the gross margin payment on one scanner of $585,493 in November 2008 and applied
a previously received deposit for two other gross margin payments for a total of
$1,755,493  which was included in revenue for the year ended June 30, 2009.  The
Company  received the last gross margin payment of $585,493 in July 2009,  which
has been included in revenue for the year ended June 30, 2010. As of April 2009,
this agreement has expired.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)

Employee Benefit Plans
----------------------

The Company has a  non-contributory  401(k) Plan (the "401(k) Plan"). The 401(k)
Plan  covers all  non-union  employees  who are at least 21 years of age with no
minimum service requirements.  There were no employer  contributions to the Plan
for the years ended June 30, 2010 and 2009. (see Other Matters below)

The  stockholders of the Company  approved the 2000 Employee Stock Purchase Plan
("ESPP") at the Company's annual  stockholders'  meeting in April 2000. The ESPP
provides  for  eligible  employees  to acquire  common stock of the Company at a
discount,  not to exceed 15%.  This plan has not been put into effect as of June
30, 2010.

Litigation
----------

On or about June 30,  2010,  one of the  Company's  customers,  Golden  Triangle
Company,  commenced  an  action  against  the  Company  and  certain  individual
defendants  employed or formerly  employed by the Company,  in the United States
District  Court  for the  Eastern  District  of New York  based  on the  alleged
wrongful  failure of the  Company  to  deliver a scanner  in  Kuwait.  The claim
alleges various causes of action including breach of contract, fraud, conspiracy
to defraud and conversion.  Golden Triangle Company v. Fonar  Corporation et al,
CV10-2933.  The plaintiff seeks relief in the amount of $5,000,000.  The Company
believes that the plaintiff's  claims are without merit and is seeking to make a
motion  to  dismiss  the  complaint.  However,  there is no  assurance  that the
resolution of this action will not materially and adversely affect the Company's
business, financial position and results of operations or cash flows.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)

Litigation (Continued)
----------

In addition, the Company is party to five additional less significant actions in
which the  customers  are seeking to obtain a return of their  deposits  for MRI
scanners.  EAB Leasing Corp et al v. Farolan,  District Court of Hidalgo County,
Texas ($169,500),  Upright MRI of Chicago,  LLC v. Fonar,  Circuit Court of Cook
County,  Illinois ($310,000),  Matt Malek Madison v. Fonar, U.S. District Court,
Northern District of California  ($300,000),  Jack Shapiro v. Fonar Corporation,
Supreme Court, Nassau County, New York ($500,000 although the actual deposit was
$323,000),  and  Anchorage  Neurological  Associates,  Inc.,  Superior  Court of
Alaska,  Third  Judicial  District at Anchorage  ($155,000).  The Company's down
payments are generally  non-refundable,  but in some instances,  where specified
conditions are met, the Company will refund a down payment. In the Farolan case,
the Court granted the Company's motion for summary  judgment,  but the plaintiff
is pursuing additional proceedings. In the Upright MRI of Chicago case, the down
payment was specifically stated to be non-refundable and the case is proceeding.
In the Madison case, the Court recently  granted summary judgment to Madison for
the deposit and prejudgment  interest.  The Company  strongly  disagree with the
decision and are considering our options. In the Shapiro case, Shapiro,  who was
also a sales  representative  for the Company,  and the Company is attempting to
negotiate a settlement.  In the Anchorage Neurological case, which was commenced
on October 7, 2010,  the Company had agreed to refund the $155,000  down payment
if the plaintiff were unable to negotiate a satisfactory  lease with its current
landlord to accommodate  the MRI scanner,  Anchorage  demanded the down payment,
but declined to provide any specifics concerning the matter.  However,  there is
no  assurance  that the  resolution  of these  actions will not  materially  and
adversely  affect the  company's  business,  financial  position  and results of
operations or cash flows.

In  addition,  the  Company is subject to various  other legal  proceedings  and
claims  arising from the ordinary  course of its  business,  including  personal
injury,  customer contract and employment  claims. In the opinion of management,
the aggregate liability,  if any, with respect to such actions,  will not have a
material  adverse effect on the  consolidated  financial  position or results of
operations of the Company.

Stipulation Agreements
----------------------

The  Company  has  entered  into  stipulation  agreements  with a number  of its
creditors that in the aggregate totals $430,289 as of June 30, 2010. The monthly
payments total $46,193.

The amounts to be paid over the next two years are as follows:

                           Year Ending
                             June 30,
                          ------------
                              2011         $ 367,667
                              2012            62,622
                                           ---------
                                           $ 430,289
                                           =========



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 16 - COMMITMENTS AND CONTINGENIES (Continued)

NASDAQ Notice of Non-compliance
-------------------------------

The Company's stockholder's  deficiency was $5.8 million as of June 30, 2010 and
has a net loss of $3.0 for the year  ended  June 30,  2010.  As a result  of the
Company's  failure  to meet  the  minimum  stockholders  equity  and net  income
requirements of $2.5 million and $500,000, respectively. NASDAQ could delist the
Company's common stock from the NASDAQ small cap exchange.

Other Matters
-------------

In March 2007,  the Company and New York State  taxing  authorities  conducted a
conference  to  discuss  a sales  tax  matter  to  determine  if  certain  sales
transactions are subject to sales tax withholdings.  In fiscal 2007, the Company
recorded a provision of $250,000 to cover any potential tax liability  including
interest. This matter was settled in May of 2009 with no payment required by the
Company.  The Company  reversed the accrual for this matter in the quarter ended
June 30, 2009.

The Company is also  delinquent in filing sales tax returns for certain  states,
for which the Company has  transacted  business.  The Company has  recorded  tax
obligations  of  $2,202,000   plus  interest  and  penalties  of   approximately
$1,687,000.  The  Company  is  in  the  process  of  determining  is  regulatory
requirements in order to become compliant.

The Company has determined  they may not be in compliance with the Department of
Labor and Internal  Revenue Service  regulations  concerning the requirements to
file Form 5500 to report activity of its 401K Employee Benefit Plan. The filings
do not require the  Company to pay tax,  however  they may be subject to penalty
for  non-compliance.  The  Company has  recorded  provisions  for any  potential
penalties  totaling  $250,000.  The amount is the  Company's  best  estimate  of
potential  penalties.  Management  is unable to  determine  the  outcome of this
uncertainty.  The Company has engaged  outside counsel to handle such matters to
determine the necessary  requirements to ensure compliance.  Such non-compliance
could impact the eligibilty of the plan.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 17 - OTHER INCOME

Other income consists of:

                                For the Years Ended June 30,
                                ----------------------------
                                  2010               2009
                                ---------         ----------


Income (loss) from investment   $  14,982         $ (129,228)
Litigation settlement              33,147            (17,500)
Other (expense) income             (2,455)           546,390
                                ---------         ----------
                                $  45,674         $  399,662
                                =========         ==========


NOTE 18 - SUPPLEMENTAL CASH FLOW INFORMATION

During the years ended June 30, 2010 and 2009,  the Company  paid  $195,269  and
$308,332 for  interest,  respectively.  During the years ended June 30, 2010 and
2009, the Company paid $0 and $35,931 for income taxes, respectively.


NOTE 19 - DUE TO RELATED MEDICAL PRACTICES

In  June  2009,  an  entity  owned  by the  Company's  Chairman  of  the  Board,
Tallahassee  Scanning  Services PA, sold its Upright MRI scanning  system to the
Company for $550,000 in exchange  for 35 monthly  payments of $18,769 to be made
over a three year period,  commencing  October 18, 2009 including  interest at a
rate of 10.41% per annum.  The Company  used this  scanning  system to fulfill a
sales order with an unrelated  customer.  The balance of as of June 30, 2010 and
2009 was $435,179 and $550,000, respectively.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 20 - SEGMENT AND RELATED INFORMATION

The Company provides segment data in accordance with the provisions of ASC topic
280, "Disclosures About Segments of an Enterprise and Related Information".

The Company operates in two industry  segments - manufacturing and the servicing
of medical equipment and management of diagnostic imaging services.

The accounting  policies of the segments are the same as those  described in the
summary  of  significant   accounting  policies.   All  intersegment  sales  are
market-based.  The Company  evaluates  performance  based on income or loss from
operations.

Summarized financial information concerning the Company's reportable segments is
shown in the following table:

                                                    Management of
                                         FONAR       Diagnostic
                                        Medical        Imaging
                                       Equipment       Centers        Totals
                                     -------------  -------------  -------------
Fiscal 2010:
-----------
Net revenues from external customers $ 20,726,727   $ 11,088,828   $ 31,815,555
Intersegment net revenues            $    930,000   $       -      $    930,000
Loss from operations                 $ (1,121,696)  $ (1,459,034)  $ (2,580,730)
Depreciation and amortization$            915,344   $    529,721   $  1,445,065
Compensatory element of stock
  issuances                          $     99,270   $       -      $     99,270
Total identifiable assets            $ 14,695,150   $  6,933,695   $ 21,628,845
Capital expenditures                 $    401,310   $     22,524   $    423,834

Fiscal 2009:
-----------

Net revenues from external customers $ 29,468,501   $ 10,253,932   $ 39,722,433
Intersegment net revenues            $    999,167   $     -        $    999,167
Income (loss) from operations        $     27,484   $ (  731,421)  $(   703,937)
Depreciation and amortization        $  1,106,230   $    673,596   $  1,779,826
Compensatory element of stock
  issuances                          $      4,061   $     -        $      4,061
Total identifiable assets            $ 17,302,361   $ 11,056,854   $ 28,359,215
Capital expenditures                 $    826,938   $     24,145   $    851,083



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010

NOTE 20 - SEGMENT AND RELATED INFORMATION (Continued)

Export Product Sales
--------------------

The Company's  areas of operations are  principally  in the United  States.  The
Company had export  sales of medical  equipment  amounting to 32.4% and 25.4% of
product  sales  revenues to third  parties for the years ended June 30, 2010 and
2009, respectively.

The  foreign  product  sales,  as a  percentage  of product  sales to  unrelated
parties, were made to customers in the following countries:

                          For the Years Ended June 30,
                          ----------------------------
                              2010            2009
                          ------------    ------------
              Kuwait          (0.5)%          (0.5)%
              Holland          8.3             3.4
              Germany         (0.4)            7.2
              Greece           8.3            (0.4)
              Canada          (0.1)            8.7
              Australia         -              7.0
              Puerto Rico      0.4              -
              Libya           16.4              -
                          ------------    ------------
                              32.4%           25.4%
                          ============    ============

Foreign Service and Repair Fees
-------------------------------

The Company's  areas of service and repair are principally in the United States.
The  Company had  foreign  revenues  of service and repair of medical  equipment
amounting to 7.8% and 8.1% of  consolidated  net service and repair fees for the
years ended June 30, 2010 and 2009, respectively. The foreign service and repair
fees,  as  a  percentage  of  total  service  and  repair  fees,  were  provided
principally to the following countries:

                          For the Years Ended June 30,
                          ----------------------------
                              2010            2009
                          ------------    ------------
              Spain           1.6%            1.7%
              Puerto Rico     1.1             1.0
              Switzerland    (0.1)            0.9
              Germany         0.4             0.0
              England         2.0             2.1
              Holland         1.3             1.3
              Scotland        1.0             1.0
              Canada          0.5             0.1
                          ------------    ------------
                              7.8%            8.1%
                          ============    ============

The Company does not have any material assets outside of the United States.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 21 - SALE OF CONSOLIDATED SUBSIDIARY AND INVESTMENT

Sale of Consolidated Subsidiary
-------------------------------

On September 30, 2008,  the Company sold its 92.3% interest (to a related party)
in an  entity  that  provided  management  services  to a  diagnostic  center in
Bensonhurst, NY. The Company continues to manage other diagnostic centers in the
New York region.

The related third party  purchased all assets and assumed all liabilities of the
diagnostic center, which included cash, the management fee receivable, furniture
and fixtures and other  miscellaneous  assets.  The purchase price for the 92.3%
interest was $2,307,500, all of which was paid in cash at the time of closing.

The following is the  calculation of the gain on sale of the 92.3% interest in a
consolidated subsidiary:

       Selling Price - Net cash paid:                        $ 2,307,500

       Assets and liabilities sold:
             Cash                                 $ 14,487
             Management fee receivable -net        917,406
             Property and equipment - net              733
             Other assets                           34,245
             Accounts payable                      (16,412)
             Minority interest                     (91,155)
                                                 ----------
       Subtotal                                   $859,304

       Gain on sale of consolidated subsidiary               $ 1,448,196
                                                             ===========


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 22 - QUARTERLY FINANCIAL DATA (UNAUDITED)

                     (000's omitted, except per share data)

                                        For the Quarters Ended
                          ------------------------------------------------------
                          Sept. 30,   Dec. 31,   March 31,   June 30,
                             2009       2009        2010       2010      Total
                          ---------   --------   ---------   --------   --------

Total Revenues - Net      $  7,491    $ 8,213    $  7,514    $ 8,598    $31,816
Total Costs and Expenses     8,913      9,480       7,489      8,514     34,396
Net (Loss) Income           (1,741)    (1,292)         (8)        28     (3,013)
Basic Net (Loss)
  Income Per Share        $  (0.35)   $ (0.26)   $  (0.00)   $  0.01    $ (0.61)


                                         For the Quarters Ended
                          ------------------------------------------------------
                          Sept. 30,   Dec. 31,   March 31,   June 30,
                             2008       2008        2009       2009      Total
                          ---------   --------   ---------   --------   --------
Total Revenues - Net      $  6,784    $11,290    $ 11,256    $10,392    $39,722
Total Costs and Expenses     8,632     10,589      10,494     10,711     40,426
Net (Loss) Income             (450)       781         730         60      1,121
Basic and Diluted Net Loss
  Per Share               $  (0.09)   $  0.16    $   0.14    $  0.01    $  0.21

Income  (loss)  per  share  from   operations  for  each  quarter  was  computed
independently using the weighted-average number of shares outstanding during the
quarter.  However,  income (loss) per share for the year was computed  using the
weighted-average  number of shares outstanding during the year. As a result, the
sum of the income  (loss) per share for the four quarters may not equal the full
year income (loss) per share.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2010


NOTE 23 - ALLOWANCE FOR DOUBTFUL ACCOUNTS

The following  represents a summary of allowance  for doubtful  accounts for the
years ended June 30, 2010 and 2009, respectively:

                                Balance                                Balance
                                June 30,                               June 30,
Description                       2009       Additions    Deductions     2010
-----------------------------  -----------  ------------  ----------  ----------
Receivables from equipment
  sales and service contracts  $ 2,393,326  (1) $300,000   $404,277   $2,289,049
Management fee receivable        5,093,345  (1)  715,000       -       5,808,345
Management fee receivable from
  related medical practices      1,094,818  (1)   35,000       -       1,129,818
Medical receivables              1,343,500  (1)  278,500               1,622,000
Advance and notes to
  related parties                  264,791          -          -         264,791
Notes receivable                    65,000  (1)   50,000                 115,000


                                Balance                                Balance
                                June 30,                               June 30,
Description                       2008       Additions    Deductions     2009
-----------------------------  -----------  ------------  ----------  ----------
Receivables from equipment
  sales and service contracts  $ 2,020,208  (1) $441,951    $ 68,833  $2,393,326
Management fee receivable        3,958,733  (1)1,185,000      50,388   5,093,345
Management fee receivable from
  related medical practices      2,413,483  (1) (915,000)    403,665   1,094,818
Medical receivables                769,000  (1)  574,500        -      1,343,500
Advance and notes to
  related parties                  264,791          -           -        264,791
Note receivable                     65,000          -           -         65,000

(1)  Included in provision for bad debts.


NOTE 24 - SUBSEQUENT EVENTS

The Company  evaluates  events that have occurred  after the balance sheet date,
but before the consolidated financial statements are issued.

The Company  amended its certificate of  incorporation  decreasing the number of
authorized  shares of Common Stock from 30,000,000 to 8,500,000,  Class B Common
Stock from 800,000 to 227,000,  Class C Common Stock from  2,000,000 to 567,000,
Class A Non-voting Preferred Stock from 1,600,000 to 453,000 and Preferred Stock
from 2,000,000 to 567,000.

During the period from July 1, 2010 through  September 30, 2010, the Company has
issued  126,608  shares  of  common  stock  to  employees  and   consultants  as
compensation valued at $188,060 under the 2010 Stock Bonus Plan.



ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
     FINANCIAL DISCLOSURE.

There  have  been  no  disagreements  with  our  independent  registered  public
accounting firm or other matters requiring disclosure under Regulation S-K, Item
304(b).


ITEM 9A(T). CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure  controls  and  procedures  (as  defined  in Rule  13(a) - 15(e)) are
controls  and other  procedures  that are  designed to ensure  that  information
required to be  disclosed  by a public  company in the reports  that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time  periods  specified  in the SEC's  rules and  forms.  Disclosure
controls and procedures  include,  without  limitation,  controls and procedures
designed to ensure that information required to be disclosed by a public company
in the reports that it files or submits  under the  Exchange Act is  accumulated
and communicated to the company's management,  including its principal executive
and principal  financial officers,  or persons performing similar functions,  as
appropriate to allow timely decisions regarding required disclosure.  Disclosure
controls and procedures  include many aspects of internal control over financial
reporting.

Based on their  evaluation,  our Chief  Executive  Officer  and Chief  Financial
Officer  have  concluded  that  our  disclosure  controls  and  procedures  were
effective at June 30, 2010.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the Exchange
Act. Internal control over financial  reporting refers to a process designed by,
or under the  supervision  of, our Chief  Executive  Officer and Chief Financial
Officer and effected by our Board,  management and other  personnel,  to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted   accounting   principles,   including  those  policies  and
procedures that:

     pertain  to  the  maintenance  of  records  that,  in  reasonable   detail,
     accurately  and fairly reflect the  transactions  and  dispositions  of our
     assets;

     provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with generally
     accepted accounting principles,  and that our receipts and expenditures are
     being made only in accordance  with  authorizations  of our  management and
     directors; and

     provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized acquisition,  use or disposition of our assets that could have
     a material effect on our consolidated financial statements.

It should be noted, however, that because of its inherent limitations,  internal
control  over  financial  reporting  cannot  provide  absolute  assurance of the
prevention  or  detection of  misstatements.  In  addition,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

In connection  with the  preparation  of this Annual Report on Form 10-K for the
year  ended  June 30,  2010,  management,  with the  participation  of our Chief
Executive Officer and Chief Financial  Officer,  has evaluated the effectiveness
of our disclosure  controls and procedures and internal  controls over financial
reporting, pursuant to Rule 13a-15 under the Exchange Act, based on criteria for
effective  internal  control  over  financial  reporting  described  in Internal
Control  -  Integrated   Framework   issued  by  the   Committee  of  Sponsoring
Organizations of the Treadway Commission.  Based on their evaluation,  our Chief
Executive Officer and Financial Officer have concluded that our internal control
over financial reporting was effective as of June 30, 2010.

This Annual Report on Form 10-K does not include an attestation report of Marcum
LLP, our independent  registered  public  accounting  firm,  regarding  internal
control  over  financial  reporting.  Management's  report  was not  subject  to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that  permit us to provide  only  management's  report on this Annual
Report on Form 10-K.

There was no changes in our  internal  controls or in other  factors  that could
significantly  affect these  controls,  during our fourth quarter ended June 30,
2010,  that have  materially  affected,  or are reasonably  likely to materially
affect, our internal control over financial reporting.



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors serve from the date of their election until the next annual meeting of
stockholders  and until  their  successors  are elected  and  qualify.  With the
exception of Dr. Raymond V. Damadian,  who does not receive any fees for serving
as a director,  each director  receives $20,000 per annum for his or her service
as a director. Officers serve at the discretion of the Board of Directors.

A majority  of our board of  directors  is composed  of  independent  directors:
Robert  J.  Janoff,  Charles  N.  O'Data  and  Robert  Djerejian.   These  three
individuals also serve as the three members of the audit  committee,  which is a
standing  committee  of  board of  directors  having a  charter  describing  its
responsibilities.  Mr.  O'Data  has  been  designated  as  the  audit  committee
financial  expert.  His relevant  experience  is  described in his  biographical
information.  We have  adopted  a code of  ethics  applicable  to,  among  other
personnel,  our  principal  executive  officer,   principal  financial  officer,
controllers and persons performing  similar  functions.  The code is designed to
deter wrongdoing and to promote:  1. honest and ethical  conduct,  including the
ethical  handling of actual or apparent  conflicts of interest  between personal
and   professional   relationships;   2.  full,  fair,   accurate,   timely  and
understandable disclosure in reports and documents that we file or submit to the
Securities and Exchange  Commission and in other public  communications we make;
3. compliance with applicable  governmental laws, rules and regulations;  4. the
prompt internal  reporting of violations of the code to an appropriate person or
persons identified in the code and 5.  accountability for adherence to the code.
We will  provide a copy of the code to any person who  requests a copy. A person
may request a copy by writing to Fonar Corporation,  110 Marcus Drive, Melville,
New York 11747, to the attention of the Legal Department or Investor Relations.

The officers and directors of the Company are set forth below:

Raymond V. Damadian, M.D.     74          President, Treasurer,
                                          Chairman of the Board
                                          and a Director

Claudette J.V. Chan           72          Director and Secretary

Robert J. Janoff              83          Director

Charles N. O'Data             74          Director

Robert Djerejian              79          Director


Raymond V.  Damadian,  M.D. has been the Chairman of the Board and  President of
Fonar since its  inception  in 1978 and  Treasurer  since  February,  2001.  Dr.
Damadian was employed by the State  University  of New York,  Downstate  Medical
Center,  New  York,  as an  Associate  Professor  of  Biophysics  and  Associate
Professor of Internal  Medicine from 1967 until  September  1979.  Dr.  Damadian
received an M.D.  degree in 1960 from Albert Einstein  College of Medicine,  New
York, and a B.S. degree in mathematics from the University of Wisconsin in 1956.
In addition,  Dr. Damadian conducted  post-graduate work at Harvard  University,
where  he  studied  extensively  in  the  fields  of  physics,  mathematics  and
electronics.  Dr.  Damadian is the author of numerous  articles and books on the
nuclear  magnetic  resonance  effect in human tissue,  which is the  theoretical
basis  for the Fonar MRI  scanners.  Dr.  Damadian  is a 1988  recipient  of the
National  Medal  of  Technology  and in 1989  was  inducted  into  the  National
Inventors Hall of Fame, for his  contributions  in conceiving and developing the
application of magnetic resonance technology to medical  applications  including
whole body  scanning and  diagnostic  imaging.  Dr.  Damadian is the  President,
Treasurer and director of HMCA.

Claudette  J.V.  Chan  has  been a  Director  of Fonar  since  October  1987 and
Secretary of Fonar since January 2008.  Mrs. Chan was employed from 1992 through
1997 by Raymond V. Damadian,  M.D. MR Scanning  Centers  Management  Company and
since 1997 by HMCA, as "site  inspector,"  in which  capacity she is responsible
for  supervising  and  implementing  standard  procedures  and  policies for MRI
scanning centers.  From 1989 to 1994 Mrs. Chan was employed by St. Matthew's and
St. Timothy's  Neighborhood  Center,  Inc., as the director of volunteers in the
"Meals  on  Wheels"  program,  a  program  which  cares  for  the  elderly.   In
approximately  1983, Mrs. Chan formed the Claudette Penot  Collection,  a retail
mail-order business  specializing in women's apparel and gifts, of which she was
the President until she stopped  operating the business in  approximately  1989.
Mrs. Chan practiced and taught in the field of nursing until 1973,  when her son
was born.  She  received a bachelor of science  degree in nursing  from  Cornell
University in 1960. Mrs. Chan is the sister of Raymond V. Damadian.

Robert J. Janoff has been a Director of Fonar since  February  1989.  Mr. Janoff
has been a self-employed  New York State licensed private  investigator for more
than  thirty-five  years and was a Senior Adjustor in Empire Insurance Group for
more than 15 years until retiring from that position on July 1, 1997. Mr. Janoff
also served, from June 1985 to June 1991, as President of Action Data Management
Strategies,  Ltd.,  a  supplier  of  computer  programs  for  use  by  insurance
companies.  Mr. Janoff was a member of the Board of Directors of Harmony Heights
of Oyster  Bay,  New York for over 25 years,  which is a  nonprofit  residential
school for girls with learning disabilities.

Charles N. O'Data has been a Director of Fonar since February 1998. From 1968 to
1997, Mr. O'Data was the Vice President for Development  for Geneva  College,  a
liberal arts college located in western Pennsylvania. In that capacity, he acted
as  the  College's  chief  investment  officer.  His  responsibilities  included
management of the College's  endowment fund and fund raising.  In July 1997, Mr.
O'Data  retired  from  Geneva  College  after 36 years of  service  to  assume a
position of  National  Sales  Executive  for SC Johnson  Company's  Professional
Markets  Group,  a unit of SC Johnson Wax, and  specialized  in  healthcare  and
education  sales,  a position he held until the spring of 1999.  In his capacity
with SC Johnson he was responsible for sales to the nation's three largest Group
Purchasing  Organizations  which  included  some  4,000  hospitals.  Mr.  O'Data
presently acts as an independent  financial consultant to various entities.  Mr.
O'Data served on the board of the Medical Center,  Beaver,  Pennsylvania,  now a
part of Heritage  Valley Health System,  a 500 bed acute care  facility,  for 22
years,  three as its Chair.  Mr. O'Data also served on the board of the Hospital
Council  of  Western  Pennsylvania,   a  shared-services  and  group  purchasing
organization  covering seven states. He founded The Beaver County Foundation,  a
Community Foundation, in 1992, and serves as its President. Mr. O'Data is listed
as a finance  associate in the Middle States  Association,  Commission on Higher
Education. The commission is the formal accrediting body for higher education in
the eastern  region of the country.  In this capacity he evaluates the financial
aspects  of  educational  organizations.  Mr.  O'Data  is a  graduate  of Geneva
College, where he received a B.S. degree in Economics in 1958.

Robert  Djerejian  has been a Director for Fonar since June 2002.  Since 1996 he
has served as a senior consultant for Haines,  Lundberg & Waehler  International
(HLW  International),  an architectural,  engineering,  planning interior design
firm, which among other hi-tech  specialties designs hospitals and laboratories.
Prior to that time he was the Senior Managing Partner of HLW International for a
period of 22 years  where he  received  numerous  design  awards  including  the
National  Honor Award from the Endowment for the Arts and The Design  Excellence
Award from the NY Society of the American  Institute of  Architects.  During his
management  of the firm he brought  the firm to  international  prominence  with
offices in London,  Shanghai and Saudi Arabia. He currently  consults to private
clientele in design  management in planning,  design and construction  services.
Mr.  Djerejian is an Emeritus member of the Board of Trustees of Pratt Institute
since 1992, where he chaired the Nominations Committee and was the Vice Chairman
of the Executive  Committee.  He served as a Board Member coordinating the joint
venture  of  Corcoran  College  of Art &  Design  in  Washington  DC with  Pratt
Institute as one of the founding  directors  forming the Delaware College of Art
and Design.  He is a member of the American  institute of Architects  and the NY
Society of Architects.  Mr. Djerejian is a graduate of Pratt Institute School of
Architecture, where he received his B.A. in Architecture in 1955.



ITEM 11. EXECUTIVE COMPENSATION.

With the  exception of the Chief  Executive  Officer,  the  compensation  of the
Company's  executive  officers is based on a  combination  of salary and bonuses
based on performance.  The Chief Executive Officer's  compensation consists of a
salary.

The Chief  Executive  Officer's  salary  varies only  slightly and is by his own
decision  relatively low. It is not expected to increase  materially in the near
future.  At such time as we become  consistently and sufficiently  profitable or
there is a reconsideration of our compensation  policy, the compensation payable
to the Chief Executive Officer may be reconsidered.  As presently existing,  the
Chief Executive Officer's  compensation  package includes no understandings with
respect to bonuses,  options or other incentives;  as such, it is not subject to
our general policy later discussed.

The Board of Directors  does not have a compensation  Committee.  Dr. Raymond V.
Damadian, President, Chief Executive Officer and Chairman of the Board, controls
over 50% of the voting  power of our  capital  stock.  Dr.  Damadian is the only
executive  officer  who is a member  of the  Board of  Directors.  Dr.  Damadian
participates in the determination of executive compensation for our officers.

The Board of Directors has  established an audit  committee.  The members of the
committee are Robert J. Janoff, Charles N. O'Data and Robert Djerejian.

Our compensation policy includes a combination of salary, commissions,  bonuses,
stock bonuses and stock options, designed to incentivize our employees. There is
no universal  plan  applicable to all of our  employees.  The fixed and variable
components of our employees' compensation tend to be individualized,  based on a
combination of the employees'  performance,  responsibilities and position,  our
assessment of how best to motivate a person in such a position and the needs and
preferences of the particular  employees,  as negotiated  between  employees and
their supervisors or management.

There is set forth in the following Summary  Compensation Table the compensation
provided by us during fiscal 2010 to our Principal  Executive Officer,  who also
serves as our  acting  Principal  Financial  Officer.  There is set forth in the
following  Outstanding  Equity Awards Table and Director  Compensation Table the
required information.



I. SUMMARY COMPENSATION TABLE

-------------------------------------------------------------------------------
Name and All                                      All Other       Total
Other Principal              Salary      Bonus    Compensation    Compensation
Position           Year      ($)         ($)      ($)             ($)
(a)                (b)       (c)         (d)      (i)             (j)
---------------    ----    ----------    -----    ------------    ------------
Raymond V.         2010    $57,358.12      -            -          $57,358.12
Damadian,          2009    $72,285.12      -            -          $72,285.12
PEO/ PFO           2008    $90,087.83      -            -          $90,087.83
-------------------------------------------------------------------------------


II. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
-------------------------------------------------------------------------------
Name          Number         Option       Option
              Of             Exercise     Expiration
              Securities     Price        Date
              Underlying     ($)
              Unexercised
              Options
              (#)
              Exercisable
              (a)            (b)          (c)
----------    -----------    ---------    -----------
Raymond V.          463        28.125       12/26/10
Damadian,
PEO/PFO
-------------------------------------------------------------------------------


III. DIRECTOR COMPENSATION
-------------------------------------------------------------------------------
                             Fees Earned
                             Or Paid in
Name                         Cash ($)           Total ($)
(a)                          (b)                (c)
-------------------          -----------        ----------
Raymond V. Damadian                   0                  0

Claudette J.V. Chan          $20,160.00         $20,160.00

Robert J. Janoff             $20,000.24         $20,000.24

Charles N. O'Data            $20,000.24         $20,000.24

Robert Djerejian             $19,999.98         $19,999.98



EMPLOYEE COMPENSATION PLANS

Equity Compensation Plan Information as of June 30, 2010

              (a)                  (b)                  (c)
Plan category Number of securities Weighted-average     Number of securities
              to be issued upon    exercise price of    remaining available
              exercise of          outstanding options, for future issuance
              outstanding options, warrants and rights  under equity
              warrants and rights                       compensation plans
                                                        (excluding securities
                                                         reflected in column (a)

Equity              68,234              $ 29.63                  130,943
compensation
plans
approved by
security
holders

Equity
compensation
plans not             -                    N/A                      -
approved by
security              -                     -                       -
holders
             ==============            ============            ============
Total               68,234                29.63                  130,943


Fonar's 1997 Nonstatutory  Stock Option Plan,  adopted on May 9, 1997 terminated
on May  8,  2007.  Of  the  options  granted  under  this  plan,  52,672  remain
outstanding.

Fonar's 2002 Incentive  Stock Option Plan,  adopted on July 1, 2002, is intended
to qualify as an incentive  stock option plan under Section 422A of the Internal
Revenue Code of 1954, as amended.  The 2002 Incentive  Stock Option Plan permits
the issuance of stock options  covering an aggregate of 100,000 shares of Common
Stock of Fonar.  The  options  have an  exercise  price equal to the fair market
value  of  the  underlying  stock  on  the  date  the  option  is  granted,  are
nontransferable, are exercisable for a period not exceeding ten years and expire
upon the voluntary  termination of  employment.  The 2002 Stock Option Plan will
terminate on June 30,  2012.  As of June 30,  2010,  options to purchase  50,943
shares of Common Stock of Fonar were  available for future grant under the plan.
Of the options granted under this plan 15,562 remain outstanding.

Fonar's  2005  Incentive  Stock Option  Plan,  adopted on February 15, 2005,  is
intended to qualify as an incentive  stock option plan under Section 422A of the
Internal  Revenue  code of 1954,  as amended.  The Plan  permits the issuance of
stock  options  covering an aggregate of 80,000 shares of common stock of Fonar.
The  options  have an  exercise  price  equal  to the fair  market  value of the
underlying stock on the date the option is granted,  are  non-transferable,  are
exercisable for a period not exceeding ten years,  and expire upon the voluntary
termination of  employment.  The Plan will terminate on February 14, 2015. As of
June 30, 2010,  80,000 shares of common stock of Fonar were available for future
grant under this plan.

Fonar  adopted its 2007 Stock Bonus Plan,  on August 7, 2007.  This Plan permits
Fonar to issue an aggregate of 100,000  shares of common stock of Fonar as bonus
or compensation. As of June 30, 2010, 0 shares were available for issuance.

Fonar  adopted its 2010 Stock Bonus Plan,  on June 28,  2010.  This Plan permits
Fonar to issue an  aggregate  of  2,000,000  shares of common  stock of Fonar as
bonus or compensation.  As of June 30, 2010, 2,000,000 shares were available for
issuance.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  following  table sets forth the number and  percentage of shares of Fonar's
securities held by each director, by each person known by us to own in excess of
five percent of Fonar's voting securities and by all officers and directors as a
group as of September 30, 2010.

Name and Address of             Shares         Percent
Beneficial Owner (1)       Beneficially Owned   of Class
-------------------------  ------------------  --------
Raymond V. Damadian, M.D.
c/o Fonar Corporation
Melville, New York
 Director, President,
 Treasurer, CEO,
 5% + Stockholder
    Common Stock                 120,302         2.45%
    Class C Stock                382,447        99.98%
    Class A Preferred             19,093         6.09%

Claudette Chan
Director and Secretary
    Common Stock                     106             *
    Class A Preferred                 32             *

Robert J. Janoff
Director
    Common Stock                   2,899             *
    Class A Preferred                 79             *

Charles N. O'Data
Director
    Common Stock                      28             *

Robert Djerejian
Director
    Common Stock                       0             *

All Officers and Directors
as a Group (5 persons)
    Common Stock                 123,335         2.51%
    Class C Stock                382,447        99.98%
    Class A Preferred             19,204         6.13%
___________________________
*   Less than one percent

1.   Address provided for each beneficial owner owning more than Five percent of
     the voting securities of Fonar.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Background.

Between 1990 and 1996, Raymond V. Damadian, M.D. MRI Scanning Centers Management
Company,  also  referred  to as  "RVDC",  a  Delaware  corporation  of which Dr.
Damadian was the sole stockholder,  director and President, purchased and leased
scanners  from  Fonar  to  establish  a  network  of  professional  corporations
operating MRI scanning centers, also referred to as the "Centers",  in New York,
Florida,  Georgia and other locations.  Dr. Raymond V. Damadian is the Chairman,
President and principal  stockholder  of Fonar and was also the owner,  director
and  President of each of these  professional  corporations.  RVDC  provided the
necessary  management  and the  scanners  to the  Centers,  although  in certain
situations, a Center would acquire the scanner directly from Fonar.

ACQUISITION OF RVDC.

Effective June 30, 1997,  Fonar's  wholly-owned  subsidiary,  Health  Management
Corporation  of  America,  also  referred to as "HMCA",  formerly  known as U.S.
Health Management Corporation, acquired RVDC by purchasing all of the issued and
outstanding  shares of RVDC from Dr. Damadian for 400 shares of the Common Stock
of Fonar. The transactions  can be rescinded by Dr.  Damadian,  however,  in the
event of a change of control in Fonar or the  bankruptcy  of Fonar.  There is no
time limit on the right to rescind.  In connection with the  transaction,  Fonar
granted  RVDC a  nonexclusive  royalty  free  license  to  Fonar's  patents  and
software.  These  licenses  may be  terminated  by  Fonar  in the  event  of the
bankruptcy of RVDC or a change in control of RVDC.

AGREEMENTS WITH HMCA.

Effective  July 1, 1997,  new  management  agreements  were  entered into by the
Centers and HMCA.  Since that time  certain of the  original  Centers  have been
closed and new Centers  opened.  Each new Center also  entered into a management
agreement with HMCA.

Pursuant  to  the  management  agreements,   HMCA  is  providing   comprehensive
management and administrative services and office facilities,  including billing
and collection of accounts,  payroll and accounts payable  processing,  supplies
and utilities to the Centers.  Under the  management  agreements,  HMCA provides
service through Fonar for the scanners at the Centers.  In total, 10 MRI Centers
have management agreements with HMCA.

At the end of fiscal 2007, Dr. Damadian sold all of his stock in the MRI Centers
located in New York State. The new owner is one of the radiologists who has been
reading and  interpreting  scans  performed at those  facilities,  Dr. Robert A.
Diamond.  In  connection  with  the  sale,  HMCA  entered  into  new  management
agreements  with the MRI Centers under which HMCA performs  essentially the same
services for the MRI Centers as prior to the sale.  The fees  charged,  however,
are flat fees charged on a monthly basis.

Dr.  Damadian  remains  the owner of three MRI  Centers  in  Florida  and one in
Georgia. The fees payable to HMCA for its services to the Georgia MRI Center are
based on the number of procedures performed,  at the rate of $350 per procedure.
The MRI Centers  owned by Dr.  Damadian in Florida  pay flat rate  monthly  fees
ranging from $113,000 and $195,000 per month.  These fees are renegotiable on an
annual basis.

During the fiscal  years ended June 30, 2010 and June 30, 2009 the net  revenues
received by HMCA from the MRI Centers owned by Dr.  Damadian were  approximately
$3.8 million and $2.9 million respectively.

During April 2009, Fair Haven Services, Inc. lent the Company $258,000. The loan
bears interest at a rate of 10% per annum and is payable in 36 installments with
the final  payment due April 30,  2012.  Dr Damadian is the  President  and sole
stockholder of Fair Haven Services, Inc.

In June  2009,  Tallahassee  Scanning  Services,  P.A.  an  entity  owned  by Dr
Damadian,  sold its Upright  MRI  scanning  system to the  Company for  $550,000
payable in 35 monthly installments beginning on October 18, 2009.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The aggregate fees billed by Marcum LLP for the audit of our annual consolidated
financial  statements for the fiscal year ended June 30, 2010 and the reviews of
the  financial  statements  included in our Forms 10-Q for the fiscal year ended
June 30, 2010 were $379,165. An audit of internal controls was not required this
year.

The  aggregate  fees billed by Marcum LLP for the audit of our annual  financial
statements  for the fiscal year ended June 30, 2009 and our  internal  controls,
and the reviews of the financial  information included in our Forms 10-Q for the
fiscal year ended June 30, 2009 were $573,885.

Audit Related Fees

No fees were  billed by Marcum LLP for the fiscal  years  ended June 30, 2010 or
June 30,  2009 for  services  related  to the audit or  review of our  financial
statements that are not included under the caption "Audit Fees".

No fees were  billed by Marcum LLP for the fiscal  years  ended June 30, 2010 or
June 30, 2009 for designing,  operating,  supervising or implementing any of our
financial  information  systems or any  hardware  or  software  systems  for our
financial information.

Tax Fees

The aggregate fees billed by Marcum LLP for tax  compliance,  tax advice and tax
planning in the fiscal year ended June 30, 2010 were $121,093.

The aggregate fees billed by Marcum LLP for tax  compliance,  tax advice and tax
planning in the fiscal year ended June 30, 2009 were $184,768.

All Other Fees

The aggregate fees billed by Marcum LLP for all other services  rendered by them
during the fiscal  years ended June 30, 2010 and June 30, 2009 were  $59,294 and
$31,776,   respectively,   which  included   services  in  connection  with  the
registration  of  securities,  employee  benefit  plan  audits and  reviews  and
procedures  that we requested  Marcum LLP to undertake to provide  assurances on
matters not required by laws or regulations.

Since January 1, 2003, the audit  committee has adopted  policies and procedures
for  pre-approving  all non-audit work performed by the auditors.  Specifically,
the committee  must  pre-approve  the use of the auditors for all such services.
The audit committee has  pre-approved  all non-audit work since that time and in
making its determination  has considered  whether the provision of such services
was compatible with the independence of the auditors.

Our audit  committee  believes  that the  provision by Marcum LLP of services in
addition  to  audit  services  in  fiscal  2010 and 2009  were  compatible  with
maintaining their independence.



PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

a)  FINANCIAL STATEMENTS AND SCHEDULES

The following consolidated financial statements are included in Part II, Item 8.

     Report of Independent Registered Public Accounting Firm

     Consolidated Balance Sheets as at June 30, 2010 and 2009.

     Consolidated Statements of Operations for the Two Years Ended June 30, 2010
and 2009.

     Consolidated  Statements  of  Stockholders'  Equity for the Two Years Ended
June 30, 2010 and 2009.

     Consolidated Statements of Cash Flows for the Two Years Ended June 30, 2010
and 2009.

     Notes to Consolidated Financial Statements.

     Information required by schedules called for under Regulation S-X is either
not applicable or is included in the consolidated  financial statements or notes
to the financial statements.


b) REPORTS ON FORM 8-K

     Registrant's  Report on Form 8-K containing the Company's  Earnings  Report
for the first nine months of Fiscal  2010.  May 18,  2010,  Commission  File No.
0-10248.

c) EXHIBITS

     3.1   Certificate  of   Incorporation,   as  amended,   of  the  Registrant
incorporated  by  reference  to  Exhibit  3.1 to the  Registrant's  registration
statement on Form S-1,Commission File No. 33-13365.

     3.2 Article Fourth of the Certificate of Incorporation,  as amended, of the
Registrant  incorporated  by  reference  to  Exhibit  4.1  to  the  Registrant's
registration statement on Form S-8, Commission File No. 33-62099.

     3.3 Section A of Article  Fourth of the  Certificate of  Incorporation,  as
amended,  of the  Registrant  incorporated  by  reference  to Exhibit 4.3 to the
Registrant's registration statement on Form S-3, Commission File No. 333-63782.

     3.4 Section A of Article  Fourth of the  Certificate of  Incorporation,  as
amended,  of the  Registrant  incorporated  by  reference  to Exhibit 3.3 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2003,
Commission File No. 0-10248.

     3.5 By-Laws,  as amended,  of the Registrant  incorporated  by reference to
Exhibit 3.2 to the Registrant's  registration  statement on Form S-1, Commission
File No. 33-13365.

     4.1 Specimen Common Stock Certificate  incorporated by reference to Exhibit
4.1 to the Registrant's  registration statement on Form S-1, Commission File No.
33-13365.

     4.2 Specimen Class B Common Stock Certificate  incorporated by reference to
Exhibit 4.2 to the Registrant's  registration  statement on Form S-1, Commission
File No. 33-13365.

     4.3 Form of 4%  Convertible  Debentures due June 30, 2002  incorporated  by
reference to Exhibit 4.1 of the Registrant's current report on Form 8-K filed on
June 11, 2001. Commission File No. 0-10248.

     4.4 Form of Purchase  Warrants  incorporated by reference to Exhibit 4.2 of
the Registrant's  current report on Form 8-K filed on June 11, 2001.  Commission
File No. 0-10248.

     4.5 Form of Callable  Warrants  incorporated by reference to Exhibit 4.3 of
the Registrant's  current report on Form 8-K filed on June 11, 2001.  Commission
File No. 0-10248.

4.6 Form of Replacement  Callable Warrants  incorporated by reference to Exhibit
4.7 of the Registrant's  registration statement on Form S-3, Commission File No.
333-10677.

     4.7 Form of Amended and Restated  Purchase  Warrant for The Tail Wind Fund,
Ltd.  incorporated by reference to Exhibit 4.7 of the  Registrants  registration
statement on Form S-3, Commission File No. 333-116908.

     4.8 Form of Amended and Restated  Purchase  Warrant for Placement Agent and
Designees   incorporated  by  reference  to  Exhibit  4.8  of  the  Registrant's
registration statement on Form S-3, Commission File No. 333-116908.

     10.1  License  Agreement  between the  Registrant  and Raymond V.  Damadian
incorporated  by  reference  to Exhibit 10 (e) to Form 10-K for the fiscal  year
ended June 30, 1983, Commission File No. 0-10248.

     10.2 1983  Nonstatutory  Stock  Option Plan  incorporated  by  reference to
Exhibit 10 (a) to Form 10-K for the fiscal year ended June 30, 1983,  Commission
File No.  0-10248,  and  amendments  thereto dated as of March 7, 1984 and dated
August 22, 1984,  incorporated  by referenced to Exhibit 28 (a) to Form 10-K for
the year ended June 30, 1984, Commission File No. 0-10248.

     10.3 1984 Incentive Stock Option Plan  incorporated by reference to Exhibit
28 (c) to Form 10-K for the year ended  June 30,  1984,  Commission  File No. 0-
10248.

     10.4 1986  Nonstatutory  Stock  Option Plan  incorporated  by  reference to
Exhibit  10.7 to Form 10-K for the fiscal year ended June 30,  1986,  Commission
File No. 0-10248.

     10.5 1986 Stock Bonus Plan  incorporated  by  reference  to Exhibit 10.8 to
Form 10-K for the fiscal year ended June 30, 1986, Commission File No. 0-10248.

     10.6 1986 Incentive Stock Option Plan  incorporated by reference to Exhibit
10.9 to Form 10-K for the fiscal year ended June 30, 1986,  Commission  File No.
0-10248.

     10.7 Lease Agreement,  dated as of August 18, 1987,  between the Registrant
and Reckson  Associates  incorporated by reference to Exhibit 10.26 to Form 10-K
for the fiscal year ended June 30, 1987, Commission File No. 0-10248.

     10.8 1993 Incentive Stock Option Plan  incorporated by reference to Exhibit
28.1 to the Registrant's registration statement on Form S-8, Commission File No.
33-60154.

     10.9 1993  Non-Statutory  Stock  Option Plan  incorporated  by reference to
Exhibit 28.2 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-60154.

     10.10 1993 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.3 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
60154.

     10.11 1994  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-81638.

     10.12 1994 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
81638.

     10.13 1995  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-62099.

     10.14 1995 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
62099.

     10.15 1997  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No.: 333-27411.

     10.16 1997 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the Registrant's  registration  statement on Form S-8,  Commission File No: 333-
27411.

     10.17 Stock  Purchase  Agreement,  dated July 31, 1997, by and between U.S.
Health  Management  Corporation,  Raymond V. Damadian,  M.D. MR Scanning Centers
Management Company and Raymond V. Damadian, incorporated by reference to Exhibit
2.1 to the Registrant's Form 8-K, July 31, 1997, commission File No: 0-10248.

     10.18 Merger Agreement and  Supplemental  Agreement dated June 17, 1997 and
Letter of  Amendment  dated June 27,  1997 by and among U.S.  Health  Management
Corporation and Affordable Diagnostics Inc. et al., incorporated by reference to
Exhibit 2.1 to the  Registrant's  8-K,  June 30,  1997,  Commission  File No: 0-
10248.

     10.19 Stock  Purchase  Agreement  dated March 20, 1998 by and among  Health
Management Corporation of America, Fonar Corporation,  Giovanni Marciano,  Glenn
Muraca et al.,  incorporated by reference to Exhibit 2.1 to the  Registrant's 8-
K, March 20, 1998, Commission File No: 0-10248.

     10.20 Stock  Purchase  Agreement  dated August 20, 1998 by and among Health
Management Corporation of America, Fonar Corporation, Stuart Blumberg and Steven
Jonas, incorporated by reference to Exhibit 2 to the Registrant's 8-K, September
3, 1998, Commission File No. 0-10248.

     10.21 2000 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  Statement on Form S-8, Commission File No.: 333-
66760.

     10.22 2002 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8, Commission File No.: 333-
89578.

     10.23 2002 Incentive Stock Option Plan incorporated by reference to Exhibit
99.1 to the  Registrant's  registration  statement on Form S-8,  Commission File
No.: 333-96557.

     10.24 2003 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8,  Commission File No: 333-
106626.

     10.25 2003  Supplemental  Stock Bonus Plan  incorporated  by  reference  to
Exhibit 99.1 to the Registrant's  registration statement on Form S-8, Commission
File No: 333-106626.

     10.26 2004 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8,  Commission File No. 333-
112577.

     10.27 2005 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the  Registrant's  registration  statement  on Form  S-8,  Commission  File  No.
333-122859.

     10.28 2005  Supplemental  Stock Bonus Plan  incorporated  by  reference  to
Exhibit 99.1 to the Registrant's registration statement on Form S-8, Commission
File No. 333-126658.

     10.29 Purchase  Agreement  dated May 24, 2001 by and between the Registrant
and The Tail Wind Fund Ltd.  incorporated  by  reference  to Exhibit 10.1 to the
Registrant's current report on Form 8-K filed June 11, 2001. Commission File No.
0-10248.

     10.30  Registration  Rights  Agreement  dated May 24, 2001 by and among the
Registrant, The Tail Wind Fund Ltd. and Roan Meyers, Inc. incorporated herein by
reference to Exhibit 10.2 to the  Registrant's  current report on Form 8-K filed
June 11, 2001. Commission File No. 0-10248.

     10.31 Amendment to Callable Warrant dated April 28, 2004 by and between The
Tail Wind Fund,  Ltd. and the  Registrant  incorporated  by reference to Exhibit
10.17 to the Registrant's  registration  statement on Form S-3,  Commission File
No. 333-116908.

     10.32  First  Amendment  to  Purchase  Warrant  dated April 28, 2004 by and
between The Tail Wind Fund, Ltd. and the Registrant incorporated by reference to
Exhibit 10.18 to the Registrant's registration statement on Form S-3, Commission
File No. 333-116908.

     10.33 Form of First Amendment to Purchase Warrant dated June 1, 2004 by and
between  each  of  Roan/Meyers  Associates,  L.P.  and  its  designees  and  the
Registrant,  incorporated  by  reference  to Exhibit  10.19 to the  Registrant's
registration statement on Form S-3, Commission File No. 333-116908.

     10.34  Asset  Purchase  Agreement  dated July 28,  2005 among  Health  Plus
Management Services,  L.L.C., Health Management Corporation of America,  Dynamic
Healthcare Management, Inc. and Fonar Corporation,  incorporated by reference to
Exhibit 2 to the Registrant's  Form 8-K, August 2, 2005,  Commission File No. 0-
10248.

     10.35 Partnership  Interest Purchase  Agreement dated September 29, 2008 by
and between Diagnostic Management, LLC and Raymond V. Damadian, M.D. MR Scanning
Centers Management  Company,  incorporated by reference to Exhibit 10.35 to Form
10-K for the fiscal year ended June 30, 2008. Commission File No. 0-10248.

     10.36 2010 Stock Bonus Plan,  incorporated  by reference to Exhibit 99.1 to
the  Registrant's  registration  statement  on Form  S-8,  Commission  File  No.
333-168771.

     14.1  Code  of  Ethics,  incorporated  by  reference  to  Exhibit  14.1  of
registrant's Form 10-K for the fiscal year ended June 30, 2004,  Commission File
No.: 0-10248.

     21.1 Subsidiaries of the Registrant. See Exhibits.

     23.1 Independent Registered Public Accounting Firm's Report See Exhibits.

     31.1 Section 302 Certification. See Exhibits.

     32.1 Section 906 Certification. See Exhibits.

     99.1  Press  Release  on  Sale  to  Largest  Orthopedic   Hospital  in  the
Netherlands, incorporated by reference to Exhibit 99.1 of registrant's Form 10-K
for the fiscal year ended June 30, 2006, Commission File No.: 0-10248.


SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                FONAR CORPORATION

Dated: October 13, 2010

                               By:/s/Raymond V. Damadian
                               Raymond V. Damadian, President

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this
amended  report has been signed below by the following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

    Signature                 Title                Date

/s/Raymond V. Damadian   Chairman of the      October 13, 2010
Raymond V. Damadian      Board of Directors,
                         President, Director
                         Principal Executive
                         Officer and Acting
                         Principal Financial
                         Officer)

/s/Claudette J.V. Chan   Secretary,           October 13, 2010
Claudette J.V. Chan      Director

/s/ Robert J. Janoff     Director             October 13, 2010
Robert J. Janoff

/s/ Charles N. O'Data    Director             October 13, 2010
Charles N. O'Data

/s/ Robert Djerejian     Director             October 13, 2010
Robert Djerejian



                             CORPORATE INFORMATION

Corporate Headquarters

110 Marcus Drive
Melville, NY  11747
(631) 694-2929

Investor Relations

FONAR Corporation
110 Marcus Drive
Melville, NY  11747
(631) 694-2929

Stock Transfer Agency

Computershare Trust Company, Inc.
350 Indiana Street, Suite 800
Golden, Colorado  80401

Auditors

Marcum LLP
New York, New York

Board of Directors

Raymond V. Damadian, M.D.
Chairman of the Board

Claudette Chan, Director

Robert Janoff, Director

Charles O'Data, Director

Robert Djerejian, Director

Officers

Raymond V. Damadian, M.D.
President, Chief Executive Officer and Treasurer

Claudette J.V. Chan
Secretary