Fonar Corp – ‘PREC14A’ on 4/25/03 re: Fonar Corp

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Preliminary Proxy Solicitation Material — Contested Solicitation   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: PREC14A     Preliminary Proxy Solicitation Material --           132±   521K 
                          Contested Solicitation                                 

Document Table of Contents

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SCHEDULE 14A INFORMATION        

PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by Registrant [X]                                     

Filed by a Party other than the Registrant [ ]              

Check the appropriate box:                                  

[X ] Preliminary Proxy Statement                            

       [  ] Confidential,  for use of the Commission only (as permitted by
Rule 14a - 6 (e) (2) )                            

[  ]  Definitive Proxy Statement                            

[  ] Definitive Additional Materials                        

[  ] Soliciting Material Pursuant to (ss.) 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 14a-6 (i)
(4) and 0-11.                                     

               (1)  Title of each  class  of  securities  to  which  transaction
applies:                                

               (2)  Aggregate number of securities to which transaction applies:

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

   (4)  Proposed maximum aggregate value of transaction:

(5)  Total fee paid:                              

[ ] Fee paid previously with preliminary materials.         

          [ ]  Check  box if any   part  of the fee is  offset  as  provided  by
               Exchange  Act Rule 0-11 (a) (2) and identify the filing for which
               the  offsetting  fee was paid  previously.  Identify the previous
               filing by registration  statement 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:                                  

Notes:                                                                

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 FONAR CORPORATION
110 Marcus Drive
   FONAR CORPORATION

 Proxy - Annual Meeting of Stockholders - June 9, 2003

 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,
David B. Terry, and Kurt Reimann,  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 Ramada Inn, junction of
Interstate 295 and Route 13, New Castle, Delaware on June 9, 2003 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.                                                              

No. 1.  ELECTION OF DIRECTORS                                                   

For All Nominees listed below               WITHHOLD AUTHORITY      
(except as marked to the contrary           to vote for all         
nominees below)                             listed below            

+-------------+                        +-------------+  
/             /                        /             /  
/             /                        /             /  
+-------------+                        +-------------+  

(INSTRUCTION:  To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.)                             

Raymond V. Damadian,  Claudette J. V. Chan, Robert J. Janoff,  Charles N. O'Data
and Robert Djerejian.                                                           

No. 2. To  authorize  the Board of Directors at any time or from time to time in
its sole  discretion,  to  increase  the  authorized  number of shares of common
stock, up to a maximum of 150,000,000.                                          

FOR               AGAINST               ABSTAIN     

+----------+         +----------+         +----------+        
/          /         /          /         /          /        
/          /         /          /         /          /        
+----------+         +----------+         +----------+        

No. 3. To ratify the adoption of (a) the Company's 2002  Incentive  Stock Option
Plan,  (b) the Company's  2002 Stock Bonus Plan and (c) the Company's 2003 Stock
Bonus Plan.                                                                     

FOR               AGAINST               ABSTAIN     

+----------+         +----------+         +----------+        
/          /         /          /         /          /        
/          /         /          /         /          /        
+----------+         +----------+         +----------+        

No.  4. To  ratify  the  selection  of Marcum &  Kliegman  LLP as the  Company's
independent auditors for the fiscal year ended June 30, 2003.                   

FOR               AGAINST               ABSTAIN     

+----------+         +----------+         +----------+        
/          /         /          /         /          /        
/          /         /          /         /          /        
+----------+         +----------+         +----------+        

No. 5. In their  discretion,  the Proxies are authorized to vote upon such other
business as may properly come before the meeting.                               

AUTHORITY                                 AUTHORITY 
GRANTED                                   WITHHELD

 +-------------+                           +-------------+
 /             /                           /             /
 /             /                           /             /
 +-------------+                           +-------------+

                            Dated:  ______________________, 2003

                          __________________________________
 Signature

                          __________________________________
                 Signature if jointly held

                                        PLEASE SIGN EXACTLY AS YOUR NAME
                                           APPEARS ON YOUR STOCK CERTIFICATES.
                                         In signing as attorney, executor,
                                           administrator, trustee or guardian,
                                         indicate such capacity. All joint
                                            tenants must sign. If a corporation,
                                      partnership, limited liability
                                            company or other entity, please sign
                                        by president or other authorized
               person.

The Board of  Directors  requests  that you fill in, date and sign the Proxy and
return it in the enclosed envelope.                                             

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Melville, New York 11747  
(631) 694-2929

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 9, 2003

To The Stockholders:                                                            

The Annual Meeting of the stockholders of Fonar  Corporation will be held at the
Ramada Inn, junction of Interstate 295 and Route 13, New Castle,  Delaware, June
9, 2003, at 10:00 a.m. local time for the following purposes:                   

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

2. To consider  and act upon a proposal to  authorize  the Board of Directors at
any  time  or from  time to  time,  in its  sole  discretion,  to  increase  the
authorized  number of shares of Common  Stock,  up to a maximum  of  150,000,000
shares.                                                                         

3. To ratify the adoption of (a) the Company's 2002 Incentive Stock Option Plan,
(b) the Company's  2002 Stock Bonus Plan and (c) the Company's  2003 Stock Bonus
Plan.                                                                           

4. To ratify the  selection of Marcum & Kliegman LLP as the  Company's  auditors
for the fiscal year ended June 30, 2003.                                        

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

Only  stockholders  of  record at the close of  business  on April 11,  2003 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 sign,  date,  and
return the enclosed  Proxy at your earliest  convenience.  Sending in your Proxy
will not  prevent  you from voting your stock at the meeting if you desire to do
so, as your Proxy is revocable at your opinion.                                 

                                            BY ORDER OF THE BOARD OF DIRECTORS

                            /s/ David B. Terry
                                            David B. Terry, Vice President and
                   Secretary

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 PRELIMINARY PROXY STATEMENT
 FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD JUNE 9, 2003

This proxy  statement,  which is first being mailed to  shareholders on or about
May __, 2003, 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
June 9, 2003 and any  adjournment(s)  thereof for the  purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders.  Stockholders who execute
proxies retain the right to revoke them at any time prior to the exercise of the
powers conferred  thereby,  by delivering a signed statement to the Secretary of
the  Company at or prior to the annual  meeting or by  executing  another  proxy
dated as of a later date. The cost of  solicitation of proxies is to be borne by
the Company.                                                                    

Only  stockholders  of record at the close of business on April 11, 2003 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 April 2,  2003,  there were  78,812,868  shares of
Common  Stock  held of record  by 4,715  stockholders,  4,153  shares of Class B
Common Stock held of record by 11 stockholders  and 9,562,824  shares of Class C
Common Stock held of record by 4  stockholders.  The shares of Class A Nonvoting
Preferred Stock, 7,836,286.75 shares held of record by 4,020 stockholders at the
close of business on April 2, 2003, are not entitled to vote.                   

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  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.  Management expects that each of the nominees will be
available  for  election,  but if any of them is not a candidate at the time the
election  occurs,  it is intended that such proxy will be voted for the election
of another  nominee to be  designated by the Board of Directors to fill any such
vacancy.                                                                        

DIRECTORS AND OFFICERS                                                          

Raymond  V.  Damadian,  M.D.  (age 67) 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,  President
and Treasurer of the Company's  subsidiary,  Health  Management  Corporation  of
America ("HMCA").                                                               

Claudette  J.V.  Chan (age 65) has been a Director of FONAR since  October 1987.
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 75) 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 member of the Board of Directors of Harmony
Heights of Oyster Bay,  New York,  which is a nonprofit  residential  school for
girls with learning disabilities.                                               

Charles N. O'Data (age 67) 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.
Mr.  O'Data  presently  acts an  independent  financial  consultant  to  various
entities,  including  Pittsburgh  National  Bank.  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,  which 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 (71), has been a Director of Fonar since June, 2002. Since 1996
Mr. Djerejian has served as a senior  consultant for Haines,  Lundberg & Waehler
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.  Mr.  Djerejian  serves on the Board of
Trustees of Pratt  Institute,  where he is also Vice  Chairman of the  Executive
Committee  and on the Board of  Directors  of the  Delaware  College  of Art and
Design, of which he was one of the founding directors. He is a graduate of Pratt
Institute, where he received a B.A. in Architecture in 1955.                    

David B. Terry (54) is the Vice President of Administration and Secretary of the
Company. Mr. Terry has been serving as Vice President since December 1998 and as
Secretary since May, 1990.  Previously,  he served as Treasurer from May 1990 to
December,  1998, as Secretary  from July 1978 through June 1987 and as Treasurer
from August 1981  through June 1987.  From July 1978  through June 1987,  he was
also a Director of the Company.                                                 

INFORMATION REGARDING THE BOARD AND ITS COMMITTEES                              

The five  nominees  will be elected to hold office for the ensuing year or until
their respective successors are elected and qualified.                          

During the year ended June 30, 2002 the Board of Directors unanimously consented
to take action in lieu of a meeting on five  occasions,  and the audit committee
met four times.                                                                 

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.      

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

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. All
of the directors on the audit committee are independent.                        

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  principals  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  and  Expert on Audit  Committee:  The Board has  determined  that Mr.
O'Data,  who currently is a financial  consultant  and finance  associate in the
Middle  States  Association,  and who  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.                                                                     

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 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,
2002.                                                                           

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

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 DIRECTOR.                                                      

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
March 28, 2003.                                                                 

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                                                           
CEO, 5% + Stockholder                                                         
Common Stock                    2,488,274                      3.16%    
Class C Stock                   9,561,174                     99.98%    
Class A Preferred                 477,328                      6.09%    

Claudette Chan                                                                  
Director                                                                        
Common Stock                        2,648                       *       
Class A Preferred                     800                       *       

Robert J. Janoff                                                                
Director                                                                        
Common Stock                       80,000                       *       
Class A Preferred                   1,999                       *       

Charles N. O'Data                                                               
Director                                                                        
Common Stock                          700                       *       

All Officers, Directors and Nominees                                            
as a Group (5 persons) (2) (3)                                                  
Common Stock                    2,578,220                      3.27%    
Class C Stock                   9,561,174                     99.98%    
Class A Preferred                 480,165                      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.  Includes  101  shares  of the  Company's  Common  Stock and 19 shares of the
Company's Class A Non-voting Preferred Stock held by an officer jointly with his
wife and 192 shares of the Company's Common Stock and 38 shares of the Company's
Class A Non-voting Preferred Stock held in trust by an officer for his children.

3. Includes options to purchase 6,286 shares of Common Stock held by an officer.

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,  2001 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 Chief Executive 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.   The  Chief  Executive  Officer's
compensation consists only of a salary which has remained constant for more than
the past three fiscal years. The Board of Directors does not have a compensation
committee.  Dr.  Raymond V. Damadian,  President,  Chief  Executive  Officer and
Chairman  of the Board,  is the only  executive  officer  who is a member of the
Board of Directors.  Dr. Damadian 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 Chief Executive  Officer.  No officer of the
Company  received  compensation in excess of $1 million in fiscal 2001 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 following  table discloses  compensation  received for the three years ended
June 30, 2002 by the Company's Chief Executive Officer.                         

Annual
Name and                         Compensation         Long-Term                 
Principal                        ------------       Compensation      All Other 
Position               Year     Salary     Other       Awards       Compensation
-------------------    ----   ----------   -----    ------------    ------------
Raymond V. Damadian    2002   $86,799.96      0               0              0  

Chairman of the;       2001   $86,799.96      0               0              0  
Board; President;                                                               
Chief Executive                                                                 
Officer;               2000   $86,779.97      0               0              0  
Director                                                                        

Compensation Pursuant to Stock Options and SAR Grants                           

No stock  options or stock  appreciation  rights were  granted to the  Company's
Chief Executive Officer during fiscal 2002.                                     

Option/SAR Exercises and Year End Values                                        

No options or stock  appreciation  rights were exercised by the Company's  Chief
Executive  Officer during fiscal 2001. The Company's Chief Executive Officer did
not hold any unexercised stock options or stock  appreciation  rights at the end
of fiscal 2002.                                                                 

Performance Graph                                                               

The following graph compares the annual change in the Company's cumulative total
shareholder  return on its Common Stock during a period  commencing  on June 30,
1997 and ending on December 31, 2002 (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment and (B) the difference between the Company's share price at the end
and the  beginning  of the  measurement  period;  by (ii) the share price at the
beginning of the  measurement  period) with the cumulative  total return of each
of: (a) the CRSP Total Return Index for Nasdaq U.S.  companies  ("Nasdaq");  (b)
the CRSP Total Return Index for Nasdaq Medical Device Manufacturers ("Nas-MDM");
and (c) the CRSP Total Return  Index for Nasdaq  Health  companies  ("Nas-Hea.")
during such period, assuming a $100 investment on June 30, 1997. The stock price
performance  on the graph below is not  necessarily  indicative  of future price
performance.                                                                    

PERFORMANCE GRAPH APPEARS HERE                                                  

Relative Dollar Values                                                      

             6/30/97   6/30/98   6/30/99   6/30/00   6/29/01   6/28/02  12/21/02
--------------------------------------------------------------------------------
Fonar Common                                                                    
Stock       $100.00    $78.96    $39.86    $72.82    $67.61    $68.63   $37.98
--------------------------------------------------------------------------------
NASDAQ-US    $100.00   $131.70   $189.22   $279.78   $151.98   $103.53   $94.77 
--------------------------------------------------------------------------------
NAS-MDM      $100.00   $116.41   $155.44   $179.03   $167.82   $152.55  $138.14 
--------------------------------------------------------------------------------
NAS-Hea.     $100.00   $97.42     $91.69   $70.76    $100.98   $91.17    $85.68 

2. INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK                      

Proposal                                                                        

     The Board of  Directors  has adopted a  proposal,  which if approved by the
stockholders, would authorize the Board in its discretion to increase the number
of  authorized  shares of our Common  Stock to such number as the Board may from
time to time determine,  up to a maximum of 150,000,000  shares, upon the filing
of a certificate  of amendment or a series of  certificates  of  amendment.  The
authorization  would  remain in effect,  unless and until  revoked by either the
stockholders or a future  resolution of the Board of Directors.  The Board would
reserve the right not to increase the number of authorized shares at all.       

Purpose and Effect of Amendment                                                 

     The purpose of the  proposal is to enable the Board of  Directors  to amend
the Company's  Certificate of Incorporation to increase the number of authorized
shares of Common Stock by such number of shares as the Board may at any one time
or from time to time deem in the best  interests of the  Company.  By giving the
Board  the  authority  to  determine  precisely  when and by how many  shares to
increase  the number of shares of  authorized  Common  Stock (up to  150,000,000
shares)  the  Company  will  have  the  same  flexibility  as if the  number  of
authorized shares were increased in advance to 150,000,000,  but be able to save
the additional  Delaware  franchise  taxes which will result from an increase in
authorized stock until such time as the increase is actually necessary.         

     At the present time, pursuant to the stockholder authorization given at the
1995 Annual Meeting, the Board is authorized to amend the Company's  Certificate
of Incorporation to increase the number of authorized  shares of Common Stock up
to 100,000,000 shares.                                                          

     As at April 2, 2003, there were issued and outstanding  approximately  78.8
million shares of Common Stock. In addition, the Company must reserve sufficient
shares of  Common  Stock to cover  the  conversion  rights of the Class B Common
Stock and the Class C Common  Stock  (approximately  3.2  million  shares in the
aggregate), and 2,959,501 shares underlying our issued and outstanding warrants.

Issuance of the Common Stock                                                    

     As is currently the case, the Board of Directors would continue to have the
authority to issue shares of the Common Stock in such  amounts,  to such persons
or entities,  upon such terms and conditions and for such  consideration  as the
Board may  determine  and without any vote or other action by the  stockholders,
unless required by applicable law or regulations.                               

     The shares  would be  available  for  issuance by the Board of Directors in
public and private  offerings to raise capital to finance the  Company's  future
growth,  in connection with  acquisitions,  for distributions to stockholders in
the form of stock dividends or stock splits, for employee compensation,  and for
other corporate purposes.                                                       

     The Company is  requesting  the  stockholders  to act upon the  proposal to
provide maximum  flexibility for further equity  financing,  without the need to
seek  further  stockholder  approvals,  which  can be both  time  consuming  and
expensive.                                                                      

     The  Board  of  Directors  does  not have  any  agreements  or  preliminary
agreements  or  understandings  to issue shares of Common Stock in any public or
private offering or in connection with an acquisition,  merger or other business
combination,  except that we have filed a shelf registration  covering 5 million
shares which become effective in February of 2003. Under the shelf  registration
process,  we are in a  position  to issue  shares  under  such  plan or plans of
distribution  as we may elect  provided  the plan is  described in an amended or
supplemental prospectus describing the proposed plan of distribution.           

     To date,  by a prospectus  and  prospectus  supplement  we have set aside 1
million  shares  which we are  issuing  to pay  vendors in  connection  with the
building of our MRI scanners  and other  suppliers  of goods and  services.  Our
objective is to accelerate our  production  rate and at the same time reduce per
unit  manufacturing  costs.  We are also  considering the possibility of selling
shares into the market to raise money for working capital purposes, but have not
yet selected a broker, dealer or underwriter to do so. Under our stock bonus and
option  plans,  we  expect  to  continue  to  issue  shares  to  our  employees,
consultants  and advisors.  The Company does not have any other  specific  plans
with respect to its unused authorized stock.                                    

3. RATIFICATION OF STOCK OPTION AND STOCK BONUS PLANS                           

     On July 1,  2002,  the  Board  of  Directors  adopted  the  Company's  2002
Incentive Stock Option Plan (the  "Incentive  Plan"),on June 1, 2002 adopted the
2002 Bonus Plan (the "2002 Bonus Plan") and on November 1, 2002 adopted the 2003
Stock  Bonus  Plan (the "2003  Bonus  Plan")  collectively,  the  "Plans").  The
stockholders are being asked to ratify the adoption of the Plans.               

     The Incentive Plan covers  2,000,000  shares of the Company's Common Stock;
the 2002 Bonus Plan covers  2,000,000  shares of the Company's Common Stock, and
the 2003 Bonus Plan covers  5,000,000  shares of the Company's Common Stock. The
Incentive  Plan permits the granting of incentive  stock  options until June 30,
2012, in the discretion of the Incentive Stock Option  Committee or the Board of
Directors  of the  Company,  to key  employees  of the  Company  and  any of its
subsidiaries. "Key employees" include all employees of the Company or any of its
subsidiaries who render substantial  services in management and  administration,
research and development, production, sales or marketing.                       

     The 2002 Bonus Plan  permits the  granting of stock  bonuses  until May 31,
2012, in the  discretion of the Stock Bonus  Committee or the Board of Directors
of the Company, to employees,  directors,  advisors and consultants for services
rendered or to be rendered to the Company or any of its subsidiaries.           

     The 2003 Bonus Plan permits the granting of stock bonuses until October 31,
2012, in the  discretion of the Stock Bonus  Committee or the Board of Directors
of the Company, to employees,  directors,  advisors and consultants for services
rendered or to be rendered to the Company or any of its subsidiaries.           

     The purpose of the Plans is to enable persons performing  valuable services
for the Company to acquire a  proprietary  interest  in the Company  through the
ownership of its Common Stock.  Management believes that such ownership provides
such persons  with a more direct stake in the future  welfare of the Company and
encourages them to remain in the service of the Company or its  subsidiaries and
that the Plans will assist the Company in obtaining  and  retaining the services
of such persons.                                                                

     Restrictions  may be  imposed  on resale (by  officers,  directors  and 10%
stockholders)  of the shares of Common  Stock  purchased  under the Plans by the
provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition,  any participant who may be deemed an affiliate of
the  Company,  as defined by the  Securities  and  Exchange  Commission,  may be
required  to utilize a separate  prospectus  to  reoffer or resell  such  shares
unless  an  exemption  is  applicable.  The  provisions  of  the  Incentive  and
Non-Statutory  Plans do not impose any restrictions on the resale of shares. The
Stock Bonus Committee or Board of Directors may impose restrictions on shares of
Common Stock issued pursuant to the Bonus Plan.                                 

THE PLANS 

     The following is a summary of certain  provisions of the Plans. The summary
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the Plans.  Copies of the Incentive  Plan, 2002 Bonus Plan and
2003 Bonus Plan are attached hereto as Exhibit A.                               

     The  Plans  are  administered  by  Committees  appointed  by the  Board  of
Directors of the Company,  consisting of individuals who serve at the discretion
of the Board and who are eligible to receive  options under the  Incentive  Plan
and stock bonuses under the Bonus Plans. In the absence of any  Committees,  the
Plans will be  administered  directly by the Board of Directors.  The Committees
determine,  among other things, who will receive options or stock bonuses,  when
the options or stock bonuses will be received,  the number of shares  underlying
each option or stock bonus,  the term of each option,  the date each option will
become  exercisable in whole or in part and the exercise price for the shares of
Common Stock  underlying  each  option.  The two members of the  Committees  are
officers of the Company, and Dr. Raymond V. Damadian,  one of the members of the
Committees,  is also  Chairman  of the  Board  of  Directors  and the  principal
stockholder of the Company.                                                     

     Options  granted  under the  Incentive  Plan are in the form of  "incentive
stock options," as defined in Section 422A of the Internal Revenue Code of 1954,
as amended  (the  "Code").  The  exercise  price for the shares of Common  Stock
underlying an option granted pursuant to the Incentive Plan may not be less than
the fair  market  value of the Common  Stock on the date the option is  granted,
except if the option is granted to an employee  who, at the time of the grant of
such option, is the owner of more than 10% of the total combined voting power of
all classes of stock of the  Company or any of its  subsidiaries,  the  exercise
price for the shares of Common Stock  underlying the option may not be less than
110% of the fair  market  value of the  Common  Stock on the date the  option is
granted.  The aggregate  fair market value of shares of Common Stock as to which
options may be exercised by an employee in any calendar year under the Incentive
Plan and any other plans of the Company and its  subsidiaries  providing for the
grant of options  qualifying as "incentive stock options," as defined in Section
422A of the Code, may not exceed $100,000. Any incentive stock option granted to
an employee  who, at the time of the proposed  grant,  owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
subsidiaries,  must expire no later than five years after the date of grant. All
other incentive stock options must expire no later than ten years after the date
of grant.                                                                       

     Options  granted under the Incentive  Plan may be exercised by the employee
only during his lifetime and during his  continued  employment  with the Company
except that any option  granted to an employee who  voluntarily  terminates  his
employment  with the  written  consent  of the  Company or whose  employment  is
involuntarily  terminated  will  expire  three  months  after the  cessation  of
employment.  If employment terminates by reason of retirement, an option granted
under  the  Incentive  Plan  is  exercisable  by the  recipient,  to the  extent
exercisable,  for a period  of three  months  from  the date of  retirement.  If
employment  terminates  by reason of  disability,  an option  granted  under the
Incentive Plan is exercisable by the recipient, at any time, for a period of one
year from the date of disability.  Options are not assignable  except by will or
the law of descent  and  distribution.  If  employment  terminates  by reason of
death,  an option  granted under the Incentive  Plan is exercisable by his legal
representatives, at any time, for a period of six months from the date of death.
Notwithstanding  the  above,  an  option  will  not  be  exercisable  after  the
expiration of the term of the option.                                           

     Bonus stock awards granted under the Bonus Plan are not  assignable  except
by will or the laws of descent and distribution.                                

     Upon  exercise of an option under the  Incentive  Plan,  the full  exercise
price of the  number  of  shares  purchased  must be paid by  certified  or bank
cashier's  check,  shares of Common Stock of the  Company,  or any other form of
consideration  acceptable  to the  Committee.  Partial  exercise of an option is
permitted  under the  Incentive  Plan.  In no event may a fraction of a share be
purchased or issued under the Incentive Plan.                                   

     The Incentive  Plan will remain in effect until the earlier of such time as
all shares covered by the Incentive  Plan have been issued or  transferred  from
treasury upon  exercise of options,  or June 30, 2012. No options may be granted
under the  Incentive  Plan after those  dates  although  previously  outstanding
options may be  exercised  until their  expiration  dates.  The Bonus Plans will
remain in effect  until the  earlier of such time as all  shares  covered by the
Bonus  Plans have been issued or May 31, 2012 in the case of the 2002 Bonus Plan
and October 31, 2012 in the case of the 2003 Bonus Plan and no stock bonuses may
be granted  under the Bonus Plan after that date.  Common  Stock  covered by the
Plans may be either treasury shares or authorized and unissued shares.          

     The Board of Directors  has the right to amend,  suspend or  terminate  the
Plans  at any  time,  except  that it may  not,  without  stockholder  approval,
increase the maximum number of shares covered by the Incentive Plan,  reduce the
minimum  option  price under the  Incentive  Plan or change the  maximum  period
during which options may be exercised under the Incentive Plan.                 

     In the event of stock dividends, stock splits and similar changes involving
the Common Stock of the  Company,  the  Committees  shall take such action as in
their  judgment  is  necessary  to  preserve  to the  holders of options  rights
substantially  proportionate  to the rights existing prior to such event. In the
event of any such change, the Committees may provide for an increase or decrease
in the number of shares of Common Stock subject to options outstanding under the
Incentive  Plan and the  aggregate  number of shares of Common  Stock  available
under the  Incentive or Bonus  Plans.  With respect to the  Incentive  Plan,  no
action  may be taken by the  Incentive  Stock  Option  Committee  which,  in its
judgment,  would  constitute a modification,  extension or renewal of the option
(within the meaning of Section 425(h) of the Code),  or would prevent the option
from  qualifying as an "incentive  stock option"  (within the meaning of Section
422A of the Code).  The  determination  of the Committees will be conclusive and
binding upon the participants in the Plans.                                     

     The Plans are not  subject to any  provisions  of the  Employee  Retirement
Income Security Act of 1974, as amended,  nor do the Plans qualify under Section
401(a) of the Code.                                                             

Federal Income Tax Consequences                                                 

     Incentive  Stock Options.  The grant of an incentive stock option will have
no immediate tax consequences  for the Company or the employee.  If the employee
exercises an incentive  stock option and does not dispose of the acquired shares
within two years  after the grant of the  incentive  stock  option or within one
year  after  the date of the  transfer  of such  shares  to him  ("disqualifying
disposition"), he will not realize any compensation income, gain or loss until a
subsequent  disposition of such shares. For purposes of the alternative  minimum
tax,  however,  the amount by which the fair market value of the acquired shares
at the  time  of  exercise  exceeds  the  option  price  will  be an item of tax
preference.                                                                     

     If an employee makes a  disqualifying  disposition,  he will be required to
include in income, as compensation, the lesser of (i) the difference between the
option price and the fair market  value of the acquired  shares (on the exercise
date or, in the case of certain  optionees who are officers or directors subject
to the profit  recapture  provisions  of Section  16(b) of the Exchange Act, six
months thereafter) and (ii) the amount of gain realized. In addition,  depending
upon the amount  received  as a result of such  disposition,  the  employee  may
realize capital gain or loss.                                                   

     The  Company  will  be  entitled  to  a  deduction   (provided   applicable
withholding or reporting  requirements are met) at the same time and in the same
amount as the  employee  is in receipt of  compensation  income as a result of a
disqualifying  disposition.   If  there  is  no  disqualifying  disposition,  no
deduction will be available to the Company.                                     

     Stock  Bonuses.  The grant of stock  bonuses  under the 2002 Bonus Plan and
2003  Bonus  Plan will  result in  compensation  to the  employee  which must be
recognized as ordinary income on the date the stock bonus is granted. The amount
of income will be the fair market value of the stock on the date the stock bonus
is granted.  The Company  will be entitled to a deduction  (provided  applicable
withholding or reporting  requirements  are met) for Federal income tax purposes
at the same time in the same amount as the  employee  is  required to  recognize
income.                                                                         

     Upon a  subsequent  sale or taxable  exchange  of the shares  acquired as a
result of stock  bonuses,  an employee will realize long or  short-term  capital
gain or loss equal to the difference between the amount realized on the sale and
the amount of income recognized on the grant of the stock bonus (his tax basis).

     The foregoing is only a brief summary of the applicable  federal income tax
laws and should not be relied  upon as being a complete  statement.  The federal
tax laws are  complex,  and they are subject to  legislative  changes and new or
revised judicial or administrative  interpretations.  In addition to the federal
income tax consequences  described herein,  the grant of options under the Plans
or the receipt of shares upon exercise thereof may also have  significant  state
and local tax consequences.                                                     

4. RATIFICATION OF SELECTION OF AUDITORS                                        

The Board of Directors  has  selected  Marcum & Kliegman  LLP, as the  Company's
independent  auditors for the fiscal year ending June 30, 2003. The stockholders
will be asked to ratify this action by the Board. Grassi & Co., CPA's, P.C. were
the  Company's  auditors  for the fiscal year ended June 30,  2001.  The Company
changed accounting firms when the individual  accountants handling the company's
matters moved to Marcum & Kliegman LLP. Marcum & Kliegman LLP were the Company's
auditors for the fiscal year ended June 30, 2002.                               

The Company's previous auditors,  Tabb,  Conigliaro & McGann,  P.C., merged into
Grassi & Co., CPAs, P.C. Tabb,  Conigliaro & McGann were the Company's  auditors
for the fiscal years ending June 30, 1990 through June 30, 2000.                

One or more representatives of Marcum & Kliegman 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  &  Kliegman  LLP for the  audit of the
Company's  annual  financial  statements for the fiscal year ended June 30, 2002
and the reviews of the financial statements included in the Company's Forms 10-Q
for the fiscal year ended June 30, 2002 were $386,000.                          

The  aggregate  fees  billed by Grassi & Co.,  CPAs,  P.C.  for the audit of the
Company's  annual  financial  statements for the fiscal year ended June 30, 2001
and the reviews of the financial  information  included in the  Company's  Forms
10-Q for the fiscal year ended June 30, 2001 were $317,221.                     

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION                         

No fees were billed by Marcum & Kliegman  LLP for the fiscal year ended June 30,
2002 or by Grassi & Co., CPAs,  P.C. for the fiscal year ended June 30, 2001 for
designing, operating, supervising or implementing any of the Company's financial
information  systems or any  hardware  or  software  systems  for the  Company's
financial information.                                                          

TAX FEES                                                                        

The  aggregate  fees  billed by Marcum & Kliegman  LLP for tax  compliance,  tax
advise and tax planning in the fiscal year ended June 30, 2002 was $194,922.    

The aggregate fees billed by Grassi & Co., CPAs,  P.C. for tax  compliance,  tax
advise and tax planning in the fiscal year ended June 30, 2001 was $244,503.    

ALL OTHER FEES                                                                  

The  aggregate  fees  billed by  Marcum &  Kliegman  LLP for all other  services
rendered by them during the fiscal year ended June 30, 2002 were $190,111, which
included  services in connection with the  registration of securities,  internal
control  reviews,  employee  benefit plan audits and reviews and procedures that
the Company  requested  Marcum & Kliegman to undertake to provide  assurances on
matters not required by laws or regulations.                                    

The aggregate  fees billed by Grassi & Co.,  CPAs,  P.C. for all other  services
rendered by them during the fiscal year ended June 30, 2001 were $163,441  which
included  services in connection with the  registration of securities,  internal
control  reviews,  employee  benefit plan audits and reviews and procedures that
the Company requested Grassi & Co. 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 Company's audit  committee  believes that the provision by Marcum & Kliegman
LLP of services in addition to audit  services in fiscal 2002 and the  provision
of  services  by Grassi & Co.,  CPAs,  P.C.  of  services  in  addition to audit
services in fiscal 2001 were compatible with maintaining their independence.    

All persons  performing  work on behalf of Marcum & Kliegman  LLP in  connection
with their engagement to audit the Company's financial statements for the fiscal
year ended June 30, 2002 were  full-time  permanent  employees  of Grassi & Co.,
CPAs, P.C.                                                                      

PROPOSALS OF STOCKHOLDERS                                                       

Proposals of stockholders intended to be presented at the 2004 annual meeting of
stockholders  must be received by the Company no later than __________,  2003 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 common 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,  and the  ratification  of 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 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  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.                

DATED: Melville, New York, May __, 2003                                         

A COPY OF THE  COMPANY'S  FORM 10-K  REPORT  FOR FISCAL  YEAR  2002,  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

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ANNUAL REPORT 2002

PRESIDENT'S MESSAGE                                                             

FONAR CORPORATION PRESIDENT'S MESSAGE TO STOCKHOLDERS                           

Dear Stockholders:                                                              

I am pleased to report to you that the  Stand-Up(TM) MRI is proving itself to be
all that we hoped it would be, and that I am very optimistic about the future of
our Company.                                                                    

The Stand-Up(TM) MRI - A Remarkable Product                                     

Because of its revolutionary magnet  configuration,  the Stand-Up(TM) MRI is the
only MRI that can perform Position Imaging(TM) (pMRI(TM)),  i.e. patients can be
scanned sitting, standing, bending, in flexion and extension, or lying down. Its
unique ability to scan patients in weight-bearing positions and to scan patients
in their positions of pain or symptoms has enabled it to detect pathologies that
went undetected on conventional lie-down (recumbent) MRI scanners.  The proof is
beginning  to  accumulate,  making the  Stand-Up(TM)  MRI the most  exciting and
talked-about  advancement in the field of MRI. Indeed, the best image is the one
that sees the pathology.                                                        

Operating on a proven platform of 0.6 Tesla  technology,  the  Stand-Up(TM)  MRI
makes  images  of  extraordinary  quality.  A full  range of  advanced  software
features and  state-of-the-art  pulse  sequences  provides the user with all the
tools necessary to achieve remarkable diagnostic precision.                     

Besides its unique diagnostic  advantages and extraordinary  image quality,  the
Stand-Up(TM)  MRI is  also  the  most  patient-friendly  MRI  in  the  industry.
Stand-Up(TM)  MRI  patients  typically  sit and watch a 45 inch  flat  screen TV
throughout their scans. A pleasant experience in a Stand-Up(TM) MRI is a far cry
from having to lie down in the  confining  tunnel space of a  conventional  MRI.
Very large or anxious patients who had repeatedly failed to tolerate other MRIs,
including "open" MRIs, have traveled  hundreds of miles, some from Europe to New
York,  to be  scanned in a  Stand-Up(TM)  MRI.  These  patients  are  invariably
relieved  and  extremely  grateful  to  finally  have  their  problems  properly
addressed and to get on with their treatment plans and their lives.             

Early results are confirming our expectation that the Stand-Up(TM) MRI's ability
to scan patients in  weight-bearing  positions,  either  sitting,  standing,  or
bending  would be  extremely  useful  for  accurately  diagnosing  back and neck
problems.  As you know,  back problems are very common.  The National Center for
Health  Statistics  reports that "14% of new patient  visits to physicians  each
year are due to low back pain, and almost 13 million  physician  visits per year
are required to care for chronic low back pain." Back pain is second only to the
common cold as a cause of lost time from work. So it is no surprise that roughly
half of all MRI scans performed today are of the spine.                         

The market is therefore huge and we are more confident than ever that a lie-down
MRI of the  back is an  incomplete  picture  of the  patient's  back and what is
causing his  problem.  Back pain can be most acute or might only be present when
the patient is in an upright, weight-bearing position. Only the Stand-Up(TM) MRI
can see the complete  picture of what is occurring in the spinal region when the
patient is upright.                                                             

Should surgery be required,  the  Stand-Up(TM) MRI provides the surgeon with the
most  comprehensive  evaluation  of the patient's  spine.  Dr. Manuel S. Rose, a
board-certified  diagnostic  radiologist  who  owns  two  Stand-Up(TM)  MRIs  in
Florida,  says,  "If the problem is a herniated  disk, it is quite possible than
the herniation,  when visualized  with the patient in a supine  position,  could
appear far less severe than it actually  is, or it could  disappear  altogether.
We've  seen this  happen on  several  occasions.  Through no fault of their own,
surgeons are at a serious  disadvantage  if they are guided only by lie-down MRI
images.  They do not see the full extent of the  patient's  back  pathology  and
therefore may choose a sub-optimal  surgical approach.  The result may be failed
back surgeries.  With the Stand-Up(TM) MRI, the surgeon can, for the first time,
visualize  pathology in both the supine and upright  positions,  allowing him to
accurately evaluate the full extent of the problem.                             

According to the June 1, 2002 issue of American Family Physician,  a peer review
journal for family practice physicians,  MRI is already "the procedure of choice
for diagnostic imaging of neurologic  structures related to lower back pain." So
when it comes to tools for diagnosing back problems, the Stand-Up(TM) MRI is the
preferred of the preferred.                                                     

While  diagnosing  spine and joint  problems is at present the most  obvious and
most  common  usage of the  Stand-Up(TM)  MRI, I expect  that its ability to see
inside the human body with the patient in an upright  position will, in the near
future, make it a valuable,  perhaps  indispensable,  diagnostic and therapeutic
tool  throughout  all of  medicine.  When a mother  later in life faces a common
longterm  result of multiple child births,  a weakened  pelvic floor and bladder
incontinence,  a picture can be obtained  exactly  showing  fallen pelvic organs
that proper  repairs can be planned.  A patient  who  experiences  dizziness  on
standing,  can now have an MRI arteriogram of his head while standing. A patient
with  chest-pain  on  walking  or  standing  will one day  have  his  coronaries
visualized standing by MR angiography.                                          

Repeat Sales                                                                    

Sales and Marketing  have become top  priorities at FONAR.  At this writing,  we
have  sold 38  Stand-Up(TM)  MRIs  and  installed  18.  I  might  add  that  our
manufacturing  and  installation  departments  are  doing  an  excellent  job in
accommodating our customers' installation schedules.                            

Most  sales  have  been  to  independent,   free-standing,   diagnostic  imaging
businesses. Three sales have been to hospitals, including Scotland's prestigious
University of Aberdeen.                                                         

Six  customers  have already  purchased  more than one system;  one customer has
purchased  eight and has six installed.  Stand-Up(TM)  MRIs in operation.  Other
multiple-purchase  customers are expected.  Repeat sales indicate the remarkable
appeal of the Stand-Up(TM) MRI to patients and physicians after the customer has
installed  them and put them to use. They  demonstrate  the  Stand-Up(TM)  MRI's
ability to create thriving enterprises.                                         

Since the time we first  introduced the  Stand-Up(TM)  MRI, we have never had as
many serious sales prospects as we have right now.                              

Marketing                                                                       

In the past,  our major  marketing  event has been our  exhibition at the annual
meetings of the  Radiological  Society of North America  (RSNA) in Chicago.  The
show typically draws 60,000, making it the largest medical meeting in the world.
At  the  last  RSNA  show  in   November/December   2002,  FONAR  exhibited  the
Stand-Up(TM) MRI with its beautifully restyled magnet configuration.            

The  Stand-Up(TM)  MRI, because of its unique ability to do  weight-bearing  and
Position  Imaging(TM),  has special appeal to orthopedic  surgeons.  In order to
reach that very important market for the Stand-Up(TM)  MRI, FONAR, for the first
time,  exhibited at the meeting of the American Academy of Orthopaedic  Surgeons
(AAOS) in New  Orleans  in  February  of this  year.  The show was  attended  by
approximately  12,000 domestic and international  orthopedic  surgeons and other
healthcare  professionals.  FONAR's exhibit was one of the largest on the floor.
The  physicians  were extremely  receptive and sales leads are being  vigorously
pursued.  In August 2003,  FONAR will be exhibiting  for the first time at World
Spine II, the 2nd  Interdisciplinary  Congress on Spine Care. The show,  held in
Chicago this year, is expected to attract over 1000 physicians from all over the
world, most of them orthopedic surgeons (40%) and neurosurgeons (50%).          

In October 2003 we will be  exhibiting,  again for the first time, at the annual
meeting of the North American  Spine Society  (NASS) in San Diego.  This meeting
will be attended  by  approximately  2500  physicians,  most of them  orthopedic
surgeons and  neurosurgeons  from North America.  As this will be an outstanding
marketing   opportunity   for  the  Company,   we  are  planning  a  high-impact
presentation,  similar to the highly  successful one we made at the AAOS meeting
earlier this year.                                                              

FONAR has  continued  its  national  media blitz that began in early  2002.  The
blitz,  which includes  primarily radio, TV and billboard  advertising,  targets
several  fronts.  We have two goals for each targeted  area:  to generate  sales
leads for the  Stand-Up(TM)  MRI, and to generate  business for any Stand-Up(TM)
MRI centers in the targeted  areas.  In steering  patients to  Stand-Up(TM)  MRI
centers  through  advertising,  we are  demonstrating  to  potential  buyers the
enormous  appeal that the  Stand-Up(TM)  MRI has for  physicians and the general
public alike. I am pleased to report that the response has been very encouraging
and that we are achieving our goals with our advertising program.               

HMCA                                                                            

Health Management  Corporation of America (HMCA), our wholly-owned physician and
diagnostic  services  management  subsidiary,  has  been  undergoing  some  very
positive changes.  Several  diagnostic  imaging centers with old FONAR equipment
have either been closed or upgraded with Stand-Up(TM) MRIs. This time last year,
HMCA managed only one  Stand-Up(TM)  MRI facility;  now it manages  three,  with
plans to upgrade as many  others as it can, as quickly as it can. In addition to
upgrading  existing  MRI  centers,  HMCA is,  as  financing  becomes  available,
interested  in  establishing  and  managing  new  Stand-Up(TM)  MRI  centers  in
promising regions of the country.                                               

Management  fees from  Stand-Up(TM)  MRI  facilities  are  excellent  sources of
revenue for the Company.  Our first  HMCA-managed  Stand-Up(TM)  MRI facility in
Islandia,  New York  consistently  completes over 400 scans a month. As reported
previously,  in the  first  six  months of  fiscal  2003  (July 1, 2002  through
December 31, 2002) HMCA enjoyed operating income of $537,000 from its management
of the Islandia  facility,  clearly  demonstrating the value to FONAR of selling
Stand-Up(TM)  MRIs to HMCA-managed  facilities.  It is our expectation  that our
newly-upgraded facilities in Bensonhurst,  New York and Staten Island, New York,
installed in January and April of 2003 respectively,  will repeat the success we
have enjoyed in Islandia.  A fourth  Stand-Up(TM) MRI upgrade will soon commence
in Florida. At present, HMCA manages 12 diagnostic imaging centers, primarily in
New York and Florida and plans to expand the number of its  Stand-Up  centers as
quickly as capital allows.                                                      

HMCA closed its only poorly-performing  multi-specialty practice late last year,
leaving the subsidiary with  management  revenues from the remaining six, all of
them in New York,  all of them doing  well.  In April  2003,  HMCA sold for $3.0
million  (together  with  forgiveness  of  indebtedness  of  approximately  $1.1
million) what had become a poorly-performing  group of four primary care offices
in Queens,  New York.  These offices  produced  losses in fiscal 2002 and in the
first six months of fiscal 2003.                                                

While closing down or selling poor performers will result in a temporary loss of
management  revenues,  the  savings  in  expenses  (and  time)  will  more  than
compensate,  thereby  contributing  to the  profitability  and  viability of the
company.  HMCA  is  doing  exactly  what  it  needs  to do -  growing  with  the
Stand-Up(TM) MRI and trimming where necessary.                                  

Revenues Growing, Losses Shrinking                                              

I am pleased to report that FONAR  revenue,  as  indicated  in the  accompanying
graph, is continuing its positive trend. In fact,  revenues increased 51% during
the first six months of fiscal 2003. [FONAR's fiscal 2003 year runs from July 1,
2002 through June 30,  2003].  The first  six-month  revenues were $30.0 million
compared to $19.9 million for the corresponding  period a year earlier.  The net
loss over the same period was $5.6 million,  a 34% improvement  over that of the
previous year.                                                                  

Total Revenues Chart for the past 10 quarters Quarter Revenues

   Quarter              Revenues
-----------------------    -----------    
1st Quarter Fiscal 2001     $9,091,000    

2nd Quarter Fiscal 2001     $9,946,000    

3rd Quarter Fiscal 2001    $11,978,000    

4th Quarter Fiscal 2001    $11,258,000    

1st Quarter Fiscal 2002    $10,153,000    

2nd Quarter FiscalF2002     $9,766,000    

3rd Quarter Fiscal 2002    $10,953,000    

4th Quarter Fiscal 2002    $13,807,000    

1st Quarter Fiscal 2003    $13,658,000    

2nd Quarter Fiscal 2003    $16,348,000    

I believe  that  there  are two keys to  shareholder  value.  The first is to be
successful in operating the business.  We are doing that. But the second,  which
is  also  important,  is to be in  close  and  regular  communication  with  the
financial community.  We need to do both. To that end we will be devising a plan
for the benefit of Fonar's  long-enduring  faithful  shareholders that will take
our story of financial  success as it  materializes to where it needs to go - to
the doorsteps of the financial institutions and funds.                          

Thank You                                                                       

We have a wonderful  product, a one of a kind product - the Stand-Up(TM) MRI. We
are seeing the  Stand-Up(TM) MRI do what no conventional MRI can or ever will be
able  to  do.  Physicians  are  enthusiastically  embracing  it for  its  unique
diagnostic  advantages,  and  patients  love it  because  it has  transformed  a
negative,  sometimes  horrifying,  scanning  experience  into a happy one. It is
opening new markets for FONAR and it is growing our subsidiary,  HMCA.  Revenues
are up, and we are  anticipating  a record year in sales. I hope you can discern
Fonar's  revenue growth is sustained and not incidental  indicating  advances in
substance and not in form.                                                      

I remain grateful to FONAR employees and  stockholders,  especially the ones who
have stood by us for so many years.  I am eager to deliver the business  results
that our faithful  shareholders  have long  deserved and believe that we have at
last  achieved  the  proper  product   configuration   and  synchrony  with  the
marketplace  that will enable us to meet our duty to our shareholders and to our
employees.  I look  forward with great  optimism to a prosperous  future for our
Company. Thank you for your support.                                            

Sincerely,                                                                      
Raymond V. Damadian                                                             
President and Chairman                                                          

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 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, 2002

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: 
None

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

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 if disclosure of delinquent filers,  pursuant to Item 405
of Regulation S-K  (ss.229.405 of this Chapter),  is not contained  herein,  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]                                     

As of September 19, 2002,  73,569,791  shares of Common  Stock,  4,211 shares of
Class B Common  Stock,  9,562,824  shares of Class C Common Stock and  7,836,287
shares of Class A Non-voting Preferred Stock of the registrant were outstanding.
The  aggregate  market value of the  approximately  71,021,571  shares of Common
Stock held by  non-affiliates  as of such date (based on the  closing  price per
share on September 19, 2002 as reported on the NASDAQ System) was  approximately
$73.9 million.  The other outstanding classes do not have a readily determinable
market value.                                                                   

 DOCUMENTS INCORPORATED BY REFERENCE
None

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ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

     FONAR  Corporation  (the  "Company"  or "FONAR") is a Delaware  corporation
which was  incorporated  on July 17, 1978.  The Company's  address is 110 Marcus
Drive,  Melville,  New York 11747 and its  telephone  number is (631)  694-2929.
FONAR also maintains a WEB site at www.fonar.com.                               

     FONAR is engaged in the business of designing,  manufacturing,  selling and
servicing  magnetic resonance imaging ("MRI" or "MR") scanners which utilize MRI
technology  for the detection and diagnosis of human disease.  FONAR  introduced
the  first  MRI  scanner  in  1980  and  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.  FONAR  introduced  the first "open" MRI in 1980. It has  concentrated
since on further application of its "open" MRI, introducing the Stand-Up(TM) MRI
scanner,  the  QUAD(TM)  MRI, the Open Sky(TM) MRI and its works in progress MRI
operating room.                                                                 

     The product we are now most vigorously  promoting is our Stand-Up(TM)  MRI.
The  Stand-Up(TM) 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 reclining.                                                     

     Health  Management  Corporation of America (formerly U.S. Health Management
Corporation and hereinafter  sometimes  referred to as "HMCA") was formed by the
Company  in March  1997 as a  wholly-owned  subsidiary  in order to  enable  the
Company  to expand  into the  business  of  providing  comprehensive  management
services to medical providers. HMCA provides management services, administrative
services,  office space, equipment,  repair and maintenance service and clerical
and other  non-medical  personnel to  physicians  and other  medical  providers,
including diagnostic imaging centers.                                           

     See Note 20 to the Financial Statements for separate financial  information
respecting  the  Company's   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 actual  results,  performance or
achievements of the Company to be materially  different from any future results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.  The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties.  The Company's plans
and  objectives are based,  in part, on  assumptions  involving the expansion of
business.  Assumptions  relating to the foregoing 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 the control of the Company. Although the
Company believes that its 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
Report  will prove to be  accurate.  In light of the  significant  uncertainties
inherent in the forward-looking statement included herein, the inclusion of such
information  should not be  regarded as a  representation  by the Company or any
other person that the objectives and plans of the Company will be achieved.     

RECENT DEVELOPMENTS AND OVERVIEW.                                               

     The Company's products and  works-in-progress are intended to significantly
improve the  Company's  competitive  position.  The  Company's  products are the
Stand-Up(TM)  MRI, the Fonar 360(TM),  the QUAD(TM) MRI scanner and the Echo(TM)
MRI scanner.                                                                    

     The Stand-Up(TM)  permits,  for the first time, MRI diagnoses to be made in
the weight-bearing  state. The Stand-Up(TM) 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, or, more
often than not,  in the  position  in which the  patient  experiences  pain.  An
elevator  built into the floor  brings the patient 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. In the future the  Stand-Up(TM) may also
be useful for MRI directed surgical procedures.                                 

     We are vigorously  promoting sales of the  Stand-Up(TM)  which we regard as
our most  promising  product.  The  market  for the  Stand-Up(TM)  shows  strong
progress.  During the fiscal year ended June 30, 2002, we received orders for 20
Stand-Up(TM) MRI scanners.  The following chart shows the revenues  attributable
to our  different  model  scanners  for the fiscal years ended June 30, 2001 and
June 30, 2002.  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.                                         

       Revenues Recognized
Model                          2001                2002   
-------------                  ----------          -----------  
Stand-Up(TM)                   $1,640,615          $11,089,675  
Fonar 360(TM)                       0                        0  
QUAD(TM)                       $3,043,308                    0  
Echo(TM)                       $1,052,182                    0  
Beta(TM)(used)                      0                  361,000  

     The Fonar  360(TM),  includes  the Open  Sky(TM)  MRI.  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 access to  patients  and the  availability  of MRI
compatible  surgical  instruments  will also  enable the Fonar  360(TM),  in its
future OR-360(TM) version, to be used for image guided surgery.                 

     The QUAD(TM) MR scanner  utilizes a  electromagnet  and is accessible  from
four sides.  The QUAD(TM)  was the first  "open" MRI scanner at high field.  The
greater  field  strength  of  the  QUAD(TM)'S  magnet,   when  enhanced  by  the
electronics  already  utilized by the Company's  scanners,  produces images of a
quality and clarity  competitive with high field  superconductive  magnets.  The
QUAD(TM) scanner magnet is the highest field "open MRI" in the industry.        

     In addition,  the Company  offers a low cost,  low-field  strength open MRI
scanner, the Echo(TM).                                                          

     The Company's  current  "works in progress"  include the  QUAD-S(TM)  which
combines many of the features of the QUAD(TM)  scanners  with a  superconducting
magnet. (See "Works in Progress".)                                              

     The Company's "works in progress" also include an in-office, weight-bearing
extremities scanner designed for examining the knee, foot, elbow, hand and wrist
under both weight-bearing and non-weight bearing conditions.                    

     Fonar  has  an   internal   sales  force  of   approximately   16  persons,
concentrating  on domestic sales.  Fonar continues to use  distributors  for its
foreign  sales  efforts.  Fonar has also  expanded  its website to a  full-scale
interactive  product  information  desk for reaching new customers and assisting
existing customers.                                                             

     In March  1997,  FONAR  formed  Health  Management  Corporation  of America
(formerly U.S. Health Management  Corporation and hereinafter sometimes referred
to as "HMCA") as a  wholly-owned  subsidiary  for the purpose of engaging in the
business of providing  comprehensive  management  and  administrative  services,
office  space,  equipment,  repair and  maintenance  service for  equipment  and
clerical and other personnel  (other than  physicians) to physicians'  practices
and other medical providers, including diagnostic centers.                      

     HMCA currently is managing 13 diagnostic imaging centers, four primary care
offices and seven physical therapy and rehabilitation  offices practices located
principally in New York State and Florida.                                      

PRODUCTS                                                                        

     The  Company's  principal  products  are its  Stand-Up(TM)  MRI,  the Fonar
360(TM), the series and the Echo(TM).                                           

     The  Stand-Up(TM)  MRI  is  a  whole-body  open  MRI  system  that  enables
positional  MRI (pMRI(TM))  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,  sitting 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.                                       

     The   Stand-Up(TM)  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 the 48" panoramic TV (part of the  scanner)the  patient views during
the scan.  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 will
be 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 Stand-Up(TM) will also be useful for MR-directed surgical procedures as
the surgeon 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  the
Company's 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) version,  the
Fonar 360(TM) serves as an open patient friendly scanner which allows 360 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,  like that of
FONAR's QUAD-S(TM) MRI scanner, is 0.6 Tesla.                                   

     In the  future,  we may also  develop  the Fonar  360(TM) to function as an
operating  room. We sometimes  refer to this  contemplated  version of the Fonar
360(TM) as the OR-360(TM).  In its OR-360(TM) version,  which is in the planning
stages, the enlarged room sized magnet and 360 access to the patient afforded by
the Fonar  360(TM)  would permit  full-fledged  surgical  teams to walk into the
magnet and perform  surgery 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 real time
during surgery to guide the surgeon in the surgery.  Thus surgical  instruments,
needles, catheters,  endoscopes and the like can be introduced directly into the
human body and  guided to the  malignant  lesion by means of the MRI image.  The
number of inoperable  lesions should be greatly  reduced by the  availability of
this new capability.  Most importantly  treatment can be carried directly to the
target tissue.                                                                  

     A Neurosurgeon,  for example, has direct access to the patient's head while
the patient is lying in the scanner and can perform image guided neurosurgery in
this magnet.  The unimpeded access in the space above the patient is also useful
for  surgical  access,  positioning  of  life  support  devises,  neuro-surgical
microscopes and anaesthetic gases. It should be noted that these procedures have
not  yet  been   performed  in  the  scanner,   although   they  are   promising
possibilities.                                                                  

     With current  treatment  methods,  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.  The Company
expects that with the OR-360(TM) treatment agents may be administrated  directly
to the malignant  tissue through small catheters or needles allowing much larger
doses of chemotherapy,  x-rays, laser ablation,  microwave,  or if to be applied
directly and  exclusively to the malignant  tissue with more effective  results.
Since the 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 will enable the operator to
make assessments during treatment if his treatment is being effective.          

     The interventional  OR-360(TM) version of the Fonar 360(TM) is still in the
planning  stages.  There is not a prototype.  A separate FDA  submission for the
interventional  360 has not been made as yet and might not be  necessary in that
it was not required of other MRI  manufacturers in similar  situations.  We note
that other  manufacturers have incorporated the use of their imaging machine for
use in interventional procedures without separate FDA submissions.              

     The  QUAD(TM)  MRI  scanner  utilizes a 6000 gauss  (0.6  Tesla)  iron core
electromagnet  and is accessible  from four sides.  The QUAD-S(TM) was the first
"open" MRI scanner at high field.                                               

     In  addition  to  the  patient  comfort,   increased   throughput  and  new
applications (such as MRI directed surgery and MRI breast imaging) made possible
by the  QUAD(TM)  scanner's  open  design,  the QUAD(TM) is 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
QUAD(TM)'s design over its predecessors also include increased  image-processing
speed and diagnostic flexibility.                                               

     MRI directed surgery  (laproscopic  surgical procedures) is possible by the
QUAD(TM)'s ability to supply images to a monitor positioned next to the patient,
enabling a surgeon  to view in  process  surgical  procedure  from an  unlimited
number of vantage  points.  The  openness of FONAR's  QUAD(TM)  scanner  enables
surgeons to perform a wide range of surgical procedures inside the magnet.      

     Four sides are open on the QUAD(TM),  thus allowing  access to the scanning
area from four vantage points.  With the QUAD(TM)'s  multi-bed  patient handling
system, many more short scan procedures such as those used in breast imaging can
be done in a day,  allowing  the price of MRI  breast  imaging  to drop  without
reducing the scanner's  revenue-generating  capacity. At the same time, there is
not the painful compression of the breast characteristic of X-ray mammography.  

     The Stand-Up(TM) MRI, Fonar 360(TM) and QUAD(TM) scanners share much of the
same  fundamental  technology  and offer  the same  speed,  precision  and image
quality.  These scanners initiated the new market segment of high-field open MRI
in which the Fonar  Stand-Up(TM) is one of the market  leaders.  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  Stand-Up(TM)  MRI, Fonar 360(TM) and QUAD(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 the  Company'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.  One open scanner was recently introduced at
0.7 Tesla field strength and differs negligibly from Fonar's 0.6 Tesla scanners.

     The  Stand-Up(TM),  Fonar  360(TM) and  QUAD(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 Stand-Up(TM)
MRI,  Fonar  360(TM)  and  QUAD(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.  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 Stand-Up(TM) MRI, Fonar 360(TM) and
QUAD(TM) scanners operate squarely in the optimum C/N range.                    

     The  Stand-Up(TM)  MRI, Fonar 360(TM) and QUAD(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's also Evolving  Images(TM),  Multi-Angle Oblique
(MAO)(TM) 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  Company  also  offers a low cost open  scanner,  the  Echo(TM),  which
operates at a .3 Tesla field strength.  The Echo(TM) is an open upgraded version
of the Company's former principal product, the Beta(TM) MRI scanner, but open on
four sides to provide four directions for patient access instead of two.        

     Prior to the  introduction  of the  Stand-Up(TM)  MRI,  Fonar  360(TM)  and
QUAD(TM)  scanners,  the Ultimate(TM) 7000 scanner,  introduced in 1990, was the
Company's  principal  product.  The Ultimate(TM)  scanner replaced the Company's
traditional  principal  products,  the Beta(TM) 3000 scanner  (which  utilized a
permanent  magnet) and the Beta(TM) 3000M scanner  (which  utilized an iron core
electromagnet).  All of the Company's  current and earlier model scanners create
cross-sectional images of the human body.                                       

     During fiscal 2002, sales of the Company's  QUAD(TM) scanners accounted for
none of the  Company's  revenues,  as  compared to 7.2% of the  Company's  total
revenues  and 29% of its medical  equipment  segment  revenues  in fiscal  2001.
During fiscal 2002, sales of the Company's  Stand-Up(TM)  scanners accounted for
approximately  24.7% of total revenues and 68.7% of medical equipment  revenues,
as compared to 3.9% of total revenues and 15.5% of medical equipment revenues in
fiscal 2001. Sales of Echo(TM)  scanners  accounted for 0% of total revenues and
0% of medical  equipment  revenues  in fiscal  2002 as compared to 2.5% of total
revenues and 10% of medical equipment revenues in fiscal 2001.                  

     There were no sales of Beta(TM)  scanners in fiscal  2001,  but 1% of total
revenues and 2.1% of medical equipment revenues in fiscal 2002 were derived from
the sale of a refurbished Beta(TM) scanner.                                     

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

WORKS-IN-PROGRESS                                                               

     All of the Company's  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 soft  tissue.  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 like healthy breast tissue and cancerous tissue poorly because the x-ray
particle  traverses the tissues almost equally thereby rendering the target film
equally exposed by the two tissues and creating healthy and cancerous shadows on
the film that differ  very  little in  brightness.  The image  contrast  between
cancerous and healthy tissue is poor,  making the detection of breast cancers by
the   x-ray    mammogram   less   than   optimal.    If    microscopic    stones
(microcalcifications) are not present to provide the missing contrast 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%.                             

     On the other  hand the soft  tissue  contrasts  with  which to  distinguish
cancers on images by MRI are up to 180%.  This is because the nuclear  resonance
signals from the body's tissues differ so dramatically. Liver cancer and healthy
liver signals  differ by 180%.  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.                       

     The Company views its Stand-Up(TM) MRI as the ideal mammography  machine as
it permits the patient to be seated for the  examination  and be easily accessed
for an MR image guided breast biopsy when needed.                               

     The Company is developing a superconductive  version of its open iron frame
magnets, the "QUAD-S(TM)",  a 0.6 Tesla  superconductive  magnet. The QUAD-S(TM)
will have a field  strength  between 0.6 to 1.0 Tesla and a 18-inch gap vertical
field. This MRI scanner will combine the benefits of its open non claustrophobic
patented  iron-frame,  vertical field magnet design with the high field strength
of  a  superconducting  magnet.  The  Company  received  FDA  approval  for  the
QUAD-S(TM) in June, 2001.                                                       

     In addition,  the Company's works in progress  include an in-office  weight
bearing  extremities  scanner which will be able to be used to examine the knee,
foot,  elbow,  hand and wrist.  This scanner will allow scans to be performed in
under both weight- bearing and non-weight-bearing conditions.                   

PRODUCT MARKETING                                                               

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

     Fonar's  internal  sales force is  approximately  16 persons.  Our internal
sales force  handles the domestic  market  while we continue to use  independent
distributors  for foreign  markets.  In addition to its internal  domestic sales
force, Fonar and G.E. Medical, a division of General Electric, have entered into
an  arrangement   pursuant  to  which  G.E.  Medical  will  act  as  independent
distributor for Fonar's Stand-Up(TM) MRI scanner.                               

     In addition, the Company has expanded its website to include an interactive
product information desk for reaching customers. The Company plans to commence a
program for providing  demonstrations of its products to potential  customers on
an international basis.                                                         

     The Company has exhibited its new products at the annual trade show held by
the  Radiological  Society of North America  ("RSNA") in Chicago since  November
1995 and plans to attend the RSNA trade show in November  2002 and future years.
The RSNA trade show is held  annually and is attended by most  manufacturers  of
MRI scanners.                                                                   

     The Company is directing its marketing  efforts to meet the demand for both
"open" and high field strength MRI scanners. Fonar plans to devote its principal
efforts to  marketing  the  Stand-Up(TM)  MRI,  which is the only scanner in the
industry   that  has  the  unique   capability   of  scanning   patients   under
weight-bearing  conditions.  In addition the Company will continue to market its
Fonar 360(TM),  QUAD(TM) and Echo(TM) MRI scanners.  Utilizing a 6000 gauss (0.6
Tesla field  strength)  iron core  electromagnet,  the  Stand-Up(TM)  MRI, Fonar
360(TM)  and  QUAD(TM)  scanner  magnets  are among the high  field  "open  MRI"
scanners in the industry.                                                       

     The  Company  also  will seek to  introduce  new MRI  applications  for its
scanners such as MRI-directed surgery and head-to-toe MRI preventive screening. 

     Fonar's areas of operations are  principally  in the United States.  During
the  fiscal  year ended  June 30,  2002,  3.5% of the  Company's  revenues  were
generated  by foreign  sales,  as compared to 0%, 2.8% and 3.4% for fiscal 2001,
2000 and 1999 respectively.                                                     

     The Company is seeking to promote  foreign  sales and has 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                                           

     The  Company's  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 the  Company's
external  installed base were  approximately  $1.7 million in fiscal 2000,  $2.0
million in fiscal 2001 and $2.2 million in fiscal 2002.                         

     The  Company  anticipates  that its new line of  scanners  will  result  in
upgrades  income in future  fiscal  years.  The  potential  for upgrades  income
originates  in the  versatility  and  productivity  of the MRI  technology.  New
medical uses for the technology are constantly  being  discovered.  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 current
MRI angiograms to synchronize  the angiograms to the cardiac cycle.  By doing so
the dynamics of blood vessel filling and emptying can be visualized with movies.
Such enhancements are attractive to the 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.  At the present  time,  however,  upgrade
revenue is not  significant.  Upgrade  revenues were  approximately,  $36,000 in
fiscal 2000, $0 in fiscal 2001 and $386,898 in fiscal 2002.                     

     Service and upgrade  revenues are expected to increase as sales of scanners
and the size of the customer base increases.                                    

RESEARCH AND DEVELOPMENT                                                        

     During  the  fiscal  year  ended  June  30,  2002,  the  Company   incurred
expenditures of $5,955,394  ($855,612 of which was  capitalized) on research and
development,  as compared to $6,621,225  ($754,804 of which was capitalized) and
$5,893,648($361,323  of which was capitalized)  incurred during the fiscal years
ended June 30, 2001 and June 30, 2000, respectively.                            

     Research  and  development  activities  have  focused  principally,  on the
development  and  enhancement  of the new  Stand-Up(TM)  and Fonar  360(TM)  MRI
scanners and its new extremities scanner. The Stand-Up(TM) 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.  The  Company's  research  activity  includes  developing a
multitude  of new features for the upright  scanning  made  possible by the high
speed processing power of its 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 of new receiver
surface coils for the Stand-Up(TM) MRI.                                         

BACKLOG                                                                         

     The Company's  backlog of unfilled orders at July 1, 2002 was approximately
$25.5  million,  as compared to $10.8 million at July 1, 2001. Of these amounts,
approximately  $7.7  million  and $1.6  million  had been paid to the Company as
customer  advances  as at July 1, 2002 and July 1,  2001,  respectively.  Of the
backlog  amounts  at July 1,  2002 and  July 1,  2001,  $6.9  and  $4.4  million
respectively  represented  orders  from  affiliates.  It is  expected  that  the
existing  backlog of orders will be filled within the current  fiscal year.  The
Company's  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                                                            

     The Company  currently  has numerous  patents in effect which relate to the
technology and components of the MRI scanners.  The Company  believes that these
patents, and the know-how it developed, are material to its business.           

     Dr.  Damadian  granted an  exclusive  world-wide  license to the Company to
make, use and sell apparatus  covered by certain domestic and foreign patents in
his name relating to MRI  technology.  No patents covered by this license are in
effect any longer.                                                              

     One of the patents,  issued in the name of Dr. Damadian and covered by said
license,  was United  States  patent  No.  3,789,832,  Apparatus  and Method for
Detecting Cancer in Tissue (the "1974 Patent").  The development of the Beta(TM)
3000 was based  upon the 1974  Patent,  and  Management  believes  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.  None  of  the  recoveries  with  respect  to  the
enforcement of this patent were received by Dr. Damadian.                       

     Historically,  the patent for  multiple  angle  oblique  imaging  generated
significant  revenues in connection  with the  enforcement and settlement of our
patent  litigations.  As a result  of these  litigations  and  settlements,  our
competitors  are now entitled to use this  technology as well.  This patent will
expire in 2006.                                                                 

     The Company  has  significantly  enhanced  its patent  position  within the
industry and now possesses a substantial  patent  portfolio  which  provides the
Company,  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.  The Company has
68 patents issued and approximately 50 patents pending.  A substantial 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 68 issued patents expire at
various times between June 23, 2004 and November 25, 2018.                      

     The Company has entered into a cross-licensing  agreement  (utilizing other
than FONAR's MRI technology)  with another entity to use prior art developed for
nuclear magnetic resonance  technology and has entered into a license to utilize
the MRI technology  covered by the existing patent portfolio of a patent holding
company. The Company also has 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.  In 2000,  the  size of the MRI  market  in the  United  States  was
approximately  $1.041 billion. In 2001, the size of the MRI market in the United
States was  approximately  $1.202 billion.  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 (0.6 Tesla field strength) iron core
electromagnet,  were the first  "open" MR  scanners at high field  strength.  In
addition FONAR's works-in-progress include a superconductive version of its open
iron frame magnets.                                                             

     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, quiet and in the case of the QUAD(TM) scanners allow
for faster throughput of patients.                                              

3. Their annual operating costs are lower.                            

     4.  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 the Company's  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 the Company
believes  that the lower cost of its systems  plus the  benefits  of  "openness"
provided  by its  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; Marconi Medical (formerly Picker International), Philips N.V.,
Toshiba Corporation,  Hitachi Corporation and Siemens A.G. Most competitors have
marketing and financial  resources more  substantial than those available to the
Company and 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 and iron
frame products. FONAR's current market share of the United States market for MRI
scanners is slightly less than 1.0%.  FONAR  introduced  the first "Open MRI" in
1982.  "Open MRI" was made  possible  by FONAR's  introduction  of an MRI magnet
built on an iron frame.  Thus the  magnetic  flux  generating  apparatus  of the
magnet  (magnet  coils or  permanent  magnet  bricks)  was built into a frame of
steel.  The steel frame  provided a return path for the magnetic  lines of force
and thereby kept the magnetic lines of force contained  within the magnet.  This
enabled  FONAR,  from 1982 on, to show that the FONAR magnet was the only magnet
that allowed the patients to stretch out their arms, the only "open" MRI.       

     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
operating  room where  surgeons are  standing),  provided a much more  versatile
magnet design than was possible with air core magnets.  Air core magnets contain
no iron but consist entirely of turns of current carrying wire. FONAR's patented
work-in-progress  superconductive iron frame magnet, however,  combines the high
field  capability of the air core  superconductive  magnets with the control and
versatility of the open iron frame magnets, thereby joining the best features of
both designs into a single  magnet.  Thus the air core  superconductive  magnets
made by Fonar's large  competitors that have dominated the MRI market since 1983
remain the confining "tunnel" design that the public has generally resented.    

     For an 11 year period from 1983-1994,  Fonar's large  competitors (with one
exception)  generally  rejected  Fonar's "open" design but by 1994 all (with one
exception)  added the iron frame "open"  magnet to their MRI product  line.  One
principal  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  surgical  procedures  under MRI image  guidance,  a field  which is now
growing rapidly and is called "interventional MRI."                             

     Fonar's future OR-360(TM) version of the Fonar 360(TM) explicitly addresses
this growing market  reception of MRI guided surgical  procedures but is not yet
available  as a product.  Fonar's  Stand-Up(TM)  and  QUAD(TM)  magnets do also.
Although not enabling a full operating  theater as the OR-360(TM) does, the iron
frame "Open" QUAD(TM) and Indomitable designs permit ready access to the patient
from four sides and therefore  enables a wide range of  interventional  surgical
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.                                                                        

     While Fonar's  current market share of the domestic the MRI market is under
1.0%,  FONAR  expects to be a leader in  domestic  open MRI  market for  several
reasons.  In MRI, scanning speed and image quality is controlled by the strength
of the magnetic field. Fonar's Stand-Up(TM), Fonar 360(TM) and QUAD(TM) scanners
operate at 0.6 Tesla,  which make them among the highest field strength open MRI
scanners.  Furthermore,  the  Stand-Up(TM)  MRI is the  only  MRI  which  allows
patients  to  be  scanned  under  weight-bearing  conditions.   High  field  MRI
manufacturers  convinced the marketplace for FONAR, and the marketplace accepts,
that higher field strength  translates  directly into superior image quality and
faster  scanning  speeds.  No companies  possess the  Stand-Up(TM)  MRI or Fonar
360(TM)  scanners,  and  FONAR  possesses  the  pioneer  patents  on "Open  MRI"
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   ("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 (QS)  regulation,  also known as Good
Manufacturing Practices or GMPs, and Medical Device Reporting (MDR) regulations.
The QS regulation  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 certain 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 Good Manufacturing  Practices (GMP)
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
[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.                   

     The Company  received  approval to market its  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 June
25, 1992,  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  Stand-Up(TM)  MRI. The Company received FDA clearance for the
QUAD-S(TM)  on June 6,  2001 . The  Company  anticipates  that it may  need  FDA
clearance for the OR-360(TM) version of the Fonar 360(TM).                      

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 (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  (PMA)
application or a Premarket Notification [510(k)] submission to the FDA. Clinical
studies are most often conducted to support a PMA.                              

     For the most part,  however,  Fonar has 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. 

     Fonar has established and maintains 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 report(s); 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  four Class II recalls.  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 (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                                                   

     The Company obtains  approvals as necessary in connection with the sales of
its  products  in  foreign  countries.  In some  cases,  FDA  approval  has been
sufficient for foreign sales as well. The Company's  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  Fonar  sells  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 (EU),
made up of 15 individual countries, has some essential requirements described in
the EU's  Medical  Device  Directive  (MDD).  In order to export to one of these
countries,  FONAR  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  FONAR  enlist  a  Notified  Body  to  examine  and  assess  our
documentation (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 (EMC). Also required is a Quality
System  (ISO-9001)  assessment by the Notified Body.  Fonar was approved for ISO
9001 certification for its Quality Management System in April, 1999.            

     Fonar  received  clearance to sell the QUAD(TM)  scanners in the EU in May,
1999.  Clearances  for the Fonar  360(TM) and  Stand-Up(TM)  MRI  scanners  were
obtained in May, 2002.                                                          

     Other  countries  such as China and Russia  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
Fonar's expense before exporting.                                               

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

     Because  Fonar's  export  sales are not  material  at this  point,  foreign
regulation does not have a material effect on Fonar. In any case, Fonar does not
believe that  foreign  regulation  will deter its efforts to  penetrate  foreign
markets.                                                                        

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.                                                                     

HEALTH MANAGEMENT CORPORATION OF AMERICA                                        
(PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES BUSINESS)                         

     Health  Management  Corporation of America  (formerly  known as U.S. Health
Management  Corporation  and referred to as "HMCA") was organized by the Company
in March 1997 as a  wholly-owned  subsidiary  for the purpose of engaging in the
business of providing comprehensive management services to physicians' practices
and other medical providers,  including diagnostic imaging centers and ancillary
services.   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 a result of five  acquisitions  completed  by HMCA between June 30, 1997
and August 20, 1998 and the growth and expansion of its clients' MRI  facilities
and practices, HMCA currently manages 13 MRI facilities,  seven physical therapy
and rehabilitation  practices and four primary care medical  practices.  For the
2002 fiscal year,  the revenues HMCA  recognized  from the MRI  facilities  were
$15,514,294,   the   revenues   recognized   from  the   physical   therapy  and
rehabilitation  practices were $11,493,680 and the revenues  recognized from the
primary care medical practices were $1,517,465.                                 

HMCA GROWTH STRATEGY                                                            

     HMCA  has  changed  its  growth  strategy  from  pursuing  acquisitions  to
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 is to promote and  facilitate the  replacement of existing  scanners
with new Fonar  Stand-Up(TM)  MRI scanners at the most promising  locations.  To
date, a new  Stand-Up(TM)  MRI scanner has been installed at the MRI facility in
Islandia, New York, two replacement Stand-Up(TM) MRI scanners are in the process
of being installed at the Staten Island and Bensonhurst,  New York facilities we
manage and two additional  Stand-Up(TM)  MRI scanners are planned for the Garden
City, New York and Deerfield Beach, Florida facilities we manage.               

     HMCA's longer range plans involve  upgrading or opening new MRI  facilities
clustered  in selected  television  and radio media areas in New York,  Florida,
Houston,  Boston,  Los Angeles  and  Chicago,  although at the present  time our
efforts are focused only in the New York and Florida markets.  Marketing efforts
in targeted areas include television, radio and billboard advertising.          

     In addition,  HMCA has  promoted  the opening of new  physical  therapy and
rehabilitation offices by existing clients, expanding the number of such offices
from the initial  three  offices  managed in August,  1998 to the seven  offices
currently  being managed.  The number of primary care medical  offices we manage
has remained  constant at four.  We have no present plans to increase the number
of primary care offices we manage.                                              

PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES                                    

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

(1)  Offices and  Equipment.  HMCA  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,  as  well as  process  the  necessary  tax,
insurance and other documentation relating to employees.              

(3)  Administrative.  HMCA assists in the  scheduling  of patient  appointments,
     purchasing  of medical  supplies and  equipment  and handling of reporting,
     accounting,  processing  and  filing  systems.  It  prepares  and files the
     physician  portions of complex  forms to ensure full and timely  regulatory
     compliance and appropriate cost reimbursement  under no-fault insurance and
workers' compensation guidelines.                                     

(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.                                   

(5)  Cost Saving Programs.  Based on available volume  discounts,  HMCA seeks to
     obtain favorable pricing for medical supplies,  equipment,  pharmaceuticals
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 is expanding  the ancillary  services  offered in its
     network  to  include  CT-scans,  x-rays,  ultrasound,  and other  ancillary
services useful to its 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.
     These plans are mutually  developed.  Additional  physicians and physicians
assistants have been added where needed.                              

     HMCA advises clients on all aspects of their business,  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 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.                                                            

     In the case of contracts with the MRI facilities,  fees are charged by HMCA
based  on the  number  of  procedures  performed.  In the  case of the  physical
rehabilitation and medical practices,  flat fees are charged on a monthly basis.
Fees are subject to adjustment  on an annual basis,  but must be based on mutual
agreement.  The per procedure  charges to the MRI facilities  range from $150 to
$760 per MRI  scan.  The  monthly  fees  charged  to the  medical  and  physical
rehabilitation  practices range from approximately  $59,300 to $297,500.  No MRI
facilities,  physical and  rehabilitation  facilities  or medical  practices are
owned by HMCA. Only one chiropractic  practice  managed by HMCA,  providing HMCA
with  management fees of  approximately  $180,000 in fiscal 2002 and $210,000 in
fiscal 2001, is owned by a seller in an acquisitions.                           

     The practices and the  facilities  enter into  contracts  with managed care
companies.  With the  exception  of some  capitated  health  plans in which  the
medical  practices  participate,  neither HMCA's clients nor HMCA participate in
any risk sharing  arrangements  capitated plans are those HMO programs where the
provider is paid a flat monthly fee per patient. For the fiscal years ended June
30, 2002 and June 30, 2001, fees to HMCA's clients from capitated plans amounted
to approximately  $703,000 and $814,000,  respectively,  an amount equal to 2.5%
and 2.2% respectively, of HMCA's revenues for the fiscal year. All of these were
attributable  to medical  professional  corporations  managed by A & A Services,
Inc.,  representing  46%,  and 26% of their  revenues  in fiscal 2002 and fiscal
2001, respectively.                                                             

HMCA MARKETING                                                                  

     HMCA's marketing strategy is expand the business and improve the facilities
and  practices  which it manages.  HMCA will also seek to increase the number of
locations  of  those  facilities  and  practices  where  market  conditions  are
promising.  HMCA will seek to promote growth of its clients' patient and revenue
through   installing  new  Stand-Up(TM)  MRI  scanners  at  MRI  facilities  and
advertising in television, radio and other media.                               

     HMCA will focus on  opportunities  for expanding the services clients offer
and plans to expand  into new  geographic  areas such as  Houston,  Boston,  Los
Angeles and Chicago.                                                            

     To date,  HMCA has not been able to add a  significant  number of specialty
practices to its client base. In part this difficulty  stems from HMCA's lack of
capital resources to fund acquisitions; this lack of capital resources similarly
has prevented HMCA from increasing the number of clients it manages generally.  

DIAGNOSTIC IMAGING CENTERS AND OTHER ANCILLIARY SERVICES                        

     Diagnostic  imaging  centers  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 centers 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  interpreting  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 center  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 are becoming an increasingly important factor in the
diagnostic imaging industry.  To further its position,  HMCA will seek to expand
the imaging modalities offered at its managed centers or to create networks with
other imaging centers.                                                          

COMPETITION (HMCA)                                                              

     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  centers  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 this area by installing the
new Fonar Stand-Up(TM) MRI scanners at its most promising facilities.           

GOVERNMENT REGULATION APPLICABLE TO HMCA                                        

FEDERAL REGULATION                                                              

Stark Law                                                                       

     Under the federal  Self-Referral Law (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.               

Anti-kickback Regulation                                                        

     Under the federal  Anti-kickback  statute,  which is applicable to Medicare
and Medicaid, it is illegal,  among other things, for a provider MRI services to
pay or offer money or other  consideration  to induce the referral of MRI scans.
Neither HMCA nor its clients engage in this practice.                           

     Approximately  8.8% of the revenues of HMCA's clients are  attributable  to
Medicare and 0.17% are attributable to Medicaid.                                

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 such State.    

     HMCA's clients generate revenue from patients covered by no-fault insurance
and  workers'  compensation  programs.  For the fiscal year ended June 30, 2002,
Approximately  43.2% of our  clients'  receipts  were from  patients  covered by
no-fault  insurance and  approximately  8.7% of our client's  receipts were from
patients covered by worker's 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, 2002,  the Company  employed  570 persons on a full-time  and
part-time  basis. Of such employees,  29 were engaged in marketing and sales, 44
in research and development,  75 in prodution,  40 in customer support services,
355 in  administration  (including 234 on site at facilities and offices managed
by HMCA and 70 performing  billing,  collection and  transcription  services for
those  facilities)  and 27  professional  MRI  technicians on site at diagnostic
imaging centers managed by HMCA.                                                

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ITEM 2.  PROPERTIES                                                             

     Fonar leases approximately 135,240 square feet of office and plant space at
its  principal  offices  in  Melville,  New York and at two other  locations  in
Melville and Farmingdale,  New York at a current aggregate annual rental rate of
approximately $834,000,  excluding utilities,  taxes and other related expenses.
The term of one of the  leases  extends  through  2002 with  options to renew up
through 2008 and the term of the other leases  extends to the beginning of 2009.
The Company also leased space in Harrisburg,  Pennsylvania  at a rental of $1350
per month through March 31, 2002.  Management  believes that these  premises are
adequate for its current needs. HMCA leases approximately 16,850 square feet for
its  headquarters  in  Melville,  New York at a current  annual  rental  rate of
$369,865.  The term of the lease extends through  September,  2009. In addition,
HMCA maintains  leased office premises for its clients at  approximately 38 site
locations having an aggregate  annual rental rate of approximately  $1.9 million
under leases having various terms.                                              

ITEM 3.  LEGAL PROCEEDINGS                                                      

     There is no material litigation  pending,  or to its knowledge,  threatened
against the Company.                                                            

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                   

     On June 17, 2002, we held our annual meeting of  stockholders.  The matters
before the meeting were the election of directors  and the  ratification  of the
selection of auditors for fiscal 2002.  All nominees for directors  were elected
and the selection of Grassi & Co.,  CPA's,  P.C. as the  Company's  auditors for
fiscal 2002 were  approved.  Raymond V. Damadian,  Claudette  J.V. Chan,  Robert
Janoff and Charles N. O'Data were sitting  directors.  Robert Djerejian is a new
director  first  elected at the June 17,  2002 annual  meeting.  The table below
lists the votes cast for,  against or withheld,  as well as  abstentions.  There
were no broker non-votes.                                                       

Election of Directors:                                                          

             For                    Withheld
           -----------               ---------

Raymond V. Damadian         299,992,702               1,198,266                 
Claudette J.V. Chan         300,144,693               1,046,275                 
Robert J. Janoff            299,472,917               1,718,052                 
Charles N. O'Data           299,560,867               1,670,101                 
Robert Djerejian            299,519,709               1,671,260                 

Ratification of Auditors:                                                       

              For        Against    Withheld
           -----------    -------    ---------

Grassi & Co., CPA's, P.C.   300,328,333    672,678      219,958                 

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 Part II

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

     The Company's  Common Stock is traded in the Nasdaq  SmallCap  market under
the National  Association  of  Securities  Dealers  Automated  Quotation  System
("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         1999         1.78         1.19    
April    -  June          1999         1.50         1.03    
July     -  September     1999         1.18         0.91    
October  -  December      1999         3.25         0.69    
January  -  March         2000         5.00         1.63    
April    -  June          2000         3.44         1.44    
July     -  September     2000         3.47         1.50    
October  -  December      2000         2.31         1.03    
January  -  March         2001         2.00         0.97    
April    -  June          2001         1.97         1.28    
July     -  September     2001         2.49         1.20    
October  -  December      2001         1.48         1.15    
January  -  March         2002         1.24         0.96    
April    -  June          2002         2.15         0.95    
July     -  September 19  2002         1.99         1.02    

     On September 19, 2002, the Company had approximately  4,725 stockholders of
record of its  Common  Stock,  12  stockholders  of record of its Class B Common
Stock,  4  stockholders  of  record  of its  Class  C  Common  Stock  and  4,049
stockholders of record of its Class A Non-voting Preferred Stock.               

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

     The Company paid cash dividends in fiscal 1998 and the first three quarters
of fiscal 1999 on monies it received from the enforcement of its patents.  Prior
to these  dividends,  the Company had not paid any cash  dividends.  The Company
anticipates  paying  one  additional   dividend  on  monies  received  from  the
enforcement of its patents. Except for these dividends,  however, it is expected
that the Company will continue to retain earnings to finance the development and
expansion of its business.                                                      

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Item 6.  SELECTED FINANCIAL DATA                                                

     The following selected consolidated  financial data has been extracted from
the Company's  consolidated  financial  statements for the five years ended June
30,  2002.  This  consolidated   selected  financial  data  should  be  read  in
conjunction  with the consolidated  financial  statements of the Company and the
related notes included in Item 8 of this form. See "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations"  for a discussion of
the Company's business plan.                                                    

                                                        [Enlarge/Download Table]

                                      As of, or For the Period Ended June 30,               
                       2002           2001           2000           1999           1998     
                    -----------    -----------    -----------    -----------    ----------- 
                                                                                            
STATEMENT OF                                                                                
OPERATIONS                                                                                  

Revenues            $44,679,000    $42,273,000    $36,155,000    $33,289,000    $27,554,000 

Cost of             $26,244,893    $27,798,000    $26,592,000    $26,062,000    $23,842,000 
revenues                                                                                    

Research            $ 5,100,000    $ 5,866,000    $ 5,532,000    $ 6,648,000    $ 6,507,000 
and Development                                                                             
Expenses                                                                                    

Net Loss           ($22,882,000)  $(15,184,000)  $(10,956,000)  $(14,216,000)   $(5,653,000)

Basic and Diluted                                                                           
Net Loss                  $(.36)         $(.26)        $ (.20)         $(.27)        $ (.11)
per common share                                                                            

Weighted             63,511,814     57,388,050     55,096,212     52,862,647     49,967,482 
average number                                                                              
Of shares                                                                                   
outstanding                                                                                 

BALANCE SHEET                                                                               
DATA                                                                                        

Working                                                                                     
capital             $10,505,000    $15,405,000    $24,440,000    $37,863,000    $54,426,000 
(deficit)                                                                                   

Total               $72,830,000    $84,900,000    $84,599,000    $97,648,000   $108,448,000 
assets                                                                                      

Long-               $10,609,000    $21,244,000    $20,969,000    $24,822,000    $16,003,000 
term debt                                                                                   
and obligations                                                                             
under capital                                                                               
leases                                                                                      

Stock-              $35,695,000    $41,830,000    $51,285,000    $59,304,000    $72,572,000 
holder's                                                                                    
equity                                                                                      

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

INTRODUCTION.                                                                   

     The  Company  was formed in 1978 to engage in the  business  of  designing,
manufacturing  and  selling  MRI  scanners.   In  1997,  the  Company  formed  a
wholly-owned  subsidiary,  Health  Management  Corporation of America  ("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(TM)  MRI,  Fonar 360(TM),
QUAD(TM) and Echo(TM) MRI scanners.  The  Stand-Up(TM) MRI allows patients to be
scanned  for the first  time under  weight-bearing  conditions.  The  Company is
aggressively  seeking new sales and during  fiscal 2002  received  orders for 20
Stand-Up(TM)  MRI  scanners.  The  Stand-Up(TM)  MRI is the only MRI  capable of
producing  images in the weight bearing state. At 0.6 Tesla field strength,  the
Stand-Up(TM) MRI, Fonar 360(TM) and QUAD(TM) magnets are among the highest field
"Open  MRI" 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. The Company's work-in-progress QUAD-S(TM)
MRI scanner  will  combine  Fonar's  iron frame  magnet  with a  superconducting
driver,  and is  expected  to have a field  strength  between 0.6 and 1.0 Tesla.
Fonar also offers the  Echo(TM),  a low cost open MRI scanner.  Fonar's works in
progress also include an in-office  extremities  scanner.  (See  "Description of
Business - Products, Works-in-Progress and Product Marketing.")                 

     HMCA  commenced  operations  in July,  1997  and  generates  revenues  from
providing    comprehensive    management   services   (including    development,
administration,  accounting and billing and collection  services)  together with
office  space,  medical  equipment,  supplies and  non-medical  personnel to its
clients.  Revenues are in the form of  management  and leasing  fees,  which are
earned under  contracts  with MRI  facilities,  medical  practices  and physical
rehabilitation practices.                                                       

     Approximately  99% of HMCA's  revenues  for the fiscal years ended June 30,
2002,  June 30, 2001 and June 30, 2000 were  derived  from  contracts  with such
facilities  and practices  owned by Dr.  Raymond V.  Damadian,  the President of
FONAR and HMCA and principal  stockholder of FONAR.  The agreements with the 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 and
currently  range from $150 to $760 per MRI scan.  The fees are  reviewed  and if
appropriate, adjusted on an annual basis by mutual agreement.                   

     The  agreements  with the medical  practices  and  physical  rehabilitation
practices  are for a term of 20 years.  The fees are fixed monthly fees adjusted
annually. Historically,  adjustments have been on the basis of changes in HMCA's
costs,  plus a  percentage.  Currently,  the monthly fees under these  contracts
range from approximately $53,300 to $297,500.                                   

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. The preparation of these 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 scanner products, 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 recognize revenue from license agreements for our intellectual  property
over  the  shorter  of the  contractual  life of the  license  or the  estimated
economic life. For our current license  agreement,  we are  recognizing  revenue
ratably over 5 years.                                                           

     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,  2002,  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,  purchased  management  agreements and capitalized software development
costs is 17 years, 20 years and 5 years, respectively.                          

     We periodically assesses 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. During the
year ended June 30, 2002, we recorded an impairment  loss of $4,700,000  related
to certain management contracts in our physician's management services segment. 

RESULTS OF OPERATIONS. FISCAL 2002 COMPARED TO FISCAL 2001                      

     In fiscal  2002,  the Company  experienced  a net loss of $22.9  million on
revenues of $44.7 million,  as compared to net loss of $15.2 million on revenues
of $42.3 million for fiscal 2001. This represents an increase in the net loss of
51.0% and an increase in revenues of 6.0%. The Company's  consolidated operating
loss  increased  by 22.0% to $19.7  million  for fiscal  2002 as  compared to an
operating loss of $16.2 million for fiscal 2001.  Included in our operating loss
for fiscal 2002 is an impairment loss of $4,700,000 related to our physician and
diagnostic management services segment.                                         

Discussion of Operating Results of Medical Equipment Segment                    
------------------------------------------------------------                    

     Revenues  attributable to the Company's medical equipment segment increased
by 54.3% to $16.2  million  in fiscal  2002 from $10.5  million in fiscal  2001,
reflecting  an increase in scanner  sales of 90.0%,  from $6.1 million in fiscal
2001 to $11.6 million in fiscal 2002 and an increase in service  revenue of 10%,
from  $2.0  million  in  fiscal  2001 to  $2.2  million  in  fiscal  2002.  This
improvement in revenues was  attributable  to the Company's  increase in scanner
sales, particularly its Stand-Up(TM) MRI, which is unique in that it permits MRI
scans to be performed on patients in the weight-bearing state. During the fiscal
year ended June 30, 2002, the Company  received orders for 20  Stand-Up(TM)  MRI
scanners.                                                                       

     Confirming  the  Company's  expectation  of  increased  demand  for its MRI
scanners,  scanner sales to unrelated  parties increased by 59.0% in fiscal 2002
from $3.4 million in fiscal 2001 to $5.4 million in fiscal 2002.  Scanner  sales
to  related  parties  increased  by 130.0% in fiscal  2002 from $2.7  million in
fiscal  2001 to $6.2  million in fiscal  2002.  The  Company  believes  that its
principal  challenges  in achieving  greater  market  penetration  are primarily
attributable  to the better  name  recognition  and larger  sales  forces of its
larger competitors such as General Electric, Siemens and Hitachi and the ability
of  some  of  its  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 Stand-Up(TM)  MRI, and General
Electric  Medical  Systems  division  acts  as a  sales  representative  for the
Stand-Up(TM) MRI. To date,  General Electric has purchased four Stand-Up(TM) MRI
scanners for resale.                                                            

     The Company  recognized  revenues of $11.1 million from the sale of its new
Stand-Up(TM)  MRI  scanners  and of  $361,000  from the sale of two  refurbished
(used) Beta(TM) scanners (the Company no longer manufactures  Beta(TM) scanners)
in fiscal 2002. In fiscal 2001, the Company recognized  revenues of $1.6 million
from  the sale of  Stand-Up(TM)  MRI  scanners,  $3.0  million  from the sale of
QUAD(TM) scanners and $1.1 million from the sale of Echo(TM) scanners.          

     Product sales  revenues for fiscal 2002 included  revenues from the sale of
11 scanners , two of which were used Beta(TM)  scanners which were  refurbished.
Product sales revenues for fiscal 2001 included revenues from the sales of seven
scanners and for fiscal 2000, three scanners.                                   

     Sales of MRI scanners to affiliated  parties,  consisting  of  professional
corporations  and other entities in which Dr.  Damadian or members of his family
have an interest represented approximately 14.0% ($6.2 million) of the Company's
revenues in fiscal  2002,  as compared to 6.0% ($2.7  million) of the  Company's
revenues in fiscal 2001.                                                        

     License and royalty  revenue  ($2.4 million in fiscal 2002 and $2.4 million
in fiscal 2001) remained constant.                                              

     Gross profit margins on product sales improved  significantly during fiscal
2002 from a negative 2% in fiscal 2001 to 28% in fiscal 2002.  Such  improvement
was principally  attributable to the medical  equipment  segment  operating at a
higher level of capacity resulting from the increased sales volume.             

     Research and development expenses,  net of capitalized costs,  decreased by
14.0% to $5.1 million in fiscal 2002 as compared to $5.9 million in fiscal 2001.
Our expenses for fiscal 2002 represented  continued  research and development of
Fonar's scanners, its new hardware and software product, "Sympulse (TM)" and new
surface coils to be used with the Stand-Up(TM) MRI scanner.                     

     The operating loss for the medical equipment segment improved by 10.0% from
a loss of $17.2  million  in fiscal  2001 to a loss of $15.4  million  in fiscal
2002.  This  improvement is attributable to our increase in gross margins on our
scanner sales.                                                                  

Discussion of Operating Results of Physician and Diagnostic  Management Services
Segment                                                                         
--------------------------------------------------------------------------------

     Revenues  attributable to the Company's physician and diagnostic management
services  segment (HMCA) decreased by 10.0% to $28.5 million in fiscal 2002 from
$31.8 million in fiscal 2001. The decrease in revenues  reflected the closing of
certain  facilities  managed by HMCA and the decline in management fees from the
primary  care  practices  from $2.0  million in fiscal  2001 to $1.5  million in
fiscal 2002.                                                                    

     Cost of revenue for the Company's  physician  management  services  segment
decreased  from $19.3  million or 61.0% of related  revenues  for the year ended
June 30, 2001 to $15.3 million,  or 54.0% of related  revenue for the year ended
June 30, 2002.                                                                  

     Operating  income of this segment declined from $1.0 million in fiscal 2001
to an operating loss of $4.3 million in fiscal 2002. This was attributable to an
impairment loss of $4.7 million  recorded in fiscal 2002  (discussed  below) and
reduced  revenues  resulting from the closing of several  facilities  managed by
HMCA.  HMCA believes that  focusing its efforts on more  profitable  facilities,
including the introduction of Stand-Up(TM)  MRI scanners,  will in the long term
improve HMCA's profitability.                                                   

Discussion of Consolidated Results of Operations                                
------------------------------------------------                                

     Other  expenses of $69,133 was  recognized by the Company in fiscal 2002 as
compared to other income of $1.0 million (principally the sales of a partnership
interest)  and  investment  income of $973,862 was  recognized by the Company in
2002 as compared to $1.8 million in fiscal 2001.  This  represents a decrease of
64% in other income. In addition,  the Company recorded non-cash financing costs
of $2.4 million in fiscal 2002 in connection with the payment of its convertible
debentures  to The  Tailwind  Fund in common  stock and the  issuance of related
warrants.  This expense  represented  the discount  from the market price on the
stock issued to The Tailwind Fund and the value of the purchase warrants granted
to the  investor.  In addition,  in fiscal 2002,  we recorded a debt  conversion
expense of $545,000 in connection  with a premium  associated with the repayment
of  approximately  $2.5 million in long-term debt incurred in connection with an
HMCA acquisition (see Note 12).                                                 

     Selling,  general and  administrative  expenses increased by 13.0% to $21.5
million  in fiscal  2002 from $19.1  million in fiscal  2001.  The  increase  in
selling,  general and administrative  expenses was attributable primarily to the
expansion of Fonar's increased  manufacturing,  advertising  marketing and sales
activity.  In  particular,  the Company  engaged the services of an  advertising
agency and introduced television and radio advertising.                         

     The increase in compensatory  element of stock issuances from approximately
$4.0 million in fiscal 2001 to $4.7 million in fiscal 2002 reflected greater use
of Fonar's  stock bonus plan to pay certain  highly  compensated  employees  and
others in stock rather than cash.                                               

     The higher provision for bad debt of $972,000 in fiscal 2002 as compared to
$443,000 in fiscal 2001,  reflected an increase in reserves and the write off of
certain  indebtedness by the medical  equipment segment of $243,000 and reserves
for fees due from HMCA  managed  facilities  that were  closed in the  amount of
$729,000.                                                                       

Impairment Loss                                                                 
---------------                                                                 

     During the quarter ended June 30, 2002, the primary care medical  practices
managed  by  the  Company's  subsidiary,   A&A  Services,  Inc.,  experienced  a
significant  overall decline in patient volume and related  operating cash flows
which led to the inability of the medical  practices to fully and timely pay the
contractual  management  fees  to the  Company.  As a  result  of the  continued
occurrence of this negative  trend,  the Company  recorded an impairment loss of
$4,700,000  during the quarter  ended June 30, 2002 related to those  management
agreements  which reduced the carrying value of such agreements to $3,518,847 at
June 30,  2002.  We do not  presently  expect any further  deterioration  in our
management fees from these primary care medical practices.                      

     The  amortization  expense in fiscal  2002 and 2001 of  approximately  $1.2
million  in  each  year  reflects  the  amortization  of  management  agreements
attributable to HMCA's acquisitions.                                            

     The Company is enthusiastic  about the future of its  Stand-Up(TM)  MRI and
FONAR  360(TM)  product  line  scanners  which are  bringing  a new  plateau  of
"openness" to diagnostic MRI and are expected to bring a new frontier in surgery
for  performing  surgical  treatments  using MRI  images to guide  surgery.  The
Company  believes its new products are beginning to  successfully  penetrate the
market,   as  reflected  in  the  dramatic   increase  in  product   sales  from
approximately  $3.4 million in fiscal 2000 to $6.1 million in fiscal 2001 and to
$11.6  million in fiscal  2002.  In addition to  increased  product  sales,  the
decline in service  and  repair  fees has been  reversed,  as  reflected  by the
increase  in service  and repair  fees from $1.7  million in fiscal 2000 to $2.0
million in fiscal 2001 to $2.2 million in fiscal 2002.                          

     Continuing  its tradition as the  originator  of MRI, the Company  remained
committed to maintaining  its position as the leading  innovator of the industry
through  aggressive  investing in research and  development.  In fiscal 2002 the
Company  continued its  investment in the  development  of its new MRI scanners,
together  with  software and  upgrades,  with an  investment  of  $5,955,394  in
research  and  development  ($855,612 of which was  capitalized)  as compared to
$6,621,225  ($754,804 of which was capitalized) in fiscal 2001. The research and
development  expenditure was approximately 34.6% of revenues attributable to the
Company's  medical  equipment  segment (and 13.3% of total revenues) in 2002 and
108% of medical  equipment  segment  revenues  (and  15.7% of total  revenues)in
fiscal 2001. This represented a decrease of approximately  10.1% in research and
development expenses from fiscal 2001 to fiscal 2002.                           

     In summary,  Fonar  continued the trend of steadily  increasing MRI scanner
sales,  most  dramatically  the increase in Stand-Up(TM)  MRI scanner sales from
fiscal 2000 through  fiscal 2002.  The  physician  practice  management  segment
(HMCA) continued to decline  slightly in the same period,  from $30.2 million in
fiscal 2000 to $31.8 in fiscal 2001 to $28.5 million in fiscal 2002.            

     Fonar  anticipates  that the increase in scanner sales will continue due to
the unique  capability  of the  Stand-Up(TM)  MRI  scanner to scan  patients  in
weight-bearing  positions  and the high  field  strength  of its other  open MRI
scanners,  the Fonar 360(TM) and QUAD(TM)  scanners.  Service revenues have also
increased over the past there fiscal years,  from $1.7 million in fiscal 2000 to
$2.0 million in fiscal 2001 to $2.2 million in fiscal 2002,  which increases are
attributable  primarily  to the  increased  number of scanners  being  placed in
service.  Most of the revenues on the Stand-Up(TM) MRI scanners sold in the last
quarter of fiscal  2002,were not  recognized as of June 30, 2002, and as of June
30,  2002,  the  Company's  balance  sheet  reflects  $7.7  million in  customer
advances.                                                                       

     The Company  has taken  steps to reverse  the  decline in HMCA  revenues by
closing unprofitable  facilities and commencing its program of replacing the MRI
scanners at the MRI facilities it manages with  Stand-Up(TM)  MRI scanners.  One
Stand-Up(TM) MRI is now installed in the Islandia, New York site, two are in the
process of being installed in Bensonhurst,  New York and Staten Island, New York
and two are planned for Deerfield Beach, Florida and Garden City, New York.     

     Expenditures  for  advertising  and  marketing  are likely to  continue  to
increase,  as the  Company  believes  the  increased  advertising  is helpful to
promote sales.                                                                  

RESULTS OF OPERATIONS. FISCAL 2001 COMPARED TO FISCAL 2000                      

     In fiscal  2001,  the Company  experienced  a net loss of $15.2  million on
revenues of $42.3 million as compared to a net loss of $11.0 million on revenues
of $36.2 million for fiscal 2000.  This  represented an increase in the net loss
of 38% and an increase in revenues of 16.9%.                                    

Discussion of Operating Results of Medical Equipment Segment                    
------------------------------------------------------------                    

     Revenues  attributable to the Company's medical equipment segment increased
by 75% to $10.5  million  in  fiscal  2001  from $6.0  million  in fiscal  2000,
reflecting  an increase in scanner  sales of 79.4%,  from $3.4 million in fiscal
2000 to $6.1 million in fiscal 2001 and an increase in service revenue of $11.1%
from $1.7  million in fiscal 2000 to $2.0  million in fiscal  2001.  The Company
attributes  the increase in scanner sales to the growing  market  penetration of
its products,  particularly  the  Stand-Up(TM)  MRI.  Product sales to unrelated
parties  increased  by 113% in fiscal  2001 from $1.6  million in fiscal 2000 to
$3.4 million in fiscal 2001.                                                    

     Sales to affiliated parties,  consisting of professional corporations owned
by Dr. Damadian  represented  approximately  6.4%  ($2,686,646) of the Company's
revenues  in fiscal  2001,  as compared to 4.9%  ($1,752,298)  of the  Company's
revenues in fiscal 2000.                                                        

     Research  and  development  expenses  increased  by 6.8% to $5.9 million in
fiscal  2001  as  compared  to  $5.5  million  in  fiscal  2000.  This  increase
represented  continued  research and development of Fonar's scanners and its new
hardware and software product, "Sympulse(TM)".                                  

     Negative  gross profit  margins on product sales  (negative  2.0% in fiscal
2001 and  negative  32.0% in fiscal  2000) were  principal  attributable  to the
medical  equipment  segment operating at a low level of capacity and reflect the
inefficiencies  attendant to Fonar's fixed factory  overhead  expenses,  such as
salaries and benefits.  The improvement in fiscal 2001 reflected increased sales
volume.                                                                         

     Results of operations for the medical equipment segment improved by 4% from
a loss of $18.0  million  in fiscal  2000 to a loss of $17.2  million  in fiscal
2001.  Increased  license and royalty  revenue (from  $920,000 in fiscal 2000 to
$2.4  million  in  fiscal  2001)  was  a  principal  factor.  This  reflects  an
improvement  in our gross  margins  offset by an  increase  of 8.3% in  selling,
general and  administrative  expenses to $11.7 million in fiscal 2001 from $10.8
million in fiscal 2000.                                                         

     The Company  recognized  revenues of $1.6  million from the sale of its new
Stand-Up(TM) MRI scanners and of $1.1 million from the sale of Echo(TM) scanners
in fiscal  2001.  There were no sales of  Stand-Up(TM)  MRI scanners or Echo(TM)
scanners in fiscal  2000.  Revenues  generated by sales of QUAD(TM) MRI scanners
decreased  slightly by 6.3% from $3.2 million (8.8% of total revenues) in fiscal
2000 to $3.0 million (7.1% of total revenues) in fiscal 2001.                   

     Sales of Beta(TM)  scanners  were $0 in fiscal 2001 (0% of total  revenues)
and $84,255  (approximately 0.2% of total revenues) in fiscal 2000. The sales in
fiscal 2000  represented  the sale of refurbished  equipment,  as the company no
longer manufactures Beta(TM) scanners.                                          

     Product sales  revenues for fiscal 2001 included  revenues from the sale of
seven  scanners.  Product sales revenues for fiscal 2000 included  revenues from
the sales of three scanners.                                                    

Discussion of Operating  Results of Physician  Management  Services Segment     
---------------------------------------------------------------------------     

     Revenues  attributable to the Company's physician and diagnostic management
services  segment  (HMCA)  increased to $31.8  million in fiscal 2001 from $30.2
million in fiscal 2000,  representing an increase of 5.3%.  Operating  income of
$1.0  million  was  recognized  from  the  Company's  physician  and  diagnostic
management  services in fiscal  2001,  as compared to  operating  income of $2.5
million in fiscal 2000, representing a decrease of 60%.                         

     Cost of revenue for the Company's  physician  management  services  segment
decreased from $19.8 million,  or 66.0%, of related  revenues for the year ended
June 30, 2000 to $19.3 million, or 61.0%, of related revenues for the year ended
June 30, 2001.  Operating  income of this segment  declined from $2.5 million in
fiscal 2000 to $1.0 million in fiscal 2001 due to increases in selling,  general
and administrative  expenses of $1.9 million,  increases in compensatory element
of stock  issuance of $1.4 million,  increases in provision for bad debt expense
of $.2 million offset by an improvement in gross profit of $2.0 million.        

Discussion of Consolidated Results of Operations                                
------------------------------------------------                                

     The increase in compensatory  element of stock issuances from approximately
$1.9 million in fiscal 2000 to $4.0 million in fiscal 2001 reflected greater use
of Fonar's  stock bonus plan to pay certain  highly  compensated  employees  and
others in stock rather than cash.                                               

     The higher provision for bad debt of $442,505 in fiscal 2001 as compared to
$177,162  in  fiscal  2000,  reflected  reserves  for  fees  from  HMCA  managed
facilities that were closed during the year.                                    

     The  amortization  expense in fiscal  2001 and 2000 of  approximately  $1.2
million  in  each  year  reflects  the  amortization  of  management  agreements
attributable to HMCA's acquisitions.                                            

     In fiscal 2001, we continued our  investment in the  development of its new
MRI  scanners,  together  with  software and  upgrades,  with an  investment  of
$6,621,225 in research and  development  ($754,804 of which was  capitalized) as
compared to $5,893,948  ($361,623 of which was  capitalized) in fiscal 2000. The
research  and  development   expenditure  was   approximately  63%  of  revenues
attributable  to the  Company's  medical  equipment  segment (and 15.7% of total
revenues) in 2001 and 98% of medical  equipment  segment  revenues (and 16.3% of
total revenues) in 2000.  This  represented a increase of  approximately  12% in
research and development expenses from 2000 to fiscal 2001.                     

     During the fiscal  year ended June 30,  2001,  the Company  realized  other
income of approximately $1.0 million, principally from the sale of a partnership
interest, as compared to other income of approximately $5.7 million (principally
from the settlement of patent infringement disputes) in fiscal 2000.            

LIQUIDITY AND CAPITAL RESOURCES                                                 

     Cash,  cash  equivalents and marketable  securities  declined by 35.0% from
$20.1 million at June 30, 2001 to $13.1 million at June 30, 2002. Principal uses
of cash during  fiscal  2002  included  capital  expenditures  of $3.1  million,
repayment of  indebtedness  and capital lease  obligations in the amount of $4.5
million, and capitalized software development costs and patents of $1.4 million.

     Marketable  securities  approximated  $5.6 million as of June 30, 2002,  as
compared to $6.1 million as of June 30, 2001. At June 30, 2002, we decreased our
investments in U.S.  Government  obligations from  approximately $4.1 million to
$3.8 million and reduced our  investments  in corporate  and  government  agency
bonds from approximately $1.9 million to $1.8 million. This has had the intended
effect of reducing the volatility of the Company's investment portfolio.        

     Cash  provided  by  operating   activities  for  fiscal  2002  approximated
$624,000.  Cash provided by operating activities was attributable  substantially
to an increase in customer  advances of $6 million  offset by the funding of the
net loss for fiscal 2002.                                                       

     Cash used in investing  activities for fiscal 2002 approximated $4 million.
The  principal  uses  of cash  from  investing  activities  during  fiscal  2002
consisted of expenditures  for property and equipment and  capitalized  software
and patent costs of approximately $4.5 million,  offset by the proceeds from the
sale of marketable securities of $.5 million                                    

     Cash  used in  financing  activities  for  fiscal  2002  approximated  $3.2
million.  The principal uses of cash in financing  activities during fiscal 2002
consisted of repayment of  principal  on long-term  debt of  approximately  $4.5
million and the principal  source was proceeds  from a warrant  exercise of $1.5
million.                                                                        

     Total liabilities  decreased by 16% during fiscal 2002, from  approximately
$42.9 million at June 30, 2001 to approximately  $36.9 million at June 30, 2002.
The decrease in liabilities  was  attributable  principally to the repayments of
long term debt and capital leases.                                              

     During the year  ended June 30,  2002,  we issued  4,931,576  shares of our
common stock in  connection  with the  repayment of $4.5 million of  convertible
debentures  and related  interest and debt  discounts.  In  addition,  we issued
2,045,000  shares of our common  stock in  connection  with a repayment of notes
payable in the aggregate amount of $2,603,000.                                  

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        The Company's obligations and the periods in which they are scheduled to
become due are set forth in the following table:                                

Due in        
                              Less           Due           Due       Due
                                than 1        in 1-3        in 4-5     after 5
Obligation           Total        Years         years         years      years  
--------------   -----------   -----------   ----------   -----------   ------- 
Long-term debt   $ 9,085,259   $ 8,970,400   $  114,859   $      -      $  -    

Capital lease                                                                   
Obligation         1,524,245       805,939      718,306          -         -    

Operating                                                                       
leases          15,656,167     3,254,819    6,937,552     5,463,796      -  
                -----------   -----------   ----------   -----------   -------
Total cash                                                                      
Obligations      $26,265,671   $13,031,158   $7,770,717    $5,463,796   $  -    
                ===========   ===========   ==========   ===========   =======

     Other  commercial  commitments of the Company are as follows (by commitment
expiration date):                                                               

Lines of credit: $139,000                                             

Standby letters of credit: $68,000                                    

     As at June 30, 2002, our obligations included approximately $2.1 million in
various  state taxes.  The Company has to enter into  payment  plans with taxing
authorities with respect to $1.5 million of past due taxes.                     

     As of June 30,  2002,  we had a bank  credit  facility of  $5,500,000.  The
unused portion of the facility was approximately $139,000. The interest on loans
made under the facility is either the bank's prime rate,  as in effect from time
to time or 0.5% plus the bank's  cost of funds  rate,  as selected by Fonar when
the loan is made.                                                               

     Our working capital surplus as of June 30, 2002 approximates $10.5 million,
as compared to a working  capital  surplus of $15.5 million as of June 30, 2001.
The  change  in  our  working  capital  position  resulted  primarily  from  our
investments in new equipment,  capitalized  software and patent costs  totalling
$4.5  million,  and note  payments  primarily on the purchase  prices for HMCA's
acquisitions of $4.5 million.                                                   

     In order to conserve  its capital  resources,  we have issued  common stock
under  its stock  bonus  and stock  option  plans to  compensate  employees  and
non-employees for services rendered. In fiscal 2002, the compensatory element of
stock  issuances  was  $4.6  as  compared  to  $4.0  million  for  fiscal  2001.
Utilization  of equity in lieu of cash  compensation  has improved our liquidity
since it increases cash available for other expenditures.                       

     The foregoing  trends in Fonar's capital  resources are expected to improve
as Fonar's MRI scanner products gain wider market acceptance and produce greater
sales revenues.                                                                 

     Capital   expenditures  for  fiscal  2002  approximated  $4.5  million  and
substantially  consisted  of office and  production  equipment  ($3.1  million),
capitalized software costs ($856,000) and capitalized patent costs ($548,000).  

     Fonar has not committed to making capital  expenditures  in the 2003 fiscal
year other than its intention to continue research and development  expenditures
at current levels and to purchase equipment for $35,000. In addition, HMCA plans
to incur expenditures of approximately $140,000 for a new billing system.       

     Our  business   plan   currently   includes  an   aggressive   program  for
manufacturing and selling its new line of Open MRI scanners. In addition, we are
enhancing  our  revenue  by  participating  into the  physician  and  diagnostic
management services business through its subsidiary,  HMCA and is in the process
of  upgrading  the  facilities  which  it  manages,  most  significantly  by the
replacement of existing MRI scanners with new Stand-Up(TM) MRI scanners.        

     Our  business  plan  calls  for a  continuing  emphasis  on  providing  its
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 the Company's
installed  base of scanners  were $2.0  million for the year ended June 30, 2001
and $2.2 million for the year ended June 30, 2002  (transactions  between  FONAR
and its subsidiaries are eliminated in the consolidation).                      

     As at June 30,  2002,  our current  assets  were $41.5  million and current
liabilities  of  $31.0  million,  resulting  in a  working  capital  surplus  of
approximately $10.5 million. Capital resources included $7.5 million in cash and
cash  equivalents  and $5.6 million in marketable  securities.  In addition,  we
expect to generate  additional cash receipts from the  Stand-Up(TM) MRI scanners
ordered  by  customers  in  fiscal  2002 in the  amount  of  $12.3  million,  as
additional  progress  payments  are  made on the  scanners  as they  are  built,
delivered and installed.                                                        

     In  addition,  in May of 2001,  we raised  $4.5  through  the  issuance  of
debentures  to The Tail Wind Fund.  The  debentures  to The Tail Wind Fund.  The
debentures  were  repaid in shares of common  stock,  although  at a  discounted
price, but provided us with much needed liquidity.  Subsequently, in June, 2002,
The Tailwind  Fund  provided  Fonar with an  additional  $1,500,000  through the
exercise of warrants for  1,000,000  shares at a price of $1.50 per share and in
August, 2002 with an additional  $1,125,000 through the exercise of warrants for
an additional 1,000,000 shares at an exercise price of $1.125 per share.        

     We believe that the above mentioned financial  resources,  anticipated cash
flows from  operations and potential  financing  sources,  will provide the cash
flows needed to achieve the sales,  service and production  levels  necessary to
support its operations.                                                         

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK             

     FONAR's  investments  in fixed  rate  instruments.  None of the fixed  rate
instruments  in which FONAR  invests  extend  beyond June 30,  2007.  Below is a
tabular  presentation of the maturity profile of the fixed rate instruments held
by the Company at June 30, 2002.                                                

 INTEREST RATE SENSITIVITY
 PRINCIPAL AMOUNT BY EXPECTED MATURITY
WEIGHTED AVERAGE INTEREST RATE

Investments 
                     in Fixed Rate      Weighted Average
    Date            Instruments        Interest Rate
   ----------        -------------      ----------------
6/30/03           3,376,791              5.8% 
6/30/04           1,157,820              5.4% 
6/30/05             353,734              6.5% 
6/30/06             399,569              6.0% 
6/30/07             200,000              6.1% 
------------
Total:            5,487,914                   

Fair Value                                        
at 6/30/02           5,573,483                      

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

     See Note 11 to the  consolidated  Financial  Statements for  information on
long term debt.                                                                 

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ITEM 8.                                                                         

 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FONAR CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

INDEPENDENT AUDITORS' REPORT                                                    

CONSOLIDATED BALANCE SHEETS                                                     
At June 30, 2002 and 2001                                                   

CONSOLIDATED STATEMENTS OF OPERATIONS                                           
For the Three Years Ended June 30, 2002, 2001 and 2000                      

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
For the Three Years Ended June 30, 2002, 2001 and 2000                      

CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
For the Three Years Ended June 30, 2002, 2001 and 2000                      

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

SCHEDULE OF VALUATION ALLOWANCES                                                
For the Three Years Ended June 30, 2002, 2001 and 2000                      

(*)  Included in Part II, Item 14 of the Form.                          

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INDEPENDENT AUDITORS' REPORT
----------------------------

To the Audit Committee of the Board of Directors                                
FONAR Corporation and Subsidiaries                                              

We  have  audited  the  accompanying   consolidated   balance  sheets  of  FONAR
Corporation  and  Subsidiaries  as of June 30,  2002 and 2001,  and the  related
consolidated  statements of  operations,  stockholders'  equity,  cash flows and
schedule of valuation  allowances for each of the years in the three-year period
ended  June  30,  2002.   These  financial   statements  and  schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.         

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes 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 and schedules referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of FONAR  Corporation  and  Subsidiaries at June 30, 2002 and 2001, and
the  consolidated  results  of their  operations  and cash flows for each of the
years  in the  three-year  period  ended  June  30,  2002,  in  conformity  with
accounting principles generally accepted in the United States of America.       

During  each of the  years in the  three-year  period  ended  June 30,  2002,  a
significant portion of the Company's revenues was from related parties.         

/s/MARCUM & KLIEGMAN LLP

New York, New York                                                              
September 30, 2002                                                              

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FONAR CORPORATION AND SUBSIDIARIES    

CONSOLIDATED BALANCE SHEETS   

ASSETS    
------    
                                                    June 30,
                                                   -----------------------------
                                                 2002           2001
                                                   -------------   -------------

Current Assets:                                                                 
 Cash and cash equivalents                        $  7,493,986    $ 14,040,334
 Marketable securities                               5,573,483       6,085,266
Restricted cash                                     5,500,000            -  
Accounts receivable - net of allowances for                                 
doubtful accounts of $1,077,092 and                                     
$1,033,331 at June 30, 2002 and 2001,                                   
   respectively                                        781,371         849,740
Accounts receivable - related medical                                       
practices - net of allowances for doubtful                              
accounts of $1,096,390 and $538,297 at                                  
   June 30, 2002 and 2001, respectively             13,311,238      13,180,654
Costs and estimated earnings in excess of                                   
   billings on uncompleted contracts                 1,152,606       1,768,856
 Inventories                                         4,663,767       3,725,375
Investment in sales-type leases with related                                
   parties                                           1,796,724         191,304
 Investment in sales-type lease                        119,601         119,549
 Prepaid expenses and other current assets           1,101,902         903,751
                                                  ------------    ------------
    Total Current Assets                            41,494,678      40,864,829

Restricted Cash                                            -          5,500,000 

Property and Equipment - Net                         10,596,481      10,637,397 

Advances and Notes to  Related  Parties - Net                                   
of  discounts  and  allowance  for doubtful                                 
accounts of $366,035 and $316,035 at June 30,                               
 2002 and 2001, respectively                         1,497,008       1,559,159

Investment in Sales-Type Leases with Related                                    
 Parties                                               814,892       2,513,703

Investment in Sales-Type Lease                          741,647         861,249 

Notes Receivable                                        175,000         375,000 

Management Agreements - Net of accumulated                                      
amortization of $5,154,243 and $3,935,551 at                                
 June 30, 2002 and 2001, respectively               14,519,606      20,438,298

Other Intangible Assets - Net                         2,648,618       1,853,506 

Other Assets                                            341,857         297,272 
                                                   -------------   -------------
    Total Assets                                  $ 72,829,787    $ 84,900,413
                                                   =============   =============

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

                                                    June 30,
                                                   -----------------------------
                                                  2002            2001
                                                   -------------   -------------

Current Liabilities:                                                            
Current portion of long-term debt and                                       
   capital leases                                 $  9,776,339    $  6,634,863
 Accounts payable                                    4,076,730       3,020,832
 Other current liabilities                           7,556,199       8,515,757
 Customer advances                                   4,307,632       1,265,362
 Customer advances - related parties                 3,400,000         407,160
 Income taxes payable                                  757,722         764,884
Billings in excess of costs and estimated                                   
   earnings on uncompleted contracts                 1,114,912         351,592
 Convertible debentures                                   -          4,500,000
                                                   -------------   -------------
    Total Current Liabilities                       30,989,534      25,460,450

Long-term Debt and Capital Leases, Less                                         
 current maturities                                    833,165      10,109,286

Deferred Revenue - License Fee                        4,680,000       7,020,000 

Other Liabilities                                       359,534         327,411 
                                                   -------------   -------------
     Total Liabilities                              36,862,233      42,917,147
                                                   -------------   -------------
Minority Interest                                       272,306         152,972 
                                                   -------------   -------------

Commitments, Contingencies and Other Matters                                    

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
 (Continued)

                                                  June 30,
                                                   -----------------------------
                                                 2002           2001
                                                   -------------   -------------

Stockholders' Equity:                                                           
Class A non-voting preferred stock - $.0001                                 
par value;  authorized - 8,000,000 shares;                              
issued and outstanding - 7,836,287 shares                               
   at June 30, 2002 and 2001, respectively        $        784    $        784
Preferred stock - $.001 par value;                                          
authorized - 10,000,000 shares; issued                                  
and outstanding - none                                 -               -
Common stock - $.0001 par value; authorized                                 
85,000,000 and 60,000,000 shares;  issued -                             
71,582,243 and 59,524,455 shares at June 30,                            
2002 and  2001, respectively;  outstanding                            
- 71,291,179 and 59,233,391 shares at June                            
    30, 2002 and 2001, respectively                      7,158           5,952
Class B common stock (10 votes per share) -                                 
$.0001 par value;  authorized - 4,000,000                               
shares;  issued and outstanding - 4,211                                 
shares at June 30, 2002 and 2001, respectively         -               -
Class C common stock (25 votes per share) -                                 
$.0001 par value;  authorized - 10,000,000                              
shares;  issued and outstanding - 9,562,824                             
   shares at June 30, 2002 and 2001, respectively          956             956
 Paid-in capital in excess of par value            120,156,196     104,984,020
 Accumulated other comprehensive income                 85,569          84,133
  Accumulated deficit                               (82,882,893)    (60,000,686)
  Notes receivable from stockholders                   (997,132)     (1,040,457)
  Unearned compensation                                 -            (1,529,018)
Treasury stock, at cost - 291,064 shares                                    
    of common stock at June 30, 2002 and 2001          (675,390)       (675,390)
                                                   -------------   -------------
   Total Stockholders' Equity                       35,695,248      41,830,294
                                                   -------------   -------------
   Total Liabilities and Stockholders' Equity     $ 72,829,787    $ 84,900,413
                                                   =============   =============

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002

                                                        [Enlarge/Download Table]

                                                                           Class A                     
                                                                     Non-        Paid-in               
                                 Class A Common Stock  Class C     Voting     Capital in     Treasury  
                                 --------------------  Common    Preferred     Excess of       Stock   
                                   Shares     Amount    Stock      Stock      Par Value       Amount   
                                 ----------  --------  --------  ---------   -------------  -----------
                                                                                                       
Balance - June 30, 2001          59,524,455  $  5,952  $    956  $    784    $ 104,984,020  $ (675,390)

Net loss                               -         -         -         -                -           -    

Other comprehensive income,                                                                            
  net of tax:                                                                                          
    Unrealized gain on                                                                                 
      securities arising                                                                               
      during the year,                                                                                 
      net of tax                       -         -         -         -                -           -    

Exercise of stock options            13,868         1      -         -              15,045        -    
Exercise of callable warrants     1,000,000       100      -         -           1,499,900        -    
Stock issued to employees                                                                              
  under stock bonus plans         2,108,674       211      -         -           2,762,301        -    
Issuance of stock for                                                                                  
  professional services             604,492        60      -         -             728,196        -    
Issuance of stock under                                                                                
  consulting contracts            1,116,078       112      -         -           1,497,916        -    
Issuance of stock for note                                                                             
  receivable - stockholder          140,100        14      -         -             159,161        -    
Issuance of stock for                                                                                  
  conversion of convertible                                                                            
  debentures                      3,832,073       383      -         -           4,499,617        -    
Issuance of stock for                                                                                  
  financing costs                 1,099,503       110      -         -           1,291,036        -    
Issuance of stock for                                                                                  
  notes payable                   2.045,000       205      -         -           2,602,391        -    
Issuance of stock for                                                                                  
  equipment                          98,000        10      -         -             116,613        -    
Net reduction in notes                                                                                 
  receivable from stockholders         -         -         -         -                -           -    
Amortization of unearned                                                                               
  compensation                         -         -         -         -                -           -    
Amortization of value assigned                                                                         
  to warrants in debt financing        -         -         -         -                -           -    
                                 ----------  --------  --------  ---------   -------------  -----------
BALANCE - JUNE 30, 2002          71,582,243  $  7,158  $    956  $    784     $120,156,196  $ (675,390)
                                 ==========  ========  ========  =========   =============  ===========

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002

                                                        [Enlarge/Download Table]

                                    Notes                       Accumulated                                              
                                  Receivable                       Other                                    Comprehensive
                                     from          Unearned    Comprehensive   Accumulated                     Income    
                                 Stockholders    Compensation     Income         Deficit        Total          (Loss)    
                                 ------------    ------------  -------------  -------------  ------------   -------------
                                                                                                                         
Balance - June 30, 2001          $(1,040,457)    $(1,529,018)  $     84,133   $(60,000,686)  $41,830,294            -    

Net loss                                -               -              -       (22,882,207)  (22,882,207)  $ (22,882,207)

Other comprehensive income, Income, net of tax:                                                                          
    Unrealized gains on                                                                                                  
      securities arising                                                                                                 
      during the year,                                                                                                   
      net of tax                        -               -             1,436           -            1,436           1,436 

Exercise of stock options               -               -              -              -           15,046            -    
Exercise of callable warrants           -               -              -              -        1,500,000            -    
Stock issued to employees                                                                                                
  under stock bonus plans               -               -              -              -        2,762,512            -    
Issuance of stock for                                                                                                    
  professional services                 -               -              -              -          728,256            -    
Issuance of stock under                                                                                                  
  consulting contracts                  -               -              -              -        1,498,028            -    
Issuance of stock for note                                                                                               
  receivable - stockholder          (159,175)           -              -              -             -               -    
Issuance of stock for                                                                                                    
  conversion of convertible                                                                                              
  debentures                            -               -              -              -        4,500,000            -    
Issuance of stock for                                                                                                    
  financing costs                       -               -              -              -        1,291,146            -    
Issuance of stock for                                                                                                    
  notes payable                         -               -              -              -        2,602,596            -    
Issuance of stock for                                                                                                    
  equipment                             -               -              -              -          116,623            -    
Net reduction in notes                                                                                                   
  receivable from stockholders       202,500            -              -              -          202,500            -    
Amortization of unearned                                                                                                 
  compensation                          -            451,623           -              -          451,623            -    
Amortization of value assigned                                                                                           
  to warrants in debt finacing          -          1,077,395           -              -        1,077,395            -    
                                 ------------    ------------  -------------  -------------  ------------   -------------
BALANCE - JUNE 30, 2002          $  (997,132)    $      -      $     85,569   $(82,882,893)  $35,695,248    $(22,880,771)
                                 ============    ============  =============  =============  ============   =============


See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2001

                                                        [Enlarge/Download Table]

                                                               Class A                            
                                                                 Non-     Paid-in                 
                             Class A Common Stock   Class C    Voting     Capital in    Treasury  
                             --------------------   Common    Preferred   Excess of      Stock    
                               Shares     Amount     Stock       Stock    Par Value      Amount   
                             ----------  --------  ---------  ---------  ------------  ---------- 
                                                                                                  
Balance - June 30, 2000      56,315,471  $  5,631  $     956   $    784   $98,581,757  $ (671,359)

Net loss                           -         -          -          -             -           -    

Other comprehensive income,                                                                       
       net of tax:                                                                                
     Unrealized gains on                                                                          
       securities arising                                                                         
       during the year,                                                                           
       net of tax                  -         -          -          -             -           -    
       Less:                                                                                      
       Reclassification                                                                           
       adjustment                                                                                 
       for (gains) losses                                                                         
       included in net loss        -         -          -          -             -           -    

Exercise of stock options        24,000         2       -          -           28,170        -    
Purchase of treasury stock         -         -          -          -             -         (4,031)
Stock issued to employees                                                                         
  under stock bonus plans     1,636,602       164       -          -        2,636,417        -    
Issuance of stock for                                                                             
  professional services         435,976        44       -          -          653,895        -    
Issuance of stock under                                                                           
  consulting contracts          923,482        92       -          -        1,632,980        -    
Issuance of stock for                                                                             
  research and development                                                                        
  expenses                      183,924        18       -          -          344,839        -    
Issuance of stock for notes                                                                       
  receivable - stockholders       5,000         1       -          -           10,311        -    
Value assigned to                                                                                 
  warrants issued in                                                                              
  debt financing                   -         -          -          -        1,095,651        -    
Net reduction in notes                                                                            
  receivable from                                                                                 
  stockholders                     -         -          -          -             -           -    
Amortization of unearned                                                                          
  compensation                     -         -          -          -             -           -    
                             ----------  --------  ---------   --------  ------------  ---------- 
BALANCE - JUNE 30, 2001      59,524,455  $  5,952  $     956   $    784  $104,984,020   $(675,390)
                             ==========  ========  =========   ========  ============  ========== 

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2001

                                                        [Enlarge/Download Table]

                                  Notes                     Accumulated                                              
                               Receivable                      Other                                                 
                                  from         Unearned    Comprehensive   Accumulated                 Comprehensive 
                               Stockholders  Compensation     Income         Deficit        Total      Income (Loss) 
                               ------------  ------------  -------------  -------------  ------------  --------------
                                                                                                                     
Balance - June 30, 2000        $(1,338,005)  $  (213,374)  $   (264,808)  $(44,816,824)  $51,284,758            -    

Net loss                              -             -              -       (15,183,862)  (15,183,862)  $ (15,183,862)

Other comprehensive                                                                                                  
  income, net of tax:                                                                                                
     Unrealized gains on                                                                                             
       securities arising during                                                                                     
       the year, net of tax           -             -           342,050           -             -            342,050 
     Less: Reclassification                                                                                          
       adjustment for                                                                                                
       (gains) losses                                                                                                
       included in net loss           -             -             6,891           -          348,941           6,891 

Exercise of stock options             -             -              -              -           28,172            -    
Purchase of treasury stock            -             -              -              -           (4,031)           -    
Stock issued to employees                                                                                            
  under stock bonus plans             -             -              -              -        2,636,581            -    
Issuance of stock for                                                                                                
  professional services               -             -              -              -          653,939            -    
Issuance of stock under                                                                                              
  consulting contracts                -       (1,247,813)          -              -          385,259             -   
Issuance of stock for research                                                                                       
  and development expenses            -             -              -              -          344,857            -    
Issuance of stock for notes                                                                                          
  receivable - stockholders        (10,312)         -              -              -             -               -    
Value assigned to warrants                                                                                           
  in debt financing                   -       (1,095,651)          -              -             -               -    
Net reduction in notes                                                                                               
  receivable from                                                                                                    
  stockholders                     307,860          -              -              -          307,860            -    
Amortization of unearned                                                                                             
  Compensation                        -        1,027,820           -              -        1,027,820            -    
                               ------------  ------------  -------------  -------------  ------------  --------------
                               $(1,040,457)  $(1,529,018)  $     84,133   $(60,000,686)  $41,830,294   $ (14,834,921)
BALANCE - JUNE 30, 2001        ============  ============  =============  =============  ============  ==============

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000

                                                        [Enlarge/Download Table]

                                                                        Class A                   
                                                                 Non-       Paid-in               
                              Class A Common Stock  Class C     Voting    Capital in    Treasury  
                              --------------------  Common    Preferred    Excess of      Stock   
                                Shares     Amount    Stock      Stock     Par Value      Amount   
                              ----------  --------  --------  ---------   -----------  -----------
                                                                                                  
Balance - June 30, 1999       53,793,042  $  5,378  $    956  $    784    $95,385,863  $ (592,239)

Net loss                            -         -         -         -              -           -    

Other comprehensive income,                                                                       
      net of tax:                                                                                 
    Unrealized losses on                                                                          
      securities arising                                                                          
      during the year, net                                                                        
      of tax                        -         -         -         -              -           -    
    Less: Reclassification                                                                        
      adjustment for (gains)                                                                      
      losses included in net                                                                      
      loss                          -         -         -         -              -           -    

Exercise of stock options        389,000        39                            455,780        -    
Purchase of treasury stock          -         -         -         -              -        (79,120)
Stock issued to employees                                                                         
  under stock bonus plans        193,523        20      -         -           396,662        -    
Issuance of stock for                                                                             
  professional services          490,000        49      -         -           742,323        -    
Issuance of stock under                                                                           
  consulting contracts         1,429,574       143      -         -         1,539,378        -    
Issuance of stock for                                                                             
  acquisition of Central                                                                          
  Health Care                     19,332         2      -         -            61,751        -    
Net reduction in notes                                                                            
  receivable from                                                                                 
  stockholders                      -         -         -         -              -           -    
Amortization of unearned                                                                          
  compensation                      -         -         -         -              -           -    
Conversion of Class B                                                                             
  common stock to Class A                                                                         
  common stock                     1,000      -         -         -              -           -    
                              ----------  --------  -------- ---------    -----------  ---------- 
BALANCE - JUNE 30, 2000       56,315,471  $  5,631  $    956  $    784    $98,581,757  $ (671,359)
                              ==========  ========  ======== =========    ===========  ========== 

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000

                                                        [Enlarge/Download Table]

                                 Notes                     Accumulated                                              
                               Receivable                     Other                                   Comprehensive 
                                  from        Unearned    Comprehensive   Accumulated                     Income    
                              Stockholders  Compensation     Income         Deficit        Total          (Loss)    
                              ------------  ------------  -------------  -------------  ------------  ------------- 
                                                                                                                    
Balance - June 30, 1999       $(1,226,148)  $  (206,878)  $   (203,106)  $(33,860,837)  $59,303,773                 

Net loss                             -             -              -       (10,955,987)  (10,955,987)  $ (10,955,987)

Other comprehensive income,                                                                                         
      net of tax:                                                                                                   
    Unrealized losses on                                                                                            
      securities arising                                                                                            
      during the year, net                                                                                          
      of tax                         -             -           (47,830)          -          (47,830)        (47,830)
    Less: Reclassification                                                                                          
      adjustment for (gains)                                                                                        
      losses included in net                                                                                        
      loss                           -             -           (13,872)          -          (13,872)        (13,872)

Exercise of stock options        (391,250)         -              -              -           64,569            -    
Purchase of treasury stock           -             -              -              -          (79,120)           -    
Stock issued to employees                                                                                           
  under stock bonus plans            -             -              -              -          396,682            -    
Issuance of stock for                                                                                               
  professional services              -             -              -              -          742,372            -    
Issuance of stock under                                                                                             
  consulting contracts               -         (726,962)          -              -          812,559            -    
Issuance of stock for                                                                                               
  acquisition of Central                                                                                            
  Health Care                        -             -              -              -           61,753            -    
Net reduction in notes                                                                                              
  receivable from                                                                                                   
  stockholders                    279,393          -              -              -          279,393            -    
Amortization of unearned                                                                                            
  compensation                       -          720,466           -              -          720,466            -    
Conversion of Class B                                                                                               
  common stock to Class A                                                                                           
  common stock                       -             -              -              -             -               -    
                              ------------  ------------  -------------  -------------  ------------  ------------- 
BALANCE - JUNE 30, 2000       $(1,338,005)  $  (213,374)  $   (264,808)  $(44,816,824)  $51,284,758   $ (11,017,689)
                              ============  ============  =============  =============  ============  ============= 

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS

                                        For the Years Ended June 30,
                                      ----------------------------------------
                                      2002          2001          2000
                                      ------------  ------------  ------------
Revenues                                                                        
 Product sales - net                  $  5,364,809  $  3,370,826  $  1,606,229
Product sales - related parties                                             
   - net                                 6,229,195     2,686,646     1,752,298
 Service and repair fees - net           1,901,954     1,893,251     1,609,023
Service and repair fees - related                                           
   parties - net                           254,173       123,086        83,514
 Patient revenue - net                     -           1,285,028       996,337
Management and other fees - related                                         
   medical practices - net              28,525,439    30,490,464    29,187,396
 License fees and royalties              2,403,000     2,424,000       920,000
                                      ------------  ------------  ------------
     Total Revenues - Net               44,678,570    42,273,301    36,154,797
                                      ------------  ------------  ------------
Costs and Expenses                                                              
 Costs related to product sales          3,815,081     3,206,385     2,281,709
Costs related to product sales -                                            
   related parties                       4,523,940     2,956,668     2,141,207
Costs related to service and repair                                         
   fees                                  2,338,361     2,216,899     2,278,354
Costs related to service and repair                                         
   fees - related parties                  312,493       144,127       118,255
 Costs related to patient revenue          -           1,138,569       953,619
Costs related to management and                                             
   other fees - related parties         15,255,018    18,134,550    18,818,925
 Research and development                5,099,782     5,866,421     5,532,325
 Selling, general and administrative    21,454,907    19,118,276    16,211,414
Compensatory element of stock                                               
issuances for selling, general                                          
   and administrative expenses           4,712,163     4,044,826     1,929,706
 Provision for bad debts                   972,236       442,505       177,162
Loss on impairment of management                                            
agreements                            4,700,000        -             -  
Amortization of management                                                  
   agreements                            1,218,692     1,218,692     1,218,693
                                      ------------  ------------  ------------
     Total Costs and Expenses           64,402,673    58,487,918    51,661,369
                                      ------------  ------------  ------------
Loss from Operations                    (19,724,103)  (16,214,617)  (15,506,572)

Financing costs paid in stock and                                               
warrants                               (2,368,541)       -             -    
Interest Expense                           (730,041)   (1,255,440)   (1,710,188)
Investment Income                           973,862     1,841,869     1,919,744 
Other (Expense) Income                      (69,133)      964,488     4,655,375 
Debt Conversion Expense                    (544,370)       -             -      
Minority Interests in Income of                                                 
 partnerships                             (392,842)     (480,166)    (270,669)
                                      ------------  ------------  ------------
Loss Before Provision for Income Taxes  (22,855,168)  (15,143,866)  (10,912,310)

Provision for Income Taxes                   27,039        39,996        43,677 
                                      ------------  ------------  ------------
      Net Loss                         $(22,882,207) $(15,183,862) $(10,955,987)
                                      ============  ============  ============

Basic and Diluted Net Loss Per Share          $(.36)        $(.26)        $(.20)
                                             =====         =====         =====
Weighted Average Number of Shares                                               
 Outstanding                            63,511,814    57,388,050    55,096,212
                                      ============  ============  ============
See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                For the Years Ended June 30,
                                      ----------------------------------------
                                       2002          2001           2000
                                      ------------  ------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES                                            
  Net loss                             $(22,882,207) $(15,183,862) $(10,955,987)
Adjustments to reconcile net loss                                           
to net cash provided by (used                                             
in) operating activities:                                                 
Minority interest in income of                                        
      partnerships                         392,842       480,166       270,669
    Depreciation and amortization        5,407,184     4,712,767     4,670,473
 License fee                               -       11,700,000          -
Amortization of unearned                                              
   license fee                       (2,340,000)   (2,340,000)         -
Loss on impairment of management                                      
   agreements                         4,700,000          -             -
Gain on sale of partnership                                           
   interest                                -         (750,000)         -
Issuance of stock for research                                        
   and development expenses                -          344,839          -
 Gain on sale of equipment                 -         (150,000)         -
Imputed interest on deferred                                          
       payment obligations                     -           52,087        397,521
     Provision for bad debts                972,236       442,505        177,162
Compensatory element of stock                                         
       issuances                          4,712,163     4,049,210      1,929,706
  Financing costs paid in stock        2,368,541          -              -
  Debt conversion expense                544,370          -              -
Stock issued for professional                                         
       services                            728,256       653,895       742,372
Liabilities assumed by purchaser                                      
       on sale of subsidiary                   -             -         (824,394)
(Increase) decrease in operating                                      
assets, net:                                                      
         Accounts receivable             (1,034,451)      110,763      (859,090)
         Notes receivable                   200,000       125,810      (476,014)
Costs and estimated earnings                                  
in excess of billings on                                  
          uncompleted contracts            616,250      (800,697)      495,291
        Inventories                       (938,392)     (189,206)      701,609
Sales-type lease receivable -                                 
           related party                       -       (1,895,000)     (935,000)
        Sales-type lease receivable           -       (1,083,192)        4,565
Principal payments received on                                
sales-type lease - related                                
       parties                           93,391       120,428          -
Principal payments received on                                
       sales-type lease                 119,550       102,394          -
Prepaid expenses and other                                    
          current assets                  (198,151)     (299,692)       97,374
         Other assets                       (44,584)         (590)       (3,064)
Receivables and advances to                                   
          related parties                   62,151      (400,161)      275,691
Increase (decrease) in operating                                      
liabilities, net:                                                 
         Accounts payable                 1,055,898     1,281,985      (434,425)
         Other current liabilities         (734,519)   (1,556,133)     (673,669)
        Customer advances                6,035,110     1,089,971       487,033
Billings in excess of costs                                   
and estimated earnings on                                 
       uncompleted contracts            763,320       351,592          -
        Other liabilities                   32,123       189,073         6,709
         Income taxes payable                (7,162)      (52,029)      (60,227)
                                      ------------  ------------  ------------
NET CASH PROVIDED BY (USED                                  
            IN) OPERATING ACTIVITIES        623,919     1,106,923    (4,965,695)
                                      ------------  ------------  ------------
See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    For the Years Ended June 30,
                                      ----------------------------------------
                                      2002          2001          2000
                                      ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES                                            
 Sales of marketable securities       $    513,219  $  5,747,851  $  8,651,820
  Purchases of property and equipment    (3,104,573)   (2,556,982)   (2,807,264)
Costs of capitalized software                                               
    development                            (855,612)     (752,285)     (361,323)
Proceeds from sale of equipment            39,465       150,000          -  
Cost of patents and copyrights           (548,290)         -             -  
                                      ------------  ------------  ------------
NET CASH (USED IN) PROVIDED BY                                      
       INVESTING ACTIVITIES             (3,955,791)    2,588,584     5,483,233
                                      ------------  ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES                                            
Proceeds from convertible debenture          -        4,500,000          -  
Proceeds from long-term debt                 -          500,000          -  
Increase in restricted cash                  -         (500,000)         -  
Costs in connection with debt                                               
financing                                  -         (270,729)         -
Repayment of borrowings and capital                                         
    lease obligations                    (4,456,014)   (5,739,395)   (3,750,205)
Proceeds from exercise of stock                                             
   options and warrants                  1,515,046        28,172        64,569
Proceeds from sale of partnership                                           
interest                                   -          750,000          -
  Purchase of common stock                     -           (4,031)      (79,120)
Distributions to holders of minority                                        
    interests                              (273,508)     (348,709)     (347,067)
                                      ------------  ------------  ------------
NET CASH USED IN FINANCING ACTIVITIES    (3,214,476)   (1,084,692)   (4,111,823)
                                      ------------  ------------  ------------

(DECREASE) INCREASE IN CASH AND CASH                                            
  EQUIVALENTS                            (6,546,348)    2,610,815    (3,594,285)

CASH AND CASH EQUIVALENTS - BEGINNING                                           
 OF YEAR                                14,040,334    11,429,519    15,023,804
                                      ------------  ------------  ------------
CASH AND CASH EQUIVALENTS - END                                                 
 OF YEAR                              $  7,493,986  $ 14,040,334  $ 11,429,519
                                      ============  ============  ============

See accompanying notes to consolidated financial statements.                    

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 1 - 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.                                       

Health  Management  Corporation of America ("HMCA") was organized by the Company
in March 1997, as a wholly-owned  subsidiary,  in order to enable the Company to
expand  into the  business of  providing  comprehensive  management  services to
physicians' practices and other medical providers,  including diagnostic imaging
centers and ancillary  services.  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.     

HMCA entered the physician and diagnostic  management  services business through
the  consummation of two acquisitions in fiscal 1997, two acquisitions in fiscal
1998, and one acquisition  consummated in fiscal 1999. The acquired companies in
all cases were actively engaged in the business of managing  medical  providers.
The medical providers are diagnostic  imaging centers,  principally MRI scanning
centers, multi-specialty practices and primary care practices.                  

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.   

The Company does not consolidate the medical  practices which it manages,  as it
has previously  determined that  consolidation of such medical  practices is not
appropriate because the underlying  management agreements do not meet all of the
six criteria of Emerging Issues Task Force ("EITF") Consensus No. 97-2.         

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

The  preparation of the  consolidated  financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
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 allowances,  intangible  assets,  income
taxes,  useful  lives  of  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.                                                                

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                

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

The Company accounts for its investments using Statement of Financial Accounting
Standards  ("SFAS") No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities"  ("SFAS No. 115").  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 earnings if the
securities are traded for short-term  profit.  Otherwise,  such unrealized gains
and losses are charged or credited to comprehensive income.                     

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,
2002 and  2001,  all  securities  covered  by SFAS No.  115 were  designated  as
available for sale. Accordingly, these securities are stated at fair value, with
unrealized gains and losses reported in comprehensive income. Realized gains and
losses on sales of  investments,  as  determined  on a  specific  identification
basis,  are included in  investment  income in the  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.                                       

Intangible Assets                                                               
-----------------                                                               

1)  Management Agreements                                                       

Amounts allocated to management agreements, in connection with four acquisitions
completed  during the  period  from June 1997  through  August  1998,  are being
amortized  using  the  straight-line   method  over  the  20-year  term  of  the
agreements.                                                                     

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 

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

1) Capitalized Software Development Costs                                       

Capitalization   of  computer   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 requires
considerable  judgement 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.                                                                     

Amortization of capitalized  computer 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 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 net realizable  value,  any remaining  capitalized
amounts are written off.                                                        

2) Patents and Copyrights                                                       

Amortization is calculated on the straight-line basis over 17 years.            

3) Deferred Financing Costs                                                     

Financing  costs in  connection  with  the May 24,  2001  convertible  debenture
offering were amortized over the one-year  period of the  obligation.  (see Note
13)                                                                             

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

The Company  periodically  assesses 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 (see Note 3).                                                  

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                

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

Revenue   on  sales   contracts   for   scanners   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  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  material,
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 billings 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 are recognized upon shipment.                 

Revenue from sales-type leases are recognized when collectibility of the minimum
lease payments is reasonably predictable and no important uncertainties surround
the amount of  unreimbursable  costs yet to be incurred by the Company as lessor
under the lease.  The minimum lease  payments,  plus the  unguaranteed  residual
value  accruing  to the benefit of the  Company as lessor,  are  recorded as the
gross  investment in the lease.  The difference  between the gross investment in
the lease and the sum of the present  value of the minimum  lease  payments  and
unguaranteed  residual value,  accruing to the Company's benefit as lessor,  are
recorded as unearned income.                                                    

Revenue  under   management  and  lease  contracts  is  recognized   based  upon
contractual  agreements  for  management  services  rendered  by the Company and
leases of medical  equipment  under various  long-term  agreements  with related
medical  providers  (the  "PC's").  The PC's are  primarily  owned by Raymond V.
Damadian,  M.D.,  President  and Chairman of the Board of FONAR.  The  Company's
agreements  with the PC's  stipulate  fees for services  rendered and  equipment
leased,  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.                                            

Patient revenue from the Company's wholly-owned Florida multi-specialty practice
through the period  ended June 30, 2001 was  recorded in the period the services
were rendered at established  rates reduced by provisions for doubtful  accounts
and contractual  adjustments.  Such adjustments represent the difference between
charges  at  established  rates  and  estimated  recoverable  amounts  and  were
recognized in the period the services were  rendered.  Any  differences  between
estimated  contractual  adjustments and actual final settlements were recognized
as contractual  adjustments in the year final settlements were determined.  This
multi-specialty  practice  was sold by the Company on June 30,  2001.  (see Note
17).                                                                            

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 

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.                              

During the year ended June 30, 2001, the Company acquired a minority interest in
a development  stage  technology  company through the issuance of 270,000 shares
valued at  $344,857.  The entire  amount of this  purchase  price was charged to
research and development expenses.                                              

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

Advertising costs are expensed as incurred.                                     

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

The Company's  shipping and handling  costs are included  under costs of product
sales for all periods presented.                                                

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

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

Product Warranty                                                                
----------------                                                                

The  Company  provides  currently  for the  estimated  cost to repair or replace
products  under  warranty  provisions  in  effect  at the  time of  installation
(generally for one year).                                                       

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

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

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 

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

Basic  earnings  (loss) per share is computed  based on weighted  average shares
outstanding and excludes any potential  dilution.  In accordance with EITF Topic
D-95,  "Effect of  Participating  Convertible  Securities on the  Computation of
Basic Earnings Per Share," the Company's  participating  convertible securities,
which include the Class A Non-voting  Preferred stock,  Class B common stock and
Class C common stock,  are not included in the  computation  of basic or diluted
earnings per share since they are  antidilutive.  In accordance  with EITF Topic
D-95, prior period's  earnings per share were restated.  Diluted earnings (loss)
per share 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.                                    

Options and warrants to purchase approximately 3,022,000,  4,036,000 and 427,000
shares  of  common  stock  were  outstanding  at June 30,  2002,  2001 and 2000,
respectively,  but were not included in the computation of diluted  earnings per
share due to losses for all years, as a result of the options and warrants being
antidilutive.                                                                   

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.          

Restricted Cash                                                                 
---------------                                                                 

At June 30, 2002 and 2001,  $5,500,000 of cash has been pledged as collateral on
an  outstanding  bank loan and has been  classified  as  restricted  cash on the
accompanying balance sheet.                                                     

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, 2002,  the Company had cash on deposit of  $11,272,978  in excess of federal
insured limits.                                                                 

Related Parties                                                                 
---------------                                                                 

Net revenues from related parties accounted for  approximately  78%, 78% and 86%
of the  consolidated  net revenues  for the years ended June 30, 2002,  2001 and
2000, respectively.                                                             

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                

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

The financial  statements  include various  estimated fair value  information at
June 30, 2002,  2001 and 2000, as required by SFAS No. 107,  "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 and restricted cash: 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.                       

Investment  in  sales-type  leases  and  investments,   advances  and  notes  to
affiliates and related  parties:  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 and loans payable: The carrying amounts of debt and loans 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.                                                                        

Stock-Based Compensation                                                        
------------------------                                                        

The Company  accounts  for its employee  compensation  and stock option plans in
accordance  with the provisions of Accounting  Principles  Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees,  and related  interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying  stock  exceeded the exercise  price.  In
accordance  with SFAS No. 123,  Accounting  for  Stock-Based  Compensation,  the
Company provides proforma net income and proforma earnings per share disclosures
for employee stock option grants, as if the  fair-value-based  method defined in
SFAS No. 123 had been applied.                                                  

Comprehensive Income (Loss)                                                     
---------------------------                                                     

Comprehensive  income (loss)  generally  includes all changes in equity during a
period,   except  those   resulting  from   investments  by   stockholders   and
distributions to stockholders.                                                  

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 

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

In June 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141,  "Accounting for Business  Combinations" and SFAS No. 142,  "Accounting for
Goodwill and Other Intangible  Assets".  SFAS No. 141 requires that all business
combinations  be  accounted  for using the  purchase  method of  accounting  and
prohibits   the   pooling-of-interests   method  of   accounting   for  business
combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill,
which  arises  from  business  combinations  after  June  30,  2001,  cannot  be
amortized.  In addition,  SFAS No. 142 requires the  discontinuation of goodwill
amortization and the amortization of intangible assets with indeterminate  lives
effective  the date the Company  adopts the  statement,  which is expected to be
June 30,  2002.  The Company has six months from the date it adopts SFAS No. 142
to test for  impairment  and any  impairment  charge  resulting from the initial
application  of the new rule must be  classified as the  cumulative  effect of a
change in accounting principle.  Thereafter, goodwill and intangible assets with
indeterminate lives should be tested for impairment annually or as needed.      

The  adoption  of  SFAS  No.  142  did  not  have a  significant  impact  on the
consolidated  financial  statements  and the  Company  expects  to  continue  to
amortize all identifiable intangible assets.                                    

In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"),  "Accounting for the
Impairment  or Disposal of Long-Lived  Assets,"  which  supersedes  SFAS No. 121
("SFAS  121"),  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to be Disposed Of" and certain  provisions of APB Opinion No.
30,  "Reporting  Results of  Operations - Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events  and  Transactions."  SFAS 144  requires  that  long-lived  assets  to be
disposed of by sale, including discontinued operations, be measured at the lower
of the carrying  amount or fair value,  less cost to sell,  whether  reported in
continuing operations or in discontinued operations.  SFAS 144 also broadens the
reporting  requirements of discontinued  operations to include all components of
an entity that have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The  provisions of SFAS 144 have been adopted by the Company as of July 1, 2001.
The adoption of SFAS 144 did not have a significant  impact to the  consolidated
financial statements.                                                           

In April 2002,  the FASB issued SFAS No. 145 ("SFAS 145"),  "Rescission  of FASB
Statement  No. 4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical
Corrections."  The  rescission of SFAS No. 4,  "Reporting  Gains and Losses from
Extinguishments",  and SFAS No.  64,  "Extinguishments  of Debt Made to  Satisfy
Sinking  Fund  Requirements",  which  amended  SFAS No.  4, will  affect  income
statement  classification  of gains and losses from  extinguishment of debt. The
Company  adopted  SFAS 145 on January 1, 2002 on the  prospective  basis and the
adoption  did  not  have a  significant  impact  to the  consolidated  financial
statements.                                                                     

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                 

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

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities"  ("SFAS 146").  SFAS 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullified Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability  for a cost  associated  with  an  exit  or  disposal  activity  to be
recognized when the liability is incurred.  A fundamental  conclusion reached by
the FASB in this statement is that an entity's  commitment to a plan, by itself,
does not create a present  obligation  to others that meets the  definition of a
liability.  SFAS 146 also  establishes  that  fair  value is the  objective  for
initial  measurement  of the  liability.  The  provisions of this  statement are
effective for exit or disposal  activities that are initiated after December 31,
2002, with early application encouraged. The adoption of SFAS 146 did not have a
significant impact to the consolidated financial statements.                    

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

Certain  prior year balances  have been  reclassified  to conform to the current
year presentation.                                                              

NOTE  3 - MANAGEMENT AGREEMENTS                                                 

In connection with four  acquisitions  completed  during the period June of 1997
through August of 1998, a portion of the purchase price was allocated to various
long-term  management  agreements.  The cost,  accumulated  amortization and net
carrying value at June 30, 2002 and 2001 is as follows:                         

                                                        [Enlarge/Download Table]


                               As of June 30, 2002                                   
                               -------------------                                   
                                                                                     
                             Acquisition                   Accumulated   Net Carrying
                                Date           Cost        Amortization     Value    
                             ------------  -----------     ------------  ------------

Affordable Diagnostics, Inc. June 1997       3,719,640      $  883,738   $ 2,835,902 

A&A Services, Inc.           March 1998      5,748,139(a)    2,229,292     3,518,847 

Dynamic Health Care                                                                  
  Management, Inc.           August 1998     8,951,907       1,790,381     7,161,526 

Central Health Care                                                                  
  Management Services, Inc.  January 1998    1,254,163         250,832     1,003,331 
                                           -----------     ------------  ------------
                                           $19,673,849      $5,154,243   $14,519,606 
                                           ===========     ============  ============

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  3 - MANAGEMENT AGREEMENTS (Continued)                                     

As of June 30, 2001 
------------------- 

                                                                [Download Table]

                             Acquisition                Accumulated   Net Carrying
                                Date          Cost      Amortization     Value    
                             ------------  -----------  ------------  ------------
                                                                                  
Affordable Diagnostics, Inc. June 1997     $ 3,719,640  $    697,754  $  3,021,884

A&A Services, Inc.           March 1998     10,448,139     1,706,886     8,741,255

Dynamic Health Care                                                               
  Management, Inc.           August 1998     8,951,907     1,342,786     7,609,121

Central Health Care                                                               
  Management Services, Inc.                                                       
                             January 1998    1,254,163       188,125     1,066,038
                                           -----------  ------------  ------------
                                           $24,373,849  $  3,935,551   $20,438,298
                                           ===========  ============  ============

The estimated amortization expense of management agreements for each of the next
5 years is approximately $983,700.                                              

(a) Impairment Loss                                                             
---------------                                                         

During the quarter  ended June 30,  2002,  the primary  care  medical  practices
managed  by  the  Company's  subsidiary,   A&A  Services,  Inc.,  experienced  a
significant  overall decline in patient volume and related  operating cash flows
which led to the inability of the medical  practices to fully and timely pay the
contractual  management  fees  to the  Company.  As a  result  of the  continued
occurrence of this negative  trend,  the Company  recorded an impairment loss of
$4,700,000  during the quarter  ended June 30, 2002 related to those  management
agreements  which reduced the carrying value of such agreements to $3,518,847 at
June 30, 2002.                                                                  

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  4 - MARKETABLE SECURITIES                                                 

The following is a summary of marketable securities at June 30, 2002 and 2001:  

                                        2002
                                          ------------------------------------
                                          Unrealized
                                                         Holding     Fair Market
                                            Cost        Gain         Value
                                           -----------  ----------   -----------
       U.S. Government Obligations         $ 3,764,690  $   60,942   $ 3,825,632
Corporate and government                                          
         agency bonds                        1,723,224      24,627     1,747,851
                                           -----------  ----------   -----------
                                           $ 5,487,914  $   85,569   $ 5,573,483
                                           ===========  ==========   ===========

                                        2001
                                          ------------------------------------
                                          Unrealized
                                                         Holding     Fair Market
                                            Cost        Gain         Value
                                           -----------  ----------   -----------

      U.S. Government Obligations         $4,128,191   $   63,849   $4,192,039
Corporate and government                                          
        agency bonds                       1,872,942       20,284    1,893,227
                                          ----------   ----------   ----------
                                          $6,001,133   $   84,133   $6,085,266
                                          ==========   ==========   ==========

All debt  securities are due within five years.  At June 30, 2002, the amount of
cost due within one year was $3,377,896.                                        

NOTE 5 - ACCOUNTS  RECEIVABLE,  ACCOUNTS RECEIVABLE - RELATED MEDICAL PRACTICES,
NET AND CONCENTRATION OF CREDIT RISK - ACCOUTS RECEIVABLE                       

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

The Company's  receivable from the related PC's  substantially  consists of fees
outstanding under management agreements,  service contracts and lease agreements
with related PC's. Payment of the outstanding fees is based on collection by the
PC's of fees from third party medical reimbursement  organizations,  principally
insurance companies and health management organizations.                        

Collection  by the  Company of its  accounts  receivable  may be impaired by the
uncollectibility  of PC's  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.
Approximately 52%,56% and 48%, respectively, of the PC's 2002, 2001 and 2000 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 takes
all legally  available steps,  including  legally  prescribed  arbitrations,  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.                                               

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 5 - ACCOUNTS  RECEIVABLE,  ACCOUNTS RECEIVABLE - RELATED MEDICAL PRACTICES,
NET AND CONCENTRATION OF CREDIT RISK - ACCOUTS RECEIVABLE (Continued)           

Net  revenues  from  management  and other  fees  charged  to the  related  PC's
accounted for  approximately  64%, 72% and 81%, of the consolidated net revenues
for the years ended June 30, 2002, 2001 and 2000, respectively.                 

Unaudited Financial Information of Unconsolidated Managed Medical Practices     
---------------------------------------------------------------------------     

Audited financial information related to the 24 unconsolidated medical practices
managed by the  Company is not  available.  Substantially  all of these  medical
practice books and records are  maintained on a cash basis and depreciate  their
assets on an accelerated tax basis and have a December 31 year end.             

Summarized  unaudited  income  statement  data for the years ended  December 31,
2001, 2000 and 1999 related to the 24  unconsolidated  medical practices managed
by the Company are as follows:                                                  

                             (000's omitted)
                               2001        2000         1999
                               -------      -------      -------
Patient Revenue - Net             $35,018      $36,266      $32,944   
                               =======      =======      =======
Income (loss) from Operations     $  (293)     $   485      $   509   
                               =======      =======      =======
Net Income (loss)                 $  (539)     $   281      $   353   
                               =======      =======      =======

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  manufacturing  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.  Bad debt  expense  has been within  management's
expectations and,  generally,  the Company does not require  collateral or other
security to support accounts receivable.                                        

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

1) Information relating to uncompleted contracts as of June 30, 2002 and 2001 is
as follows:                                                                     

                                                As of June 30,
                                               -------------------------
                                               2002           2001
                                               ----------     ----------
Costs incurred on uncompleted                       
            contracts                          $3,547,178     $2,248,706
          Estimated earnings                    1,252,425        560,558
                                               ----------     ----------
                                                4,799,603      2,809,264
          Less: Billings to date                4,761,909      1,392,000
                                               ----------     ----------
                                               $   37,694     $1,417,264
                                               ==========     ==========

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

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,
                                         -------------------------
                                         2002           2001
                                         ----------     ----------
Costs and estimated earnings in                     
excess of billings on                           
         uncompleted contracts           $1,152,606     $1,768,856
Billings in excess of costs and                     
estimated earnings on                           
         uncompleted contracts            1,114,912        351,592
                                         ----------     ----------
                                         $   37,694     $1,417,264
                                         ==========     ==========

2) Customer advances consist of the following:                                  

                                         As of June 30, 2002
                                           -------------------------------------
                                           Related
                                           Total       Parties       Other
                                           -----------  -----------  -----------

              Total advances               $12,469,541  $ 5,957,409  $ 6,512,132
Less: Advances on contracts                         
                      under construction     4,761,909    2,557,409    2,204,500
                                           -----------  -----------  -----------
                                           $ 7,707,632  $ 3,400,000  $ 4,307,632
                                           ===========  ===========  ===========

                                         As of June 30, 2001
                                           -------------------------------------
                                           Related
                                           Total       Parties       Other
                                           -----------  -----------  -----------

              Total advances               $ 3,064,522  $ 1,492,160  $ 1,572,362
Less: Advances on contracts                         
                      under construction     1,392,000    1,085,000      307,000
                                           -----------  -----------  -----------
                                           $ 1,672,522  $   407,160  $ 1,265,362
                                           ===========  ===========  ===========

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  7 - INVENTORIES                                                           

Inventories included in the accompanying consolidated balance sheets consist of:

                                        As of June 30,
                                         -------------------------
                                         2002           2001
                                         ----------     ----------
Purchased parts, components and                     
         supplies                        $3,326,318     $3,049,879
       Work-in-process                    1,337,449        675,496
                                         ----------     ----------
                                         $4,663,767     $3,725,375
                                         ==========     ==========

NOTE 8 - INVESTMENT IN SALES-TYPE LEASES                                        

During  the year  ended  June 30,  2001,  the  Company  entered  into two  lease
agreements,  totalling $1,895,000,  with related parties for MRI scanners, which
are  considered  sales-type  leases.  The  leases  are  payable  in 120  monthly
installments of $12,356 and $11,903, respectively, including interest at 10% and
8.5% per annum.  The  lessees  can also elect to pay lump sums of  $581,544  and
$580,149,  respectively,  at the  end of the 60  months.  If the  lease  term is
extended  beyond 60 months,  the lessee may elect to purchase the scanner at the
end of the second 60-month period for a purchase price of $1.                   

During the year ended June 30, 2001, the Company entered into a $1,050,000 lease
agreement  with  an  outside  party  for an MRI  scanner,  which  is  considered
sales-type  lease.  The lease is payable in 75 monthly  installments  of $18,389
each,  plus at the end of the 75-month  lease,  the lessee can elect to continue
the  lease for an  additional  five  years,  at a monthly  payment  of  $18,389,
including interest at 12.5% per annum, or pay a lump sum of $200,000.           

During the year ended June 30, 2000,  the Company  entered into a $935,000 lease
agreement  with a  related  party  for an MRI  scanner  which  is  considered  a
sales-type  lease. The lease is payable in 120 monthly  installments of $12,356,
including interest at 10% per annum. The lessee can also elect to pay a lump sum
of  $581,544 at the end of 60 months.  If the lease term is  extended  beyond 60
months,  the lessee may elect to  purchase  the scanner at the end of the second
60-month period for a purchase price of $1.                                     

During  September 2002, two related entities that have lease agreements with the
Company obtained financing from a third party and utilized the proceeds to repay
amounts due to the Company.  On September 30, 2002, the Company received a total
of $1,600,000 from these related entities as payment of a substantial portion of
the amounts due to the Company under the lease agreements.                      

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  8 - INVESTMENT IN SALES-TYPE LEASES (Continued)                           

The Company's investment in sales-type leases as at June 30, 2002 and 2001 is as
follows:                                                                        
                                          As of June 30,
                                         -------------------------
                                         2002           2001
                                         ----------     ----------
Net minimum lease payments                          
         Receivable                      $4,630,593     $5,029,225
       Less: Unearned income              1,157,729      1,343,420
                                         ----------     ----------
Net Investment in Sales-type                        
         Leases                          $3,472,864     $3,685,805
                                         ==========     ==========
       Current portion                   $1,916,325     $  310,853
       Non-current portion                1,556,539      3,374,952
                                         ----------     ----------
                                         $3,472,864     $3,685,805
                                         ==========     ==========

Future minimum lease payments are as follows:                                   
Years Ended June 30:    
-------------------     
                      2003                    $1,916,325
                      2004                       211,956
                      2005                       236,675
                      2006                       248,731
                      2007                       859,177
                                              ----------
                                              $3,472,864
                                              ==========

NOTE  9 - PROPERTY AND EQUIPMENT                                                

Property and equipment, at cost, less accumulated depreciation and amortization,
at June 30, 2002 and 2001, is comprised of:                                     
                                            As of June 30,
                                         -------------------------
                                         2002         2001
                                         -----------   -----------
       Diagnostic equipment under lease  $ 1,569,197   $ 1,263,181
       Diagnostic equipment                5,695,488     4,485,217
Research, development and                           
         demonstration equipment           8,447,906     7,916,447
       Machinery and equipment             6,542,283     6,265,041
       Furniture and fixtures              3,303,984     3,222,076
       Equipment under leases              2,444,947     2,444,947
       Leasehold improvements              4,261,640     3,185,611
                                         -----------   -----------
                                          32,265,445    28,782,520
Less: Accumulated depreciation                      
               and amortization           21,668,964    18,145,123
                                         -----------   -----------
                                         $10,596,481   $10,637,397
                                         ===========   ===========

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  9 - PROPERTY AND EQUIPMENT (Continued)                                    

Depreciation and amortization of property and equipment for the years ended June
30, 2002, 2001 and 2000 was $3,579,702, $3,323,516 and $3,237,384, respectively.

The equipment  under leases has a net book value of $1,295,537 and $1,684,083 at
June 30, 2002 and 2001, respectively.                                           

NOTE 10 - OTHER INTANGIBLE ASSETS                                               

Other intangible assets, net of accumulated  amortization,  at June 30, 2002 and
2001 are comprised of:                                                          

                                        As of June 30,
                                         -------------------------
                                         2002           2001
                                         ----------     ----------
Capitalized software development                    
         Costs                           $3,171,355     $2,315,744
       Patents and copyrights             1,674,098      1,125,808
       Deferred financing costs               -            270,729
                                         ----------     ----------
                                          4,845,453      3,712,281
       Less: Accumulated amortization     2,196,835      1,858,775
                                         ----------     ----------
                                         $2,648,618     $1,853,506
                                         ==========     ==========

Information  related to other  intangible  assets  for the years  ended June 30,
2002, 2001 and 2000 is as follows:                                              

                                        2002          2001          2000
                                        ----------    ----------    ----------
          Balance - Beginning of Year   $1,853,506    $1,035,924    $  888,992
          Amounts capitalized            1,403,902     1,025,533       361,323
           Amortization                    (608,790)     (207,951)     (214,391)
                                        ----------    ----------    ----------
          Balance - End of Year         $2,648,618    $1,853,506    $1,035,924
                                        ==========    ==========    ==========

Amortization of capitalized  software development costs for the years ended June
30, 2002, 2001 and 2000 was $271,837, $141,727 and $148,167, respectively.      

The estimated  amortization of patents and copyrights and  capitalized  software
development costs for the five years ending June 30, 2007 is as follows:        

                                                         Capitalized
                                                      Software
For the Years                          Patents and        Development   
Ending June 30,        Total           Copyrights            Costs      
--------------       ----------        ------------       ------------  
2003                 $  399,105         $  102,776         $  296,329   
2004                    399,105            102,776            296,329   
2005                    399,105            102,776            296,329   
2006                    326,840            102,776            224,064   
2007                    320,732             96,668            224,064   
                   ----------         -----------        -----------
                  $1,844,877         $  507,772         $1,337,115
                   ==========         ==========         ===========

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FONAR CORPORATION AND SUBSIDIARIES  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 11 - 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.  In  addition,  as
revised,  pursuant to a legal settlement  agreement on April 29, 1997, a special
cash dividend was paid in an amount equal to 3-1/4% on first $10 million, 4-1/2%
on 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  by the  Company of United  States  Patent  No.  3,789,832
(Apparatus and Method of Detecting Cancer in Tissue).                           

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.  During the year ended June
30, 2000,  1,000  shares of Class B common stock were  converted to common stock
leaving 4,211 of such shares outstanding as of June 30, 2002 and 2001.          

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 7.8 million shares.                            

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 amount
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).                                     

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 11 - CAPITAL STOCK (Continued)                                             

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.                                                   

Stock option share  activity and weighted  average  exercise  prices under these
plans  and  grants  for the years  ended  June 30,  2002,  2001 and 2000 were as
follows:                                                                        
                                                          Weighted
                                                         Average
                                          Number of       Exercise
                                         Shares          Price
                                          ---------      ---------
      Outstanding, July 1, 1999            387,735        $ 4.62
      Granted                              413,000          1.52
      Exercised                           (374,000)         1.15
    Forfeited                              -               -
                                         ---------        ------
      Outstanding, June 30, 2000           426,735          2.83
      Granted                              672,896          1.52
      Exercised                            (24,000)         1.18
    Forfeited                              -               -
                                         ---------        ------
      Outstanding, June 30, 2001         1,075,631          2.05
    Granted                                -               -
      Exercised                            (13,868)         1.09
    Forfeited                              -               -
                                         ---------        ------
      Outstanding, June 30, 2002         1,061,763        $ 2.06
                                         =========        ======
Exercisable at:                                     
        June 30, 2000                      426,735        $ 2.83
        June 30, 2001                      402,735        $ 2.93
        June 30, 2002                    1,061,763        $ 2.06

The range of exercise prices for options  outstanding as of June 30, 2002 was as
follows:                                                                        
                                Weighted
                               Average
Range of                         Remaining  
Exercise        Number of       Contractual 
Price            Options       Life in Years
-----------      ---------      ------------- 
$0.75-$1.88        885,278            8       
$3.00-$5.00        176,485            2       
---------   
1,061,763   
=========   

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 11 - CAPITAL STOCK (Continued)                                             

Options (Continued)                                                             
-------------------                                                             

On March 10, 1997, HMCA adopted the 1997 Incentive  Stock Option Plan,  pursuant
to which HMCA  authorized  the issuance of up to 2,000,000  shares of the common
stock of HMCA.  Options to purchase 1,600,000 shares at an option price of $0.10
per share were granted on March 10, 1997.  One half of the options  granted will
not  become  exercisable  unless  and  until  the  earlier  of such time as HMCA
successfully  completes a public offering of its securities,  or HMCA recognizes
at least  $10,000,000  in revenues  for two  consecutive  fiscal  quarters.  The
remainder of the options will not become  exercisable until one year thereafter.
The options will expire on March 9, 2007.  No options have vested as of June 30,
2002.                                                                           

On December 16, 1998,  HMCA  adopted the 1998  Non-Statutory  Stock Option Plan,
pursuant to which HMCA  authorized  the issuance of up to 500,000  shares of the
common stock of HMCA.  Options to purchase  500,000 shares at an option price of
$1.00 per share were granted on December 16, 1998. The options  granted will not
become exercisable  unless and until such time as HMCA successfully  completes a
public offering of its securities. The options will expire on December 15, 2008.
No options have vested as of June 30, 2002.                                     

On December  16,  1998,  HMCA  adopted the 1998  Incentive  Stock  Option  Plan,
pursuant to which HMCA authorized the issuance of up to 2,000,000  shares of the
common stock of HMCA.  Options to purchase  670,000 shares at an option price of
$1.00 per share were  granted  on  December  16,  1998.  470,000 of the  options
granted  will  not  become  exercisable  unless  and  until  such  time  as HMCA
successfully  completes a public offering of its securities,  and 200,000 of the
options will not become exercisable until one year thereafter.  The options will
expire on December 15, 2008. No options have vested as of June 30, 2002.        

Stock option share activity and weighted  average exercise prices under the HMCA
plans and grants for the three years ended June 30, 2002,  2001 and 2000 were as
follows:                                                                        
                                                        Weighted
                                                       Average
                                        Number of       Exercise
                                       Options         Price
                                        ---------      ---------
Outstanding - June 30, 2002,                        
     2001 and 2000                    2,770,000        $ .48
                                        =========      =========

The Company  accounts for its stock option plans under APB Opinion No. 25, under
which no compensation cost has been recognized.  Had compensation cost for these
plans been determined  consistent with FASB Statement No. 123, the Company's net
loss and loss per share  would have been  effected  for the years ended June 30,
2002, 2001 or 2000 as follows:                                                  

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 11 - CAPITAL STOCK (Continued)                                             

Options (Continued)                                                             
-------------------                                                             

                                      2002          2001          2000
                                      ------------- ------------  ------------
Net Loss:                                           
                As reported            $(22,882,207) $(15,183,862) $(10,955,987)
                Proforma               $(23,549,156) $(15,183,862) $(11,059,237)

Loss Per Share:                                     
                As reported                   $(.36)       $(0.26)       $(0.20)
                Proforma                      $(.37)       $(0.26)       $(0.20)

The fair value of the options  granted under all plans is estimated at $0.52 and
$0.20, respectively, on the date of grant using the Black-Scholes option-pricing
model based on the following  assumptions  for the years ended June 30, 2001 and
2000:                                                                           

                                          2002          2001          2000
              All Plans:                  ------        ------        ------
               Dividend yield               0%            0%            0%
               Expected volatility         92%           98%           33%
              Expected life (years)        3%            3             3

The  risk-free  interest  rates were based  upon a rate with  maturity  equal to
expected term. U.S.  Treasury  instruments  were utilized.  The weighted average
interest rate amounted to 4.0%, 5.0% and 5.0%, respectively.                    

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

On June 1, 2002, October 1, 2000 and May 9, 1997, the Board of Directors adopted
Stock  Bonus  Plans.  Under the terms of the  Plans,  2,000,000,  5,000,000  and
5,000,000  shares of common  stock,  respectively,  were  available for issuance
under each plan. The stock bonuses may be awarded no later than May 31, 2012 for
the 2002 Plan,  September  30, 2010 for the 2000 Plan and March 31, 2007 for the
1997 Plan.                                                                      

During fiscal 2002, 2001 and 2000,  2,108,674,  3,001,060 and 2,148,429  shares,
respectively, were issued under the stock bonus plans.                          

Warrants                                                                        
--------                                                                        

In connection with the convertible  debenture financing completed in May of 2001
(Note 13), the Company  granted to the investor and the placement agent warrants
to purchase a total of 959,501  common shares at an exercise price of $1.801 per
share. The warrants are exercisable over a five-year  period.  The fair value of
the warrants was estimated at $1.14 on the date of grant using the Black-Scholes
pricing model. Separately,  the Company issued to the investor callable warrants
to purchase a total of 2,000,000  shares of common stock at  fluctuating  prices
(Note 13).                                                                      

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 12 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES                      

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

                                                      June 30,
                                                      --------------------------
                                                     2002           2001
                                                      ------------  ------------
Construction  loan  converted into a capital lease                              
obligation  during  August  1998.  The  obligation                              
requires   equal  monthly   payments   aggregating                              
$13,097,  including  interest  at 13.2% per annum,                              
through    August   2003.    The   obligation   is                              
collateralized by the related equipment.              $    157,837  $    274,931

Promissory notes payable to a bank, collateralized                              
by $5.5 million certificate of deposit,  requiring                              
monthly  payments of interest  only, at a variable                              
rate based on the bank's prime rate (4.56% at June                              
30, 2002) with payment of the entire principal due                              
on March 20, 2003.                                       5,500,000     5,500,000

Notes  payable to the former  shareholders  of A&A                              
Services,  Inc.  The note called for 16  quarterly                              
payments of $300,044, including interest at a rate                              
of 6%,  commencing  March  20,  1999.  The note is                              
collateralized   by  all  of  the  assets  of  the                              
acquired  business  and  guaranteed  by FONAR (see                              
Modification of Notes Payable).                            492,000     1,709,406

Note  payable  to the former  shareholders  of A&A                              
Services, Inc. The note calls for 60 equal monthly                              
installments of principal and interest of $25,000,                              
including  interest  at a rate  of 6%  per  annum,                              
commencing   April   20,   1998.   The   note   is                              
collateralized   by  all  of  the  assets  of  the                              
acquired business and guaranteed by FONAR.                 219,477       497,199

Deferred    payment    obligation,     aggregating                              
$2,000,000,  payable to the former  shareholder of                              
A&A Services,  Inc. The obligation is payable over                              
four years,  commencing  December  20,  2000.  The                              
obligation has been recorded, net of a discount of                              
$220,000,  representing interest imputed at a rate                              
of  6%  over  two   years.   The   obligation   is                              
collateralized   by  all  of  the  assets  of  the                              
acquired  business  and  guaranteed  by FONAR (see                              
Modification of Notes Payable).                            274,083     1,277,770

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FONAR CORPORATION AND SUBSIDIARIES                              
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              
JUNE 30, 2002                             

NOTE 12 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (Continued)          

                                                      June 30,
                                                      --------------------------
                                                     2002           2001
                                                      ------------  ------------
Note  payable  calling  for  monthly  payments  of                              
$9,034,  including  interest  at a rate of  8.875%                              
through July 2002. The loan is  collateralized  by                              
equipment located in Ellwood, Pennsylvania.           $     17,867  $    101,779

Note payable to the former shareholders of Dynamic                              
Health Care  Management,  Inc. The note called for                              
three  annual  payments  of  principal,  including                              
interest  at a rate of 6%,  commencing  August 20,                              
1999.  The note was  collateralized  by all of the                              
assets of the acquired  business and guaranteed by                              
FONAR.                                                         -         972,824

Note payable to the former shareholders of Dynamic                              
Health Care  Management,  Inc.  The note calls for                              
monthly  installments of principal and interest of                              
$65,417 for the first eight installments, followed                              
by $16,667 for the remaining 52 installments.  The                              
installments  include  interest  at a rate of 7.5%                              
per annum.  The note is  collateralized  by all of                              
the assets of the acquired business and guaranteed                              
by FONAR.                                                  223,087       399,881

Deferred    payment    obligation,     aggregating                              
$5,490,000,  payable to the former shareholders of                              
Dynamic   Health   Care   Management,   Inc.   The                              
obligation is payable over three years, commencing                              
August 20, 2000. The obligation has been recorded,                              
net of discount of $739,324, representing interest                              
imputed  at a rate of 7.5%  over  two  years.  The                              
obligation is  collateralized by all of the assets                              
of the acquired business and guaranteed by FONAR.        2,070,048     3,842,057

Four  promissory   notes  payable  to  the  former                              
shareholders  of Central  health  Care  Management                              
Services,  LLC.  Each  note  calls  for two  equal                              
annual  installments of $11,458,  plus interest at                              
prime rate,  plus 2%, per annum  6.75% at June 30,                              
2002),  commencing  April  2000.  The  obligations                              
under each note are guaranteed by FONAR.                    18,197        18,197

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 12 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (Continued)          

                                                      June 30,
                                                      --------------------------
                                                     2002           2001
                                                      ------------  ------------
Four  promissory   notes  payable  to  the  former                              
shareholders  of Central  Health  Care  Management                              
Services,  LLC.  Each  note  calls  for two  equal                              
annual  installments of $57,500,  plus interest at                              
prime  rate,  plus 2% per annum  6.75% at June 30,                              
2002),  commencing  March  2000.  The  obligations                              
under each note are guaranteed by FONAR.              $    127,189  $    127,119

Capital  lease  requiring   monthly   payments  of                              
$28,997, including interest at a rate of 9.95% per                              
annum   through   April   2004.    The   loan   is                              
collateralized by the related equipment.                   652,297       856,055

Note payable in monthly  installments  of $15,686,                              
including  interest  at a rate of 9.25%  per annum                              
through February 2003.                                     121,242       289,697

Capital  lease   required   monthly   payments  of                              
$12,595,  including  interest  at  a  rate  of  9%                              
through    October   1,   2002.   The   loan   was                              
collateralized by the related equipment.                      -          112,479

Capital lease required monthly payments of $8,468,                              
including  interest  at a rate  of  8.63%  through                              
April,  2006. The loan was  collateralized  by the                              
related equipment.                                         293,438           -  

Other  (including  capital leases for property and                              
equipment)                                                 442,742       764,755

Less:  Current maturities                             ------------  ------------
                                                        10,609,504    16,744,149
                                                         9,776,339     6,634,863
                                                      ------------  ------------
                                                       $   833,165   $10,109,286
                                                      ============  ============

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

            Years Ending
            June 30,
            ------------
                                     2003                $ 9,776,339
                                     2004                    656,545
                                     2005                    142,209
                                     2006                     34,411
                                                         -----------
                                                         $10,609,504
                                                         ===========

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 12 - LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES (Continued)          

Modification of Notes Payable                                                   
-----------------------------                                                   

Pursuant to a stock payment agreement  consummated  January 11, 2002 between the
Company and the former stockholder of A&A, these  stockholders  agreed to accept
payment of certain debt obligations in shares of the Company's common stock. The
promissory  notes  were  initially  issued  by HMCA in  partial  payment  of the
purchase  price for the  acquisition  of A&A Services,  Inc.  Payments under the
notes were due quarterly through December 2002.                                 

In order to induce the former A&A  stockholders to accept payment in stock,  and
in the manner provided in the stock payment agreement, the Company agreed to pay
a 15% premium on the note obligations and related accrued  interest.  On January
11, 2002, the Company issued  1,000,000  shares of common stock to each of them,
or 2,000,000 shares in the aggregate,  at $1.27 per share, totalling $2,540,000.
The shares were issued in partial  payment of four promissory  notes.  The total
remaining  balance of principal and interest due under the notes was $766,083 as
of June 30, 2002. The debt  conversion  expense of $544,370,  as a result of the
agreement has been  recorded as an other expense item (and not an  extraordinary
item) in the  statement  of  operations  for the year  ended June 30,  2002,  in
accordance with provisions of SFAS 145.                                         

Under the terms of the stock  payment  agreement,  the Company will issue shares
and the  net  proceeds  from  the  sale of the  shares  will be  applied  to the
indebtedness.  The quarterly payment due dates were waived, but the net proceeds
received  by the  selling  stockholders  must  be  sufficient  to pay  the  full
indebtedness  for each note,  including  the premium on the note,  but the final
maturity  dates of the  notes is  September  20,  2002 in the case of two of the
notes,  and  December  20,  2002 in the case of the other two of the notes.  The
Company has not yet made the payments that were due on September  20, 2002.  The
notes,  including the premium, that are not satisfied in full by the time of its
final maturity date will accrue interest on the unpaid balance at the rate of 6%
per annum and the selling  stockholders  could require the difference to be paid
in cash.                                                                        

In the event the net proceeds  from the sale of the  2,000,000  shares issued to
them are not sufficient to pay the obligations in accordance with the agreement,
the Company will issue additional shares in an amount estimated to be sufficient
to pay the balance  due.  The Company has  reserved the option not to issue more
than 5,000,000 shares in the aggregate.                                         

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 13 - CONVERTIBLE DEBENTURES                                                

Pursuant to a securities  purchase  agreement,  dated May 24, 2001,  between the
Company  and an investor  group,  the  Company  issued and sold to the  investor
group:                                                                          

- 4% convertible  debentures due June 30, 2002 in the aggregate principal amount
of $4.5  million,  convertible  into shares of the  Company's  common stock at a
conversion price of $2.047 per share, subject to adjustment.                    

- Purchase  warrants to the  investor  group to purchase an aggregate of 659,501
shares of the Company's  common stock at an initial exercise price of $1.801 per
share, subject to adjustment, exercisable through May 24, 2006.                 

In connection with the issuance of the debentures,  the Company paid a placement
fee in the amount of $157,500. In addition,  the Company issued 300,000 purchase
warrants to the placement agent at the same terms as to the investor group.     

The debentures were convertible at the option of the holder at a price of $2.047
per share. The debentures were payable in ten monthly  installments of $450,000,
commencing  October  1,  2001.  At the  option  of the  Company,  the  principal
installments  could have been  either  paid in cash or shares of the  Company's'
common stock, valued at 90% of the market value, as defined. By amendment, dated
October 25,  2001,  however,  the  payments  originally  due October 1, 2001 and
November 1, 2001, were extended to November 5, 2001, and for those payments, the
stock was valued at the average of the two lowest closing bid prices for October
2001 less $0.25.  During the year ended June 30,  2002,  the Company  repaid the
principal  on the  debentures  of  $4,500,000  and related  accrued  interest of
$132,022 through the issuance of 4,931,576 shares of the Company's common stock.

Separately, callable warrants were issued to purchase 2,000,000 shares of common
stock and have a variable  exercise  price.  Subject to a maximum price of $6.00
per  share  and a  minimum  price of  $2.00  per  share,  which  is  subject  to
adjustment,  pursuant to the terms of the warrants,  the exercise  price will be
equal to the average  closing bid price of the  Company's  common  stock for the
full calendar month preceding the date of exercise.  The exercise period extends
to May 24, 2004.                                                                

The Company had the option of  redeeming  up to 200,000  callable  warrants  per
month at a price of $0.01 per underlying  warrant share,  if the average closing
bid price of its  common  stock is  greater  than 115% of the  warrant  price in
effect for five consecutive trading days in any calendar month.                 

During  the  month of June  2002,  the  investor  exercised  1,000,000  callable
warrants at an exercise price of $1.50 per share for total proceeds  received by
the Company of  $1,500,000.  In  addition,  during  August  2002,  the  investor
exercised an  additional  1,000,000  callable  warrants at an exercise  price of
$1.125 per share for a total proceeds received by the Company of $1,125,000.    

The purchase  warrants  provide for  proportionate  adjustments  in the event of
stock splits,  stock dividends and reverse stock splits.  In addition,  exercise
price will be reduced, with certain specified exceptions,  if the Company issues
shares at lower  prices than the  warrant  exercise  price,  or less than market
price, for its common stock.                                                    

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 14 - INCOME TAXES                                                          

The  provision  for income taxes  consists  entirely of current  state and local
income taxes.                                                                   

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

                                          2002          2001          2000
                                          ------        ------        ------
Taxes at federal                                    
                statutory rate               (34.0)%       (34.0)%       (34.0)%
State and local income                              
taxes, net of federal                           
              benefit                         .1           0.3           0.4
            Permanent differences             .6           0.7           1.1
Increase in the valuation                           
allowance against                               
              deferred tax assets           33.4          33.3          32.9
                                          ------        ------        ------
             Effective income tax rate         .1%          0.3%          0.4%
                                          ======        ======        ======

As of June 30, 2002, the Company has net operating loss ("NOL") carryforwards of
approximately  $78,884,000  that  will be  available  to offset  future  taxable
income.  The utilization of certain of the NOL's is limited  pursuant to Section
1502 of the Internal Revenue Code. The expiration dates of NOL carryforwards are
as follows:                                                                     
June 30,                  
--------                  
             2007                    $   764,000
             2008                        527,000
             2009                        145,000
             2010                         32,000
             2011                      1,037,000
             2012                      5,867,000
             2013                        867,000
             2019                     15,983,000
             2020                     18,756,000
             2021                     17,604,000
             2022                     17,302,000
                                     -----------
                                     $78,884,000
                                     ===========

The Company has, for federal income tax purposes,  research and  development tax
credit carryforwards  aggregating $2,603,616,  which are accounted for under the
flow-through method. The tax credit carryforwards expire as follows:            

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 14 - INCOME TAXES (Continued)                                              

June 30:                  
-------                   
            2003                     $   258,200
            2004                         172,207
            2012                          70,145
            2013                         402,590
            2019                         432,195
            2020                         378,193
            2021                         448,221
            2023                         441,865
                                     -----------
                                      $2,603,616
                                     ===========

In addition,  for New York State income tax purposes, the Company has tax credit
carryforwards  aggregating  approximately  $1,070,000,  which are  accounted for
under the flow-through  method. The tax credit  carryforwards  expire during the
years 2006 to 2022.                                                             

The Company has charitable contributions of approximately $250,000, which expire
during the years 2003 to 2007.                                                  

Significant  components of the Company's  deferred tax assets and liabilities at
June 30, 2002 and 2001 are as follows:                                          

                                         2002           2001
                                          -----------    -----------
Deferred tax assets:                                
          Allowance for doubtful accounts $   998,302    $ 1,045,768
          Non-deductible accruals             690,684        772,073
          Net operating carryforwards      31,945,236     20,675,405
          Tax credits                       3,850,578      3,211,726
Inventory capitalization for                    
            tax purposes                       57,407         84,000
     Impairment of asset               1,880,000         -
          Charitable contributions             42,376         87,784
                                          -----------    -----------
                                           39,464,583     25,876,756
         Valuation allowance               (37,816,617)   (24,481,237)
                                          -----------    -----------
        Net deferred tax assets             1,647,966      1,395,519
                                          -----------    -----------

Deferred tax liabilities:                           
           Fixed assets and depreciation      (940,393)      (974,462)
           Capitalized software costs         (707,573)      (421,057)
                                          -----------    -----------
         Gross deferred tax liabilities     (1,647,966)    (1,395,519)
                                          -----------    -----------
   Net deferred tax liabilities      $    -         $    -
                                          ===========    ===========

The net change in the valuation  allowance for deferred tax assets  increased by
approximately  $13,335,400 and  $10,557,000,  respectively,  for the years ended
June 30, 2002 and 2001.                                                         

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 15 - OTHER CURRENT LIABILITIES                                             

Included in other current liabilities are the following:                        

                                                       2002           2001
                                                      -----------     ----------
              Deferred revenue - license fee          $ 2,340,000     $2,340,000
              Unearned revenue on service contracts       817,110        906,602
              Accrued bonuses                             244,924        397,012
              Accrued payroll taxes                        45,697        250,475
              Accrued interest                             48,234        140,309
              Accrued salaries and commissions            784,694        764,146
              Accrued professional fees                   285,000        224,882
              Litigation judgements                       289,189        268,091
              Excise and sales taxes                    2,069,291      2,655,678
              Other                                       632,060        568,562
                                                      -----------     ----------
                                                      $ 7,556,199     $8,515,757
                                                      ===========     ==========

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 February 2009. The
leases for certain  facilities  contain escalation clauses relating to increases
in real property taxes as well as certain maintenance costs.                    

Future minimum lease commitments consisted of the following at June 30, 2002:   

                                      Facilities
                                     And
                                                     Equipment     Equipment
           Year Ending                             (Operating     (Capital
             June 30,                                Leases)       Leases)
              -----------                             -----------   ------------
                2003                                 $ 3,254,819   $   805,939
                2004                                   2,595,065       517,124
                2005                                   2,256,551       150,372
                2006                                   2,085,936        50,810
            2007                                   1,626,799         -
         Thereafter                                3,836,997         -
                                                      -----------   ------------
             Total minimum obligations               $15,656,167     1,524,245
                                       ===========
Less: Amount representing                           
                      interest                                         (163,019)
                                                                    ------------
Present value of net minimum                        
               lease obligations                                   $ 1,361,226
                                                                    ============

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)                             

Rent  expense for  operating  leases  approximated  $3,502,254,  $3,307,000  and
$3,235,000 for the three years ended June 30, 2002, 2001 and 2000, respectively.

Contingent Consideration                                                        
------------------------                                                        

Contingent  consideration  is  payable  to the former  shareholders  of A&A,  if
operating income, as defined for the acquired business,  exceeds $2.3 million in
any of the five years  following  the closing as follows:  in each year,  75% of
operating  income,  as defined,  between $2.3 million and $2.8  million;  50% of
operating income, as defined,  between $2.8 million and $3.5 million, and 25% of
operating  income,  as  defined,  in  excess  of $3.5  million.  The  contingent
additional  purchase  price  is  not  determinable  as of  June  30,  2002  and,
accordingly,  has not been included in the allocated  purchase price in light of
the  contingent  nature  of the  arrangement.  If the  earnings  objectives  are
ultimately  achieved,   the  additional  purchase  price  will  be  recorded  as
additional value of the management  agreement,  subject to amortization over the
stated period.  No additional  payments were due under the earnout provision for
the years ended June 30, 2002, 2001 and 2000.                                   

License Agreement and Self-Insurance                                            
------------------------------------                                            

The Company has license  agreements with two separate  companies,  which require
the  Company  to pay a royalty on the  Company's  future  sales of  certain  MRI
imaging  apparatus.  Royalty  expense  charged to operations for the years ended
June  30,  2002,  2001 and  2000  approximated  $69,572,  $33,000  and  $36,000,
respectively.                                                                   

The Company is self-insured with respect to product liability. During the fiscal
years ended June 30, 2002, 2001 and 2000, no material claims arose.             

In July 2000, the Company entered into a license agreement, pursuant to which it
licensed  certain  of  its  intellectual   assets  on  a  non-exclusive   basis.
Remuneration  payable to the Company under this agreement is $11.7  million,  of
which $9.0 million was received in September of 2000 and $2.7 million in January
of 2001. The license fee of $11.7 million is being  recognized as income ratably
over the five-year period ending June 30, 2005.                                 

Employment Agreements                                                           
---------------------                                                           

On  August  20,  1998,  a  wholly-owned  subsidiary  of HMCA  entered  into  two
employment agreements with the former owners of Dynamic. Each agreement provides
for base  compensation  of  $150,000  during the first year with  annual cost of
living  increases for the first five years.  Each agreement also provides for an
increase in base  compensation  of $100,000  per annum  commencing  in the sixth
year. In addition, the agreements provide for bonus compensation contingent upon
pretax  earnings of Dynamic.  The  employment  agreements  expire ten years from
August 20, 1998.                                                                

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)                             

Employment Agreements (Continued)                                               
---------------------------------                                               

Minimum  annual  payments,  excluding  bonuses,  incentives  and cost of  living
increases under these contracts are as follows:                                 

Years Ending                                      
June 30,                                      
------------                                      
2003                              $  300,000
2004                                 466,666
2005                                 500,000
2006                                 500,000
2007                                 500,000
Thereafter                              583,334   
                                  ----------
                                  $2,850,000
                                  ==========

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

The Company has a non-contributory 401(k) plan (the "Plan"). The 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, 2002, 2001 and 2000.                                             

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%.  The Plan has not been put into effect as of June
30, 2002.                                                                       

NOTE 17 - OTHER INCOME (EXPENSE) AND SUPPLEMENTARY PROFIT AND LOSS DATA         

Other income (expense) consists of:                                             
                                      For the Years Ended June 30,
                                        ----------------------------------------
                                     2002         2001          2000
                                        ------------  ------------  ------------

      Other income                     $   (19,133)  $   101,707   $    93,425
Gain on sale of subsidiary/                                       
        partnership interest                  -          712,781     1,021,950
Gain on settlement of                                             
various legal disputes and                                    
         other claims                          -             -         3,540,000
    Litigation settlement                (50,000)         -              -
    Gain on sale of property              -            150,000           -
                                        ------------  ------------  ------------
                                       $   (69,133)  $   964,488   $ 4,655,375
                                        ============  ============  ============

In October  2000,  the  Company  sold its  interest  in the  partnership  of AMD
Southfield Michigan Limited Partnership for $750,000. AMD Southfield operates an
MRI  Scanning  Center in  Michigan.  The Company  recognized  a pre-tax  gain of
$750,000.                                                                       

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE  17 - OTHER  INCOME  (EXPENSE)  AND  SUPPLEMENTARY  PROFIT  AND  LOSS  DATA
(CONTINUED)                                                                     

In June 2001, HMCA sold the stock of its  wholly-owned  Florida  multi-specialty
practice subsidiaries,  Medical Specialties,  Inc. and Diagnostic Services, Inc.
for a promissory note for $50,000, resulting in a loss of $37,000.              

Advertising expense approximated  $2,082,000,  $2,022,000 and $2,140,000 for the
years ended June 30, 2002, 2001 and 2000,  respectively.  Maintenance and repair
expenses totalled  approximately  $748,000,  $905,000 and $758,000 for the years
ended June 30, 2002, 2001 and 2000, respectively.  Royalty expenses approximated
$69,572,  $33,000 and $36,000 for the years ended June 30, 2002,  2001 and 2000,
respectively.                                                                   

NOTE 18 - SUPPLEMENTAL CASH FLOW INFORMATION                                    

During the years ended June 30, 2002,  2001 and 2000, the Company paid $255,230,
$1,261,379  and $1,596,931  for interest,  respectively.  During the years ended
June 30, 2002, 2001 and 2000, the Company paid $32,420,  $39,997 and $20,144 for
income taxes, respectively.                                                     

Non-Cash Transactions                                                           
---------------------                                                           

During the year ended June 30, 2002:                                            

a)   The  Company  issued  2,045,000  shares  of its  common  stock,  valued  at
$2,602,596, in connection with the repayment of notes payable.        

b)   The Company acquired equipment of $357,056 under capital lease obligations.

c)   The Company  issued 98,000 shares of its common stock,  valued at $116,623,
in connection with the acquisition of equipment.                      

d)   The Company issued  3,832,073 shares of its common stock in connection with
the repayment of $4,500,000 of convertible debentures.                

During the year ended June 30, 2001:                                            

a)   Property and  equipment,  costing  $636,504,  was acquired  under a capital
lease obligation.                                                     

b)   The Company issued 20,000 shares of its common stock, valued at $28,438, in
connection with the repayment of note payable of $115,000.            

c)   The Company  acquired  equipment of $176,480 under  equipment notes payable
obligations.                                                          

During the year ended June 30, 2000:                                            

a)   Property and  equipment,  costing  $215,086,  was acquired  under a capital
lease obligation.                                                     

b)   In connection with the sale of its foreign subsidiary, the Company issued a
note payable aggregating $115,000.                                    

c)   The Company issued 19,332 shares of its common stock, valued at $61,753, in
     connection   with  the  repayment  of  long-term  debt  incurred  with  the
acquisition of Central.                                               

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 19 - ADVANCES AND NOTES TO RELATED PARTIES                                 

Effective  December 1, 1993,  Albany  Magnetic  Imaging  Center,  P.C.  ("Albany
Center"),  a Georgia professional  corporation,  of which Raymond V. Damadian is
the sole stockholder,  purchased the scanner being utilized at its site from the
Company for a purchase price of  $1,128,844.  In June of 1997, the payment terms
for the  outstanding  balance of $344,766  were  restructured  to provide for 60
equal  monthly  payments  (including  interest  at the rate of 10% per annum) of
$7,325 each,  commencing  July 1997.  The balance due under this note as of June
30, 2002 was $89,951.                                                           

During 1994,  Melville MRI, P.C.  ("Melville  Center"),  a New York professional
corporation, of which Raymond V. Damadian is the sole shareholder,  director and
president,  purchased  an MRI scanner  from the Company for a purchase  price of
$1,011,431.  Of the purchase price, $900,000 is to be paid by the assumption and
payment of the  Company's  indebtedness  to the lender  secured by the  scanner,
pursuant to a note,  bearing  interest at 14% per annum,  and  providing  for 60
monthly  payments of $20,700 each. The remaining  $111,431 of the purchase price
was to be paid concurrently  with the payments to the lender.  The payment terms
for the principal  balance,  plus accrued  interest (in the aggregate  amount of
$139,290), were restructured to provide for 60 equal monthly payments (including
interest at the rate of 10% per annum) of $2,959.50 each,  commencing July 1998.
In fiscal 2001,  the balance  outstanding  on the obligation was paid in full by
the Company as guarantor of the indebtedness due to the lender. This resulted in
a balance of $893,606 owing to the Company by the Melville Center. The $2,959.50
monthly  payment to the Company has been  increased by an  additional  principal
payment of $10,000 per month to be applied  toward the balance  due. The balance
due under this note as of June 30, 2002 was $713,614.                           

Canarsie MRI Associates ("Canarsie"),  a joint venture partnership, of which MRI
Specialties, Inc. ("Specialties") is an owner, is a party to a service agreement
for its  scanner  with the  Company at an annual fee of  $70,000.  In  addition,
during  fiscal 2001,  Canarsie  entered into an agreement to purchase a QUAD MRI
scanner  from the  Company,  recognizing  on a  percentage-of-computation  basis
revenue of $636,121.  The agreement  provides for a purchase  price of $850,000,
payable as follows: (1) $400,000 downpayment (received April 2001); (2) $450,000
in 84 equal  monthly  installments,  including  interest  at 6%,  pursuant  to a
promissory note to be executed upon acceptance of the scanner. Timothy Damadian,
the son of Raymond V. Damadian, is the sole stockholder,  Director and President
of  Specialties.  The  balance  due  under  this  note as of June  30,  2002 was
$419,275.                                                                       

NOTE 20 - SEGMENT AND RELATED INFORMATION                                       

Effective  July 1, 1998,  the Company  adopted the  provisions  of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information".  SFAS No.
131  establishes  standards for the way public  enterprises  report  information
about  operating  segments in annual  financial  statements  and requires  those
enterprises to report selected  information about operating  segments in interim
financial reports issued to stockholders.                                       

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 20 - SEGMENT AND RELATED INFORMATION (CONTINUED)                           

The Company operates in two industry  segments - manufacturing and the servicing
of medical equipment and management of physician practices, including 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:                                                   
                                 Physician
                    Medical       Management
                                 Equipment       Services         Totals
                                  -------------   -------------   ------------
Fiscal 2002:                                                                    

Net revenues from external                                                      
 customers                        $ 16,153,131    $ 28,525,439    $ 44,678,570
Intersegment net revenues          $  1,050,599    $     -         $  1,050,599 
Loss on impairment of management                                                
  agreements                       $     -         $ (4,700,000)   $ (4,700,000)
Operating loss                     $(15,433,351)   $ (4,290,752)   $(19,724,103)
Depreciation and amortization      $  2,727,794    $  2,679,390    $  5,407,184 
Compensatory element of                                                         
 stock issuances                  $  1,715,678    $  2,996,485    $  4,712,163
Total identifiable assets          $ 40,179,100    $ 32,650,687    $ 72,829,787 
Capital expenditures               $  2,107,509    $  1,470,743    $  3,578,252 

Fiscal 2001:                                                                    

Net revenues from external                                                      
 customers                        $ 10,497,809    $ 31,775,492    $ 42,273,301
Intersegment net revenues          $  1,039,499    $     -         $  1,039,499 
Operating (loss) income            $(17,205,614)   $    990,997    $(16,214,617)
Depreciation and amortization      $  2,203,591    $  2,509,176    $  4,712,767 
Compensatory element of                                                         
 stock issuances                  $  1,684,136    $  2,360,690    $  4,044,826
Total identifiable assets          $ 45,938,960    $ 38,961,453    $ 84,900,413 
Capital expenditures               $  3,039,866    $  1,082,385    $  4,122,251 

Fiscal 2000:                                                                    

Net revenues from external                                                      
 customers                        $  5,971,064    $ 30,183,733    $ 36,154,797
Intersegment net revenues          $  1,227,075    $     -         $  1,227,075 
Operating (loss) income            $(17,984,534)   $  2,477,962    $(15,506,572)
Depreciation and amortization      $  1,817,547    $  2,638,529    $  4,456,076 
Compensatory element of                                                         
 stock issuances                  $    926,421    $  1,003,285    $  1,929,706
Total identifiable assets          $ 43,045,691    $ 41,367,346    $ 84,413,037 
Capital expenditures               $  2,081,551    $    940,795    $  3,022,346 

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

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 25.8% and 63.0% of
product sales  revenues to third parties for the years ended June 30, 2002,  and
2000,  respectively.  There were no foreign  product sales during the year-ended
June 30, 2001.                                                                  

The foreign product sales were made to customers in the following locations:    

                                        2002                2000
                                      ------                ----

          Scotland                     25.8%                  -%
          Spain                          -                  63.0
                                      ------                ----
                                        25.8%                63.0%
                                      ======                ====

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 27.7%,  33.7% and 46.3% of consolidated net service and repair fees
for the years  ended June 30,  2002,  2001 and 2000,  respectively.  The foreign
service and repair fees were provided principally to the following locations:   

                                              2002          2001          2000
                                              ------        ------        ------

                 Korea                        9.3 %         11.9%        14.9%
               Spain                        3.7             .3           -
                Mexico                       3.0            3.5          3.8
                Puerto Rico                  3.5            4.1          4.9
                Saudi Arabia                 4.5            8.4          4.7
                Poland                       3.7            4.0         14.9
                India                         -             1.5          3.1
                                             -----        ------        ------
                                             27.7%         33.7%         46.3%
                                             =====        ======        ======

The Company does not have any material assets outside of the United States.     

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FONAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2002

NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)                                  

            (000's omitted, except per share data)

                         September 30,   December 31,   March 31,   June 30,
Quarter Ended:                 2001           2001          2002        2002    
--------------             -------------   ------------   ----------  --------- 

Total Revenues - Net        $    10,153     $    9,766    $  10,953   $ 13,807  

Total Costs and Expenses         13,535         13,797       14,804     22,267  

Loss from Operations             (3,382)        (4,031)      (3,851)    (8,460) 

Net Loss                         (3,847)        (4,710)      (5,050)    (9,275) 

Basic and Diluted Net                                                           
 Loss Per Share            $     (0.06)    $    (0.08)   $   (0.08)  $  (0.14)

            (000's omitted, except per share data)

                         September 30,   December 31,   March 31,   June 30,
Quarter Ended:                 2001           2001          2002        2002    
--------------             -------------   ------------   ----------  --------- 
Total Revenues - Net        $     9,091     $    9,946    $  11,978   $ 11,258  

Total Costs and Expenses         13,090         13,904       14,804     16,690  

Loss from Operations             (3,999)        (3,958)      (2,826)    (5,432) 

Net Loss                         (3,907)        (3,014)      (2,801)    (5,462) 

Basic and Diluted Net                                                           
 Loss Per Share            $     (0.07)    $    (0.05)   $   (0.05)  $  (0.09)

NOTE 22 - SUBSEQUENT EVENT                                                      

During the quarter ended September 30, 2002, the Company  granted  approximately
1,900,000  incentive stock options to various employees which are exercisable at
$1.125 per share and expire ten years from the date of grant.                   

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ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.                                         

     Effective as of September 10, 2002, the Company,  as a result of the recent
merger of several of the  partners  of Grassi & Co.,  CPAs,  P.C.  into Marcum &
Kliegman  LLP, in order to retain the  services of the  individual  partners and
staff  accountants  who  have  been  serving  the  Company  as  its  independent
certifying public  accountants since fiscal 1990, the Company dismissed Grassi &
Co. and engaged Marcum & Kliegman. There were no disagreements with Grassi & Co.
or other matters  requiring  disclosure under Regulation S-K, Item 304(b).  This
change in  accountants  was  previously  reported in the  Company's 8-K filed on
September 16, 2002, as amended by the 8-K/A filed on October 2, 2002.           

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.                                                                      

The officers and directors of the Company are set forth below:

Raymond V. Damadian, M.D.      66       President, Treasurer, 
                                       Chairman of the Board
                                and a Director

      David B. Terry                 55       Vice President and Secretary

Claudette J.V. Chan            65       Director              

Robert J. Janoff               75       Director              

Charles N. O'Data              66       Director              

Robert Djerejian               70       Director              

     Raymond V. Damadian,  M.D. has been the Chairman of the Board and President
of FONAR since its inception 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  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.                                                 

     David B. Terry is the Vice President of Administration and Secretary of the
Company. Mr. Terry has been serving as Vice President since December 1998 and as
Secretary since May, 1990.  Previously,  he served as Treasurer from May 1990 to
December,  1998, as Secretary  from July 1978 through June 1987 and as Treasurer
from August 1981  through June 1987.  From July 1978  through June 1987,  he was
also a Director of the Company.  Between July 1987 and January  1990,  Mr. Terry
was a co-owner and actively  engaged in the business of Carman-Terry  Realty,  a
real estate  brokerage  firm. In January 1990,  Mr. Terry resumed his employment
with the Company.  Mr. Terry is the  brother-in-law  of Raymond V.  Damadian and
uncle of Timothy R. Damadian.                                                   

     Claudette  J.V. Chan has been a Director of FONAR since October 1987.  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 and aunt of Timothy R. 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 is a member of the Board of Directors of Harmony
Heights of Oyster Bay,  New York,  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 an independent  financial  consultant to
various entities,  including  Pittsburgh National Bank. 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 valuates  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,  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.  Mr.  Djerejian  serves on the Board of
Trustees of Pratt  Institute,  where he is also VIce  Chairman of the  Executive
Committee  and on the Board of  Directors  of the  Delaware  College  of Art and
Design, of which he was one of the founding directors. He is a graduate of Pratt
Institute, where he received a B.A. in Architecture in 1955.                    

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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 only
of a salary  which has  remained  constant  for more than the past three  fiscal
years.                                                                          

     The Board of Directors does not have a compensation Committee:  Dr. Raymond
V. Damadian,  President,  Chief Executive  Officer and Chairman of the Board, is
the only  executive  officer  who is a member  of the  Board of  Directors.  Dr.
Damadian  participates in the  determination  of executive  compensation for the
Company's 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.     

     There  is set  forth  in  the  following  Summary  Compensation  Table  the
compensation  provided by the Company during fiscal 2002 to its Chief  Executive
Officer.  There is set forth in the  following  Option  Grant  Table and  Option
Exercise Table any stock options  granted and exercised by Dr.  Damadian  during
fiscal 2002.                                                                    

I.  SUMMARY COMPENSATION TABLE                                                  
                                              Long Term Compensation
                                             -----------------------------------
        Annual Compensation                   Awards             Payouts
------------------------------------------   ------------------  ---------------
(a)       (b)     (c)       (d)   (e)         (f)       (g)     (h)     (i) 
Name                             Other                                   All
 and                              Annual    Restricted                   Other
Principal                          Compen-    Stock     Options   LTIP   Compen-
Position           Salary    Bonus sation    Award(s)    SARs    Payouts sation 
2       Year     ($)       ($)   ($)      ($)          (#)      ($)    ($)
---------  ----  ----------  ----- -------   ---------- -------  ------- -------
Raymond V. 2002  $86,799.96    -      -           -        -        -       -   
Damadian,  2001  $86,799.96    -      -           -        -        -       -   
CEO        2000  $86,799.97    -      -           -        -        -       -   
---------  ----  ----------  ----- -------   ---------- -------  ------- -------

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II.  OPTION/SAR GRANTS IN LAST FISCAL YEAR                                      

                                                        [Enlarge/Download Table]

                                                              Potential                    
                                                              Realizable                   
                                                              Value at Assumed             
                                                              Annual Rates of   Alternative
                                                              Stock Price       to (f) and 
                                                              Appreciation for  (g): Grant 
                   Individual Grants                          Option Term       Date  Value
-----------------------------------------------------------   ----------------  -----------
    (a)         (b)         (c)          (d)         (e)         (f)      (g)        (h)   
                        % of Total                                                         
                        Options/                                                           
                         SARs                                                              
             Options/   Granted to   Excercise                                             
                SARs     Employees       or                                     Grant Date 
              Granted   in Fiscal    Base Price   Expiration                    Present    
Name          (#)        Year         ($/Sh)         Date      5% ($)  10% ($)  Value $    
----------   --------   ----------   ----------   ----------  -------  -------  ---------- 
                                                                                           
Raymond V.                                                                                 
Damadian,           0         -             -           -        -        -           -    
President                                                                                  
& CEO                                                                                      

III.  OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE                             

Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/Sar Value
--------------------------------------------------------------------------------
(a)            (b)             (c)          (d)            (e)                  
                                           Number of      Value of Unexercised
Name       Shares Acquired  Value Realized  Unexercised    In-the-Money         
     on Exercise (#)  ($)             Options/SARs   Options/SARs at
                                 at FY-End (#)  FY-End ($)

                                   Exercisable/   Exercisable/
                                    Unexercisable  Unexercisable

---------  ---------------  --------------  -------------  -------------------- 

Raymond V.               0            -                 0                 -     
Damadian,                                                                       
President                                                                       
and CEO                                                                         

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EMPLOYEE COMPENSATION PLANS                                                     

Equity Compensation Plan Information as of June 30, 2002              

  (a)                (b)             (c)
Plan category         Number of          Weighted-       Number of securities   
                  securities         average         remaining available
                  to be issued       exercise price  for future issuance
           upon exercise      of outstanding  under equity
                 of outstanding     options,        compensation plans
                    options, warrants  warrants        (excluding securities
                      and rights         and rights      reflected in column (a)
                      -----------------  --------------  -----------------------
Equity compensation                                                             
plans not approved                                                            
by security holders      1,061,763          $2.06            3,900,369        

Equity compensation                                                             
plans not approved                                                          
by security holders          -              N/A             1,701,016       
                      -----------------  --------------  -----------------------
Total                     1,061,763          $2.06            5,601,385         

                      =================  ==============     ====================

     FONAR's 1993  Incentive  Stock Option Plan,  adopted on March 26, 1993,  is
intended to qualify as an incentive  stock option plan under Section 422A of the
Internal Revenue Code of 1954, as amended.  The 1993 Incentive Stock Option Plan
permits the issuance of stock options  covering an aggregate of 1,500,000 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 1993 Stock Option Plan will
terminate on March 25, 2003. As of June 30, 2002, no options to purchase  shares
of Common Stock were available for future grant under the plan.                 

     FONAR's  1997  Nonstatutory  Stock  Option  Plan,  adopted  on May 9, 1997,
permits the issuance of stock options  covering an aggregate of 5,000,000 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  Nonstatutory  Stock
Option  Plan will  terminate  on May 8, 2007.  As of June 30,  2002,  options to
purchase  3,900,369  shares of Common Stock of FONAR were  available  for future
grant.                                                                          

     FONAR's 2000 Stock Bonus Plan, adopted on October 1, 2000, permits FONAR to
issue on  aggregate  of  5,000,000  shares of Common  Stock of FONAR as bonus or
compensation.  FONAR selects the persons to whom bonus stock will be issued, the
number of shares to be awarded and such other terms and  conditions  as it deems
advisable. The 2000 Stock Bonus Plan will terminate on September 30, 2010. As of
June 30,  2002,  no shares of Common  Stock of FONAR were  available  for future
grant.                                                                          

     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 2,500,000 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.                                                     

     Fonar's 2002 Stock Bonus Plan,  adopted on June 1, 2002,  permits  Fonar to
issue  an  aggregate  2,000,000  shares  of  Common  Stock  of Fonar as bonus or
compensation.  Fonar selects the persons to whom bonus stock will be issued, the
number of shares to be awarded and such other terms and  conditions  as it deems
advisable.  The 2002 Stock Bonus Plan will terminate on May 31, 2012. As of June
30, 2002  1,701,061  shares of Common Stock of Fonar were  available  for future
grant under the Plan.                                                           

     HMCA's 1997  Incentive  Stock  Option Plan,  adopted on March 10, 1997,  is
intended to qualify as an incentive  stock option plan under Section 422A of the
Internal Revenue Code of 1954, as amended.  The 1997 Incentive Stock Option Plan
permits the issuance of stock options  covering an aggregate of 2,000,000 shares
of Common Stock of HMCA.  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 exercisability of the options
granted to date is contingent upon the successful completion by HMCA of a public
offering of its securities or the recognition by HMCA of at least $10 million in
revenues for at least two  consecutive  fiscal  quarters.  The 1997 Stock Option
Plan will  terminate on March 9, 2007. As of June 30, 2002,  options to purchase
400,000  shares of HMCA Common Stock were  available  for future grant under the
plan.                                                                           

     HMCA's 1998 Incentive  Stock Option Plan,  adopted on December 16, 1998, is
intended to qualify as an incentive  stock option plan under Section 422A of the
Internal Revenue Code of 1954, as amended.  The 1998 Incentive Stock Option Plan
permits the issuance of stock options  covering an aggregate of 2,000,000 shares
of Common Stock of HMCA.  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 excessability of the options
granted to date is contingent upon the successful completion by HMCA of a public
offering  of its  securities.  The 1998  Stock  Option  Plan will  terminate  on
December 15, 2008. As of June 30, 2002,  options to purchase 1,330,000 shares of
HMCA Common Stock were available for future grant under the plan.               

     HMCA's 1998 Nonstatutory  Stock Option Plan,  adopted on December 16, 1998,
permits the issuance of stock options covering an aggregate of 500,000 shares of
Common  Stock of HMCA.  The  options  may be issued at such prices and upon such
terms and  conditions  as are  determined  by HMCA.  The  exercisability  of the
options granted to date is contingent upon the successful  completion by HMCA of
a public offering of its  securities.  The 1998  Nonstatutory  Stock Option Plan
will  terminate on December 15, 2008.  As of June 30, 2002,  options to purchase
100,000 shares of Common Stock were available for future grant.                 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.        

     The following  table sets forth the number and  percentage of shares of the
Company's securities held by each director,  by each person known by the Company
to own in excess of five percent of the Company's  voting  securities and by all
officers and directors as a group as of September 20, 2002.                     

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                                                           
CEO, 5% + Stockholder                                                         
Common Stock                       2,488,274                3.38%       
Class C Stock                      9,561,174               99.98%       
Class A Preferred                    477,328                6.09%       

Claudette Chan                                                                  
Director                                                                        
Common Stock                           2,648                  *         
Class A Preferred                        800                  *         

Robert J. Janoff                                                                
Director                                                                        
Common Stock                          50,000                  *         
Class A Preferred                      1,999                  *         

Charles N. O'Data                                                               
Director                                                                        
Common Stock                             700                  *         

All Officers and Directors                                                      
as a Group (5 persons) (2)                                                      
(3)                                                                             
Common Stock                        2,548,220               3.46%       
Class C Stock                       9,561,174              99.98%       
Class A Preferred                     480,165               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.   Includes  101  shares of the  Company's  Common  Stock and 19 shares of the
     Company's  Class A Non-voting  Preferred  Stock held by an officer  jointly
     with his wife and 192 shares of the Company's Common Stock and 38 shares of
     the  Company's  Class A  Non-voting  Preferred  Stock  held in  trust by an
officer for his children.                                             

3.   Includes  options  to  purchase  6,286  shares of Common  Stock  held by an
officer.                                                              

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

Background.                                                                     

     On April 7, 1989, at a time when the Company  lacked both the financing and
working  capital to  establish  its own  centers,  Donna  Damadian,  the wife of
Raymond V. Damadian, M.D., Chairman and President of the Company, purchased from
FONAR a scanner for a purchase  price of  $1,508,000  (the price paid by FONAR's
customers for like equipment).  $1.2 million was paid in cash,  providing a much
needed cash  infusion for the  Company,  and the balance was paid over time with
interest  pursuant to a promissory  note of even date. The scanner was leased to
Macon  Magnetic  Resonance  Imaging,  P.C., a Georgia  professional  corporation
wholly-owned  by,  and of which Dr.  Damadian  is,  the  President.  Thereafter,
between 1990 and 1996, Raymond V. Damadian, M.D. MRI Scanning Centers Management
Company, a Delaware  corporation of which Dr. Damadian was the sole stockholder,
director and President  ("RVDC"),  purchased  and leased  scanners from FONAR to
establish a network of professional  corporations operating MRI scanning centers
("Centers"), including the Macon Center, in New York, Florida, Georgia and other
locations.  Dr. Damadian was 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  ("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 10,000 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.                                                      

     In  connection  with  and  immediately  prior  to the sale of RVDC to HMCA,
certain leases and sales of scanners to RVDC were terminated.  The scanners were
then leased directly to the Centers at which they were installed pursuant to new
scanner leases between HMCA and the Centers.                                    

NEW AGREEMENTS WITH HMCA.                                                       

     Effective  July 1, 1997,  immediately  following the effective  date of the
acquisition of RVDC by HMCA, all previous management  arrangements  between RVDC
and the Centers were terminated and new management  agreements were entered into
by the Centers and 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,  eliminating the need for
the Centers to have separate service agreements for their scanners. In total, 13
MRI Centers, both those previously managed by RVDC and additional Centers opened
after the acquisition, have management agreements with HMCA.                    

     In addition, HMCA is providing the MRI scanners used at 2 of the 13 Centers
pursuant to scanner leases.                                                     

     The fees to HMCA  under  both the  management  agreements  and the  scanner
leases are on a per scan basis.                                                 

     During  the fiscal  years  ended  June 30,  2002 and June 30,  2001 the net
revenues  received  by HMCA  from the MRI  Centers  owned by Dr.  Damadian  were
approximately $15.5 million and $14.8 million respectively.                     

     Effective  December 1, 1993, one of the Centers,  Albany Magnetic Resonance
Imaging, P.C. (the "Albany Center"), a Georgia professional corporation of which
Raymond V. Damadian is the sole shareholder,  director and President,  purchased
the scanner being  utilized at its site from the Company for a purchase price of
$1,128,844,  which in Fonar's  opinion  represented a fair market price based on
sales of like  equipment  by  Fonar to its  customers.  Of the  purchase  price,
$574,077 was paid by the assumption and payment of the Company's indebtedness to
the lender secured by the scanner.  Such  indebtedness to the lender was retired
pursuant  to a new  equipment  finance  lease  between the lender and the Albany
Center, guaranteed by the Company,  providing for 18 monthly payments of $35,000
each.  Following  payment of the lease,  the remaining  $554,767 of the purchase
price due to the Company was required to be paid pursuant to a promissory  note,
with  interest at 10% per annum,  over an 18 month term (17  payments of $35,000
each and one final payment of $2,454.08).  In June,  1997, the payment terms for
the  outstanding  balance of $344,766 were  restructured to provide for 60 equal
monthly payments  (including interest at the rate of 10% per annum) of $7,325.27
each commencing  July,  1997. The Albany Center has been closed and payments are
in  arrears.  As of  June  30,  2002,  $102,553.78  in  principal  and  interest
($89,951.41 in principal) were owed by the Albany Center to Fonar.              

     Effective December 1, 1993, Daytona Beach Magnetic Resonance Imaging,  P.A.
(the  "Daytona  Beach  Center"),  a Florida  professional  association  of which
Raymond V. Damadian is the sole shareholder,  director and President,  purchased
the scanner being  utilized at its site from the Company for a purchase price of
$1,416,717,  which in Fonar's  opinion  represented a fair market price based on
sales of like  equipment  by  Fonar to its  customers.  Of the  purchase  price,
$328,044 was paid by the assumption and payment of the Company's indebtedness to
the lender secured by the scanner.  Such  indebtedness to the lender was retired
pursuant to a new  equipment  finance  lease  between the lender and the Daytona
Beach Center,  guaranteed by the Company,  providing for 18 monthly  payments of
$20,000 each. The remaining  $1,088,673 of the purchase price due to the Company
was required to be paid pursuant to a promissory  note, with interest at 10% per
annum. In May, 1999, the payment terms for the outstanding balance of $1,001,507
were restructured to provide for 84 equal monthly payments  (including  interest
at the rate of 10% per annum) of $16,626.20  each  commencing  May 1999.  During
fiscal  2001,  FONAR took back the scanner in  satisfaction  of the  outstanding
indebtedness. The Daytona Beach Center then purchased a new QUAD(TM) MRI scanner
from FONAR for a purchase  price of $960,000,  which is payable with  interest a
rate of 8.5% per annum in 59 monthly  payments of $11,902.62  each and one final
installment of $580,148.53. This indebtedness was in arrears of six months as of
June 30, 2002 and four  months as of  September,  30,  2002.  The Daytona  Beach
Center is party to service  agreement  with Fonar for its  scanner.  The rate in
effect for the July 1, 2002 to June 30, 2002 year is $50,000 per annum.         

     On June 30, 1994,  Melville MRI, P.C. (the "Melville  Center"),  a New York
professional  corporation of which Raymond V. Damadian is the sole  shareholder,
director and  President,  purchased the scanner being  utilized at its site from
the  Company for a purchase  price of  $1,011,431.12,  which in Fonar's  opinion
represented a fair market price based on sales of like equipment by Fonar to its
customers.  Of the purchase price,  $900,000 is to be paid by the assumption and
payment  of the  Company's  indebtedness  to the lender  secured by the  scanner
pursuant  to a note  bearing  interest  at 14% per  annum and  providing  for 60
monthly  payments of $20,700  each.  The remaining  $111,431.12  of the purchase
price was to be paid concurrently  with the payments to the lender.  The payment
terms for the principal balance,  plus accrued interest (in the aggregate amount
of  $139,290)  were  restructured  to  provide  for 60  equal  monthly  payments
(including  interest at the rate of 10% per annum) of $2,959.50 each  commencing
July,  1998.  In  fiscal  2001,  following  the  payment  in full by  FONAR,  as
guarantor,  of the  indebtedness  due to the  lender,  there  was as a  result a
balance of $893,606  then owing to FONAR by the Melville  Center.  The $2,959.50
monthly payment to FONAR has been increased by an additional principal amount of
$10,000 per month to be applied  toward the balance due. This  indebtedness  was
six months in arrears on June 30, 2002 and four  months in arrears on  September
30, 2002.                                                                       

ACQUISITION OF THE AFFORDABLE COMPANIES.                                        

     Effective  June 30,  1997,  HMCA  acquired a group of several  interrelated
corporations,  limited liability companies and a partnership engaged in managing
three diagnostic  imaging centers and one  multi-specialty  practice in New York
State  (the  "Affordable  Companies")  pursuant  to  a  series  of  transactions
concluding  with  a  merger  between  a  wholly-owned  subsidiary  of  HMCA  and
Affordable  Diagnostics,  Inc.  Concurrently  with the  acquisition,  Raymond V.
Damadian  purchased  three  New York  professional  corporations  to  which  the
Affordable Companies were providing their services under several agreements. Dr.
Damadian is the sole stockholder,  director and President of these  professional
corporations  (the "Affordable  Professional  Corporations").  During the fiscal
year ended June 30, 2002,  the net  revenues  from the  Affordable  Professional
Corporations were approximately $4.3 million.                                   

ACQUISITION OF A & A SERVICES.                                                  

     Effective  March 20,  1998,  HMCA  acquired A & A  Services,  Inc.  ("A & A
Services"), an management company managing four primary care practices in Queens
County,  New  York.  Concurrently  with the  acquisition,  Raymond  V.  Damadian
purchased the four New York  professional  service  corporations  under contract
with A & A Services (the "A & A Professional  Corporations").  During the fiscal
year  ended  June  30,  2002,  the  net  revenues  from  the A & A  Professional
Corporations were $1.6 million.                                                 

ACQUISITION OF DYNAMIC HEALTH CARE MANAGEMENT                                   

     Effective  August 20, 1998, HMCA acquired  Dynamic Health Care  Management,
Inc.  ("Dynamic"),  an MSO  managing  three  physician  practices  in Nassau and
Suffolk Counties on Long Island,  New York.  Concurrently  with the acquisition,
Raymond V.  Damadian  purchased  two  professional  service  corporations  under
contract  with Dynamic (the  "Dynamic  Professional  Corporations").  During the
fiscal year ended June 30, 2002, the net revenues from the Dynamic  Professional
Corporations were $5.97 million.                                                

OTHER TRANSACTIONS                                                              

     HMCA  performs  management  services for Superior  Medical  Services,  P.C.
("Superior"),  a New York professional  corporation of which Raymond V. Damadian
is  the  sole   stockholder,   director   and   President.   Superior   conducts
multi-specialty   practices  at  locations  in  Yonkers,  Elmont,  Elmhurst  and
Riverdale,  New York.  During the  fiscal  year  ended  June 30,  2002,  the net
revenues from Superior were $5.5 million.                                       

     Pursuant to an agreement  dated March 31, 1993, RVDC agreed to purchase the
Company's general partnership interest (approximately 92% of the partnership) in
a  partnership  owning  and  operating  an MRI  scanning  center in  Bensonhurst
(Brooklyn),  New York.  Robert Janoff,  a director of the Company,  is a limited
partner in the partnership. The partnership is also party to a service agreement
with the  Company.  The current  annual rate is $50,000 for the one year service
contract from July 1, 2002 to July 30, 2003. The rate in effect during the prior
year was also $50,000. In addition, during the 2002 fiscal year, the partnership
agreed to purchase a Stand-Up(TM) MRI scanner from Fonar for a purchase price of
$1,450,000.                                                                     

     Pursuant to an agreement  dated  September 30, 1993, AMD sold its interests
in a  partnership  operating an MRI  scanning  center in  Melbourne,  Florida to
Melbourne  Magnetic Resonance Imaging,  P.A. (the "Melbourne  Facility"),  for a
purchase price of $150,000.  The purchase price is payable, with interest at 10%
per  annum,  over a period of fifteen  months  commencing  September  1, 1995 as
follows:  $13,500 per month for the first fourteen  months and $1,185.60 for the
fifteenth month. The Melbourne Facility is a Florida professional corporation of
which Raymond V. Damadian is the sole stockholder,  director and President.  The
partnership is presently  inactive and this indebtedness has been written off by
the Company as uncollectable.                                                   

     Pursuant to an agreement  dated September 30, 1993, AMD sold to Dade County
MRI,  P.A. its  interests in a  partnership  which had formerly  operated an MRI
scanning  center in Miami,  Florida.  The purchase price of $100,000 is payable,
with  interest  at  10%  per  annum,in  sixty  (60)  equal  consecutive  monthly
installments  of  principal  and  interest   (including  interest  accrued  from
September 30, 1993),  commencing 90 days after the scanner is placed in service.
The  partnership  is  presently  inactive.  Dade County  MRI,  P.A. is a Florida
professional  association of which Raymond V. Damadian is the sole  stockholder,
director and President. This indebtedness has been written off by the Company as
uncollectable.                                                                  

     Pursuant to a sales  agreement dated April 1, 1996, RVDC agreed to purchase
an  MRI  scanner  with  certain  upgrades  from  the  Company  which  RVDC  then
contributed  to  Orlando  MRI  Associates,  Limited  Partnership  (the  "Orlando
Partnership"),  a limited partnership.  The Orlando Partnership is utilizing the
scanner at a site located in Orlando,  Florida. The sales agreement provided for
a purchase price of $400,000  payable in  installments  as follows:  (1) $40,000
down payment within thirty (30) days of execution and (2) $360,000 in 84 monthly
installments  of $5,611.04 each (inclusive of interest at 8% per annum) pursuant
to a promissory  note  executed by RVDC upon  acceptance  of the  scanner.  This
indebtedness  has been written off by the Company.  The Orlando  Partnership was
party to a service  agreement  for its scanner with the Company at an annual fee
of $50,000 for the period from April 8, 2001 through April 7, 2002. The price in
effect for the prior year was also $50,000. Timothy Damadian, the son of Raymond
V. Damadian, is a limited partner in Orlando.                                   

     Pursuant to an agreement  dated March 1, 1999,  Dublin  Magnetic  Resonance
Imaging, P.C., ("Dublin"),  a Georgia professional  corporation which Raymond V.
Damadian is the sole stockholder, director and President, agreed to lease a used
Fonar  Beta(TM) 3000M Mobile MRI Scanner from the Company at a monthly rental of
$4,840.08  commencing on September 1, 1999 and continuing  for  thirty-six  (36)
months.  At the  conclusion  of the lease period  Dublin will have the option to
purchase the scanner for a price of $1.00.  This  indebtedness was two months in
arrears on June 30, 2002 but has been paid in full as of September 30, 2002.    

     Pursuant to an  agreement  dated  December 1, 1999,  Damadian MRI in Garden
City, P.C. ("Garden City") a New York professional  corporation of which Raymond
V. Damadian is the sole stockholder,  director and President,  agreed to lease a
Fonar  QUAD(TM)  MRI  Scanner  from the  Company  for a term of five  years at a
monthly rental of $12,356.09.  Upon the conclusion of the five year term, Garden
City may elect to purchase the scanner for  $581,544.42  or extend the lease for
an additional five year period at the same monthly rental.  If the lease term is
extended,  then Garden City will have the option to purchase  the scanner at the
end of the second  five year period for a purchase  price of $1.00.  The term of
the lease  commenced on June 12, 2000 upon  acceptance of the scanner.  Payments
are due on the twelfth of the month commencing June 12, 2000. This  indebtedness
was six months in arrears as of June 30, 2002 and was current on  September  30,
2002. A balance of  $14,285.08  was owing as of September  30, 2002  following a
payment of $800,000.                                                            

     Pursuant  to an  agreement  dated  February  1,  2000,  Deerfield  Magnetic
Resonance Imaging,  P.A.  ("Deerfield"),  a Florida professional  association of
which  Raymond V.  Damadian is the sole  stockholder,  director  and  President,
agreed to lease a Fonar  QUAD(TM)  12000 MRI Scanner from the Company for a term
of five years at a monthly rental of $12,356.09. Upon the conclusion of the five
year term, Deerfield may elect to purchase the scanner for $581,544.42 or extend
the lease for an additional five year period at the same monthly rental.  If the
lease term is  extended,  then  Deerfield  will have the option to purchase  the
scanner at the end of the second five year period for a purchase price of $1.00.
The term of the lease  commenced  on July 18,  2000 upon the  acceptance  of the
scanner. Lease payments are due on the first of the month,  commencing August 1,
2000.  This  indebtedness  was six months in arrears as of June 30, 2002 and was
current on September 30, 2002. A balance of $25,288.12 was owing as of September
30, 2002 following a payment of $800,000.                                       

     Canarsie MRI Associates ("Canarsie"),  a joint venture partnership of which
MRI  Specialties,  Inc.  ("Specialties")  is an  owner,  is party  to a  service
agreement  for its scanner  with the Company at an annual fee of $70,000 for the
period from  September  1, 2001  through  August 31,  2002.  The price in effect
during  the prior  year was also  $70,000.  In  addition,  during  fiscal  2001,
Canarsie entered into an agreement to purchase a QUAD(TM) 12000 MRI scanner from
FONAR for a purchase price of $850,000. Of the purchase price, $400,000 has been
paid and  $450,000 is payable  pursuant to a note over a period of 7 years at 6%
interest  per annum.  The monthly  payment is $6,573.85  commencing  December 1,
2001. Timothy Damadian, the son of Raymond V. Damadian, is the sole stockholder,
director and President of Specialties.                                          

     Pompano MRI Associates  ("Pompano"),  a joint venture  partnership of which
Guardian MRI, Inc.  ("Guardian") is an owner,  was party to a service  agreement
for its scanner with the Company at an annual fee of $70,000 for the period from
October 1, 2000 through September 30, 2001. The price in effect during the prior
year was also  $70,000.  In addition,  during fiscal 2002,  Pompano  purchased a
Stand-Up(TM) MRI scanner from FONAR for a purchase price of $1,400,000.  Timothy
Damadian, the son of Raymond V. Damadian, is a stockholder, director and officer
of Guardian.                                                                    

     During  fiscal  2001,  Damadian MRI in Orlando,  P.A.  ("Orlando  MRI"),  a
Florida  professional  association  of which  Raymond  V.  Damadian  is the sole
stockholder,  director and President,  purchased a Stand-Up(TM) MRI scanner from
FONAR for a purchase  price of  $1,500,000.  The purchase price has been paid in
full.                                                                           

     During fiscal 2001, Damadian MRI at Islandia,  P.C. ("Islandia") a New York
professional  corporation of which Raymond V. Damadian is the sole  stockholder,
director and President,  purchased a  Stand-Up(TM)  MRI scanner from FONAR for a
purchase price of $1,350,000. The purchase price has been paid in full.         

     During fiscal 2001, Black Bear Management LLC, a New York limited liability
company of which TRD Services,  Inc.  ("TRD") is a member,  agreed to purchase a
Stand-Up(TM) MRI scanner from FONAR for a purchase price of $1,400,000.  Timothy
Damadian,  the son of Raymond V.  Damadian,  is the  stockholder,  director  and
President of TRD. The scanner has been delivered, installed and paid in full.   

     During fiscal 2002, Damadian MRI at Elmhurst, P.C. ("Elmhurst"), a New York
professional  corporation of which Raymond V. Damadian is the sole  stockholder,
director and President,  agreed to lease an Echo(TM) MRI scanner from FONAR on a
fee per scan basis of $200 per MRI scan performed.                              

     During  fiscal  2002,  Tallahassee  MRI,  P.A.  ("Tallahassee"),  a Florida
professional  association of which Raymond V. Damadian is the sole  stockholder,
director and  President,  agreed to lease a QUAD(TM) MRI scanner from FONAR on a
fee per scan basis of $350 per MRI scan performed.                              

     During fiscal 2002, Central Island MRI, P.C. ("Central Island"), a New York
professional  corporation of which Raymond V. Damadian is the sole  stockholder,
director and President, agreed to purchase a Stand-Up(TM) MRI scanner from Fonar
for a purchase price of $1,650,000.                                             

     During fiscal 2002, Bronx MRI Associates, LLC, a New York limited liability
company of which Raymond V. Damadian and Donna Damadian,  jointly, TRD Services,
Inc.  ("TRD"),  JAD Ventures,  Inc.  ("JAD"),  Keira Reinmund,  Thomas Terry and
Constance Terry, among others, are members, purchased a Stand-Up(TM) MRI scanner
for a  purchase  price of  $1,400,000.  Donna  Damadian  is the wife of  Raymond
Damadian. TRD is owned by Timothy Damadian, a son of Raymond and Donna Damadian,
JAD is owned by Jevan  Damadian,  a son of Raymond and Donna  Damadian and Keira
Reinmund is the daughter of Dr. and Mrs.  Damadian.  Constance Terry is the wife
of David B. Terry,  Vice President and Secretary of Fonar and  brother-in-law of
Dr. Damadian. Thomas Terry is also the brother-in-law of Dr. Damadian.          

     During fiscal 2002, Deer Park Management Services,  LLC, a New York limited
liability  company of which TRD and JAD are,  among others,  members,  agreed to
purchase  a  Stand-Up(TM)  MRI  scanner  from  Fonar  for a  purchase  price  of
$1,400,000.  TRD and JAD are  owned by  Timothy  Damadian  and  Jevan  Damadian,
respectively, who are the sons of Raymond V. Damadian.                          

     During  fiscal  2002,  Long  Island  Management  Services,  LLC, a New York
limited  liability  company  of which TRD,  JAD and Donna  Damadian  are,  among
others,  members, agreed to purchase a Stand-Up(TM) MRI scanner from Fonar for a
purchase  price of $1,400,000.  Donna Damadian is the wife of Raymond  Damadian.
TRD and JAD are owned by Timothy Damadian and Jevan Damadian,  respectively, the
sons of Raymond and Donna Damadian.                                             

     During  the first  quarter of fiscal  2003,  Miami MRI  Associates,  LLC, a
Florida  limited  liability  company of which TRD, JAD and Donna  Damadian  are,
among other parties,  members,  agreed to purchase a Stand-Up(TM) MRI from Fonar
for a  purchase  price of  $1,400,000.  Donna  Damadian  is the wife of  Raymond
Damadian.  TRD and  JAD are  owned  by  Timothy  Damadian  and  Jevan  Damadian,
respectively, the sons of Raymond and Donna Damadian.                           

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PART IV                                                                         

ITEM 14.  CONTROLS AND PROCEDURES                                               

     Management  believes that its  disclosure  controls and procedures in place
are effective to ensure that material  information  relating to the  registrant,
including its consolidated subsidiaries,  is made known to us by others in these
entities  in a timely  manner so that  appropriate  disclosures  can be made and
appropriate corporate action be taken.                                          

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 Certified Public Accountants.                   

Consolidated Balance Sheets as at June 30, 2002 and 2001.             

     Consolidated  Statements of  Operations  for the Three Years Ended June 30,
2002, 2001 and 2000.                                                  

     Consolidated  Statements of Stockholders'  Equity for the Three Years Ended
June 30, 2002, 2001 and 2000.                                         

     Consolidated  Statements  of Cash Flows for the Three  Years Ended June 30,
2002, 2001 and 2000.                                                  

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
thereto.                                                                        

b)   REPORTS ON FORM 8-K                                                        

None.                                                       

c)   EXHIBITS                                                                   

3.1    Certificate of  Incorporation,  as amended,  of the Company  incorporated
       herein 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
       Company  incorporated  by  reference  to Exhibit 4.1 to the  Registrant's
registration statement on Form S-8, Commission File No. 33-62099. 

3.3    By-Laws, as amended,  of the Company  incorporated herein 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  herein 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  herein  by
       reference to Exhibit 4.2 to the  Registrant's  registration  statement on
Form S-1, Commission File No. 33-13365.                           

10.1   License  Agreement  between  FONAR and Raymond V.  Damadian  incorporated
       herein 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  herein 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  herein 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  herein 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  herein 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 herein 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  herein 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 FONAR and Reckson
       Associates incorporated herein 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  herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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 herein 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  herein 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  herein 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  herein 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  herein  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 herein 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 herein 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  herein by reference to
       Exhibit  99.1 to the  Registrant's  registration  statement  on Form S-8,
Commission File No.: 333-96557.                                   

21.    Subsidiaries of the Registrant. See Exhibits.                            

99.1   Certification. See Exhibits.                                             

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SIGNATURES

       Pursuant to the  requirements  of Section 13 or 15 (d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.                       

 FONAR CORPORATION

Dated: October 4, 2002                                                          

By: /s/ Raymond Damadian  
    Raymond V. Damadian, President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  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 Damadian       Chairman of the            October 4, 2002           
Raymond V. Damadian        Board of Directors,                                  
President, Director       
Principal Executive       
Officer and Acting        
Principal Financial       
Officer)                  

/s/ Claudette J.V. Chan    Director                   October 4, 2002           
Claudette J.V. Chan                                                             

/s/ Robert J. Janoff       Director                   October 4, 2002           
Robert J. Janoff                                                                

/s/ Charles N. O'Data      Director                   October 4, 2002           
Charles N. O'Data                                                               

/s/ Robert Djerejian       Director                   October 4, 2002           
Robert Djerjian                                                                 

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 CERTIFICATION

I, Raymond V. Damadian, certify that:                             

       1.     I  have  reviewed  this  annual  report  on  Form  10-K  of  Fonar
Corporation;                                        

       2.     Based on my  knowledge,  this  annual  report does not contain any
              untrue  statement  of a material  fact or omit to state a material
              fact  necessary  to make  the  statements  made,  in  light of the
              circumstances  under which such  statements  made,  not misleading
         with respect to the period covered by this annual report; and

       3.     Based  on  my  knowledge,  the  financial  statements,  and  other
              financial  information,  included  in this annual  report,  fairly
              present in all material respects the financial condition,  results
              of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.            

Date:  October 4, 2002                              

/s/Raymond V. Damadian                        
Raymond V. Damadian                           
             President, Principal Executive Officer and Acting Principal
Financial Officer                             

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 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 & Kliegman, 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                                

David B. Terry                                                                  
Vice President of Administration and Secretary                                  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PREC14A’ Filing		Date		First		Last			Other Filings
		11/25/18		7
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		5/31/12		4		65
		9/30/10		46		65			10-Q,  8-K,  NT 10-Q
		12/15/08		45		65
		6/30/07		12		42			10-K,  8-K,  NT 10-K
		5/8/07		65
		3/31/07		46					10-Q,  8-K,  NT 10-Q
		3/9/07		45		65
		5/24/06		51
		6/30/05		55					10-K,  10-K/A,  8-K,  DEF 14A,  NT 10-K
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		7/30/03		67
		6/30/03		2		5			10-K,  424B3,  8-K,  NT 10-K,  S-8
		6/9/03		2		4
Filed as of:		4/28/03
Filed on:		4/25/03
		4/11/03		3		4
		4/2/03		4
		3/28/03		4
		3/25/03		65
		3/20/03		47
		1/1/03		4
		12/31/02		4		35			10-Q
		12/20/02		50
		11/1/02		4					424B1
		10/4/02		69		70			10-K
		10/2/02		62					8-K/A
		10/1/02		49					NT 10-K
		9/30/02		14		67			10-Q,  NT 10-Q
		9/20/02		50		66
		9/19/02		6		9
		9/16/02		62					8-K
		9/10/02		62					8-K,  8-K/A
		8/31/02		67
		7/1/02		4		67
		6/30/02		4		68			10-K,  DEF 14A,  NT 10-K,  PRE 14A
		6/17/02		8
		6/1/02		4		65
		4/7/02		67
		3/31/02		8					10-Q,  10-Q/A,  NT 10-Q
		1/11/02		50
		1/1/02		34
		12/31/01		38					10-Q,  NT 10-Q
		12/1/01		67
		11/5/01		51
		11/1/01		51
		10/25/01		51
		10/1/01		51
		9/30/01		67
		9/1/01		67
		7/1/01		7		34
		6/30/01		4		68			10-K,  10-K/A,  NT 10-K,  NTN 10Q
		6/6/01		7
		5/24/01		29		51
		4/8/01		67
		12/31/00		38					10-Q,  10-Q/A
		12/20/00		47
		10/3/00		7
		10/1/00		46		67
		8/20/00		48
		8/1/00		67
		7/18/00		67
		6/30/00		4		68			10-K,  10-K/A,  10-Q
		6/12/00		67
		3/16/00		7
		2/1/00		67
		12/31/99		38					10-Q
		12/1/99		67
		9/1/99		67
		8/20/99		48
		6/30/99		23					10-K,  NT 10-K
		3/20/99		47
		3/1/99		67
		12/16/98		45		65
		9/3/98		68
		8/20/98		7		68			8-K,  8-K/A
		7/1/98		58
		4/20/98		47
		3/20/98		67		68			8-K,  8-K/A
		7/31/97		68					8-K,  8-K/A
		7/1/97		4		67
		6/30/97		4		68			10-K,  8-K,  8-K/A,  NT 10-K
		6/27/97		68
		6/17/97		68
		5/9/97		46		65
		4/29/97		43
		3/10/97		45		65
		4/1/96		67
		10/20/95		43
		9/1/95		67
		4/3/95		43
		6/30/94		67
		12/1/93		58		67
		9/30/93		67
		3/31/93		67
		3/26/93		65
		6/25/92		7
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