FONAR CORPORATION

 Proxy - Combined Annual Meeting of Stockholders for fiscal years 2008 and 2009
                                November 17, 2008

           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, Luciano Bonanni and Kurt Reimann, and each of them, proxies with
full power of substitution, for and in the name of the undersigned to attend the
Combined Annual Meeting of the Stockholders of the Company for the 2008 and 2009
fiscal years to be held at the Double Tree Hotel,  Wilmington Downtown, 700 King
Street, Wilmington, Delaware on November 17, 2008 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 PROPOSALS ONE THROUGH FIVE.

No. 1.  Election of Directors

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

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.

No.  2. To  ratify  the  selection  of Marcum &  Kliegman  LLP as the  Company's
independent auditors for the fiscal years ended June 30, 2008 and June 30, 2009.

               FOR                AGAINST              ABSTAIN

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


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

              AUTHORITY                              AUTHORITY
               GRANTED                               WITHHELD

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


                          Dated:  ____________________


                          __________________________________
                          Signature

                          __________________________________
                          Signature if jointly held


                                        Please sign your name(s) EXACTLY as
                                        your name(s) appear(s) on your stock
                                        certificate(s). All joint tenants must
                                        sign.  When signing as attorney,
                                        executor, administrator, guardian or
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                                        FULL title.


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


                           SCHEDULE 14A INFORMATION

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

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Check the appropriate box:

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[X] Definitive Proxy Statement
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                                Fonar Corporation
.................................................................................
                (Name of Registrant as Specified In Its Charter)

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

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pursuant to Exchange Act Rule 0-11 (Set forth the amount of which the filing fee
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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange  Act Rule
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previously.

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


                NOTICE OF COMBINED ANNUAL MEETING OF STOCKHOLDERS
                                NOVEMBER 17, 2008


To The Stockholders:

The Combined Annual Meetings of the stockholders of Fonar  Corporation  required
to be held during the fiscal years ended June 30, 2008 and June 30, 2009 will be
held at the Double Tree Hotel, Wilmington Downtown, 700 King Street, Wilmington,
Delaware  19801  (302-655-0400),  on November 17, 2008, at 10:00 a.m. local time
for the following purposes:

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

2. To ratify the  selection of Marcum & Kliegman LLP as the  Company's  auditors
for the fiscal years ended June 30, 2008 and June 30, 2009.

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

Only  stockholders  of record at the close of business on September 25, 2008 are
entitled to notice of, and to vote at, this meeting. A list of such stockholders
will be available for  examination by any stockholder for any purpose germane to
the meeting,  during  normal  business  hours,  at the  principal  office of the
Company, 110 Marcus Drive, Melville, New York, for a period of ten days prior to
the meeting.

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


                                 BY ORDER OF THE BOARD OF DIRECTORS

                                  /s/ Claudette J.V. Chan

                                 Claudette J.V. Chan, Secretary


                                 PROXY STATEMENT
                         FOR COMBINED ANNUAL MEETING OF
                    STOCKHOLDERS TO BE HELD NOVEMBER 17, 2008

This proxy statement,  which is first being made available to shareholders on or
about  October 8, 2008 on the  internet,  is  furnished in  connection  with the
solicitation  of proxies by the Board of  Directors  of Fonar  Corporation  (the
"Company"),  to be voted at the combined  annual meeting of the  stockholders of
the Company to be held at 10:00 a.m. on November 17, 2008 and any adjournment(s)
thereof for the purposes set forth in the accompanying Notice of Combined Annual
Meeting  of  Stockholders.  At  the  same  time a  paper  notice  regarding  the
availability of proxy materials will be mailed to stockholders. Stockholders who
execute  proxies  retain  the  right to  revoke  them at any  time  prior to the
exercise of the powers  conferred  thereby,  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.

This Annual  Meeting is a combined  meeting for both the current fiscal year and
the  meeting  which  was  required  to be held  during  the prior  fiscal  year.
Consequently,  it is referred to as a "Combined Annual Meeting".  This year, the
stockholders will have several options as to how to view their shares.

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

IN THE ALTERNATIVE,  YOU MAY ELECT TO RECEIVE AN E-MAIL OR THE TRADITIONAL PAPER
COPIES OF THE  NOTICE OF ANNUAL  MEETING  AND PROXY  STATEMENT,  AND THE  ANNUAL
REPORT.  THERE IS NO CHARGE FOR RECEIVING  E-MAIL OR PAPER COPIES,  BUT YOU MUST
REQUEST THEM IF YOU WANT THEM. TO  FACILITATE  TIMELY  DELIVERY  PLEASE MAKE THE
REQUEST AS INSTRUCTED ON OR BEFORE NOVEMBER 3, 2008.

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

STOCKHOLDERS MAY REQUEST A COPY OF THE PROXY MATERIALS:

1.   BY INTERNET - VISIT www.proxy.com

2.   BY TELEPHONE - 1-800-579-1639

3.   BY E-MAIL - sendmaterial@proxyvote.com

Only  stockholders of record at the close of business on September 25, 2008 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 September  25,  2008,  there were issued and
outstanding 4,904,275 shares of

Common Stock held of record by 4,412 stockholders,  158 shares of Class B Common
Stock held of record by 12  stockholders  and  382,513  shares of Class C Common
Stock  held of  record  by 4  stockholders.  The  shares  of  Class A  Nonvoting
Preferred  Stock,  313,451  shares held of record by 3,856  stockholders  at the
close of business on September  25, 2008,  are not entitled to vote.  Except for
the  shares  of Class A  Nonvoting  Preferred  Stock,  there  are no  shares  of
Preferred Stock issued and outstanding.

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

Claudette  J.V.  Chan (age 70), a nominee for  Director,  has been a Director of
FONAR  since  October  1987.  She also has been  the  Secretary  of FONAR  since
January,  2008.  Mrs.  Chan  has  been  employed  since  1992  by  HMCA  and its
predecessor,  Raymond V. Damadian,  M.D. MR Scanning Centers Management Company,
as "site  inspector," in which capacity she is responsible  for  supervising and
implementing  standard  procedures and policies for MRI scanning  centers.  From
1989  to 1994  Mrs.  Chan  was  employed  by St.  Matthew's  and  St.  Timothy's
Neighborhood  Center,  Inc.,  as the  director  of  volunteers  in the "Meals on
Wheels" program, a program which cares for the elderly.  She received a bachelor
of science degree in nursing from Cornell  University in 1960.  Mrs. Chan is the
sister of Raymond V. Damadian.

Robert J. Janoff (age 81), a nominee for Director,  has been a Director of FONAR
since  February,  1989.  Mr.  Janoff  has been a  self-employed  New York  State
licensed private  investigator for more than thirty-five  years and was a Senior
Adjustor in Empire  Insurance  Group for more than 15 years until  retiring from
that position on July 1, 1997.  Mr.  Janoff also served,  from June 1985 to June
1991,  as President of Action Data  Management  Strategies,  Ltd., a supplier of
computer  programs  for use by  insurance  companies.  Mr.  Janoff is a Director
Emeritus  of  Harmony  Heights of Oyster  Bay,  New York,  which is a  nonprofit
residential school for girls with learning disabilities.

Charles N. O'Data (age 72), a nominee for Director, has been a Director of FONAR
since  February,  1998. From 1968 to 1997, Mr. O'Data was the Vice President for
Development  for  Geneva  College,  a liberal  arts  college  located in western
Pennsylvania.  In that  capacity,  he acted as the  College's  chief  investment
officer.  His  responsibilities  included  management of the College's endowment
fund and fund  raising.  In July 1997,  Mr. O'Data  retired from Geneva  College
after 36 years of service to assume 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.  He  founded  The  Beaver  County  Foundation,   a  Community
Foundation,  in 1992,  and  serves  as its  President.  Mr.  O'Data  served as a
director of Heritage  Valley Health System,  The Medical  Center,  Beaver for 25
years,  three years as  Chairman.  Mr.  O'Data is a graduate of Geneva  College,
where he received a B.S. degree in Economics in 1958.

Robert  Djerejian  (77),  a nominee for  Director,  has been a Director of Fonar
since June, 2002. Since 1996 Mr. Djerejian has served as a senior consultant for
Haines,  Lundberg & Waehler International,  (HWL International) an architecture,
design and engineering firm, which among other specialties designs hospitals and
laboratories.  Prior to that time he was the Senior Managing Partner of the firm
where he received numerous design awards including the National Honor Award from
the Endowment for the Arts and The Design  Excellence  Award from the NY Society
of the American  Institute of  Architects.  During his management of the firm he
brought the firm to  international  prominence with offices in London,  Shanghai
and  Saudi  Arabia.  He  currently  consults  to  private  clientele  in  design
management in planning,  design and construction  services.  Mr. Djerejian is an
Emeritus member of the Board of Trustees of Pratt Institute since 1992, where he
chaired the  Nominations  Committee  and was the Vice  Chairman of the Executive
Committee.  He served  as a Board  Member  coordinating  the  joint  venture  of
Corcoran College of Art & Design in Washington DC with Pratt Institute as one of
the founding  directors  forming the Delaware College of Art and Design. He is a
member of the American Institute of Architects and the NY Society of Architects.
Mr. Djerejian is a graduate of Pratt Institute School of Architecture,  where he
received his B.A. in Architecture in 1955.

CORPORATE GOVERNANCE, THE BOARD AND ITS COMMITTEES

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

During  the year  ended  June 30,  2008,  the  Board  of  Directors  unanimously
consented  to take  action in lieu of a meeting on one  occasion,  and the audit
committee met four times.

During the year ended June 30, 2007 the Board of Directors unanimously consented
to take action in lieu of a meeting on two  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.  This
is the sole compensation payable to the 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 and
was revised on November 17, 2004.  All of the  directors on the audit  committee
are independent.

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

AUDIT COMMITTEE

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

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

AUDIT COMMITTEE REPORT

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

Based on the foregoing review and discussions,  the audit committee  recommended
to the Board of Directors that the audited  financial  statements be included in
the  Company's  Annual  Report on Form 10-K for the  fiscal  year ended June 30,
2007.

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

NOMINATING COMMITTEE

The  Company  does not  believe  it  requires  a  separate  standing  nominating
committee  because the Board of Directors is  relatively  small and can make the
nominations  acting as a whole.  The Board does not have a policy with regard to
director  candidates  recommended  by  stockholders  because the absence of such
recommendations makes a formal policy unnecessary.  Historically,  there usually
has not been a need to identify new  nominees in the absence of the  resignation
or death of an existing director. The remaining directors evaluate a new nominee
based  on his  integrity,  loyalty,  competence  and  experience,  and  how  his
background complements that of the remaining directors.


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 May
5, 2008.

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
 PEO, PFO 5% + Stockholder
    Common Stock                       120,302              2.46%
    Class C Stock                      382,447             99.98%
    Class A Preferred                   19,093              6.09%


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

Robert J. Janoff
Director
    Common Stock                         3,600                  *
    Class A Preferred                       80                  *


Charles N. O'Data
Director
    Common Stock                            28                  *


Robert Djerejian
Director
    Common Stock                             0                  *

All Officers, Directors and Nominees
as a Group (6 persons) (2)           ---------            ---------
    Common Stock                       124,036              2.54%
    Class C Stock                      382,447             99.98%
    Class A Preferred                   19,205              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.

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,  2008 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; COMPENSATION COMMITTEE

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

As noted above,  the Company's  compensation  policy is primarily based upon the
practice of  pay-for-performance.  Section  162(m) of the Internal  Revenue Code
imposes a limitation on the deductibility of  nonperformance-based  compensation
in excess of $1 million paid to the Principal  Executive Officer.  No officer of
the Company  received  compensation in excess of $1 million in fiscal 2008 or in
any previous fiscal year. The Board  currently  believes that the Company should
be able to continue to manage its executive  compensation  program for others so
as to preserve the related federal income tax deductions.

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

The following  table discloses  compensation  received for the three years ended
June  30,  2008 by the  Company's  Principal  Executive  Officer  and  Principal
Financial Officer.


                           SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
Name                                                Plans,
and                                         Stock   Pension, All
Principal                                   and     Deferred Other
Total                                       Option  Compen-  Compen-
Position              Year   Salary   Bonus Awards  sation   sation   Total
----------            ---- ---------- ----- ------- -------- -------  ----------
Raymond V. Damadian   2008 $90,087.83    0       0       0       0    $90,087.83
Chairman of the       2007 $90,162.36    0       0       0       0    $90,162.36
Board; President;     2006 $93,059.68    0       0       0       0    $93,059.68
Principal Executive
Officer; Acting
Principal Financial
Officer; Director
--------------------------------------------------------------------------------

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

COMPENSATION PURSUANT TO STOCK OPTIONS AND SAR GRANTS

No stock  options or stock  appreciation  rights were  granted to the  Company's
Principal  Executive Officer and Principal  Financial Officer during fiscal 2007
or fiscal 2008.

OPTION/SAR EXERCISES AND YEAR END VALUES

No options or stock  appreciation  rights were exercised by the Company's  Chief
Executive  Officer during fiscal 2007. The Company's Chief Executive Officer did
not hold any unexercised stock options or stock  appreciation  rights at the end
of either fiscal 2007 or fiscal 2008.

2. RATIFICATION OF SELECTION OF AUDITORS

The  Board  of  Directors  selected  Marcum &  Kliegman  LLP,  as the  Company's
independent  auditors  for the fiscal  years  ending  June 30, 2008 and June 30,
2009. The stockholders will be asked to ratify this action by the Board.  Marcum
& Kliegman LLP were the  Company's  auditors for the fiscal years ended June 30,
2005, June 30, 2006 and June 30, 2007.

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, 2008
and the reviews of the financial  statements included in the Company's Forms 10-
Q for the fiscal year ended June 30, 2008 were $574,674.

The  aggregate  fees billed by Marcum & Kliegman for the audit of the  Company's
annual  financial  statements  for the fiscal  year ended June 30,  2007 and the
reviews of the financial statements included in the Company's Forms 10-Q for the
fiscal year ended June 30, 2007 were $679,052.

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

AUDIT-RELATED FEES

No audit-related  fees were billed by Marcum & Kliegman LLP for the fiscal years
ended June 30, 2008 and June 30, 2007.

TAX FEES

The  aggregate  fees  billed by Marcum & Kliegman  LLP for tax  compliance,  tax
advise and tax  planning  in the fiscal  years  ended June 30, 2008 and June 30,
2007 were $115,668 and $153,337, respectively.

ALL OTHER FEES

The  aggregate  fees  billed by  Marcum &  Kliegman  LLP for all other  services
rendered by them  during the fiscal  years ended June 30, 2008 and June 30, 2007
were $6,125 and $49,898,  respectively,  which  included  services in connection
with the  registration  of securities and the accounting  consequences  of other
possible corporation transactions.

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

No fees were billed by Marcum & Kliegman LLP for the fiscal years ended June 30,
2008 or June 30, 2007 for designing, operating,  supervising or implementing any
of our financial information systems or any hardware or software systems for our
financial information.

The Company's audit  committee  believes that the provision by Marcum & Kliegman
LLP of  services  in  addition  to audit  services  in fiscal 2008 and 2007 were
compatible with maintaining their independence. The services to be performed are
presented by Marcum & Kliegman LLP to the committee or its chairman.  The matter
is then evaluated and a decision made.

PROPOSALS OF STOCKHOLDERS

Proposals of stockholders intended to be presented at the 2010 annual meeting of
stockholders  must be received by the Company no later than September 3, 2009 to
be included in the Company's  proxy  statement and form of proxy related to that
meeting, or such later date as the Company may announce.

SOLICITATION OF PROXIES

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

VOTING TABULATION

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

A stockholder who abstains from voting on any or all proposals will be included
in  the number of shareholders present  at  the  meeting  for  the  purpose  of
determining the presence of a quorum. Abstentions will not be counted either in
favor  of or against the election of the nominees or other proposals. Under the
rules of  the National Association of Securities Dealers, brokers holding stock
for the accounts  of  their  clients  who  have  not been given specific voting
instructions as to a matter by their clients 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,  where the
authorization to do so has been granted.

DATED: Melville, New York, October 8, 2008

A COPY OF THE  COMPANY'S  FORM 10-K  REPORT  FOR FISCAL  YEAR  2008,  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




                                FONAR CORPORATION

                         REVISED AUDIT COMMITTEE CHARTER

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

1. PURPOSE

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

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

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

II. COMMITTEE MEMBERSHIP

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

III. COMMITTEE MEETINGS; SUBCOMMITTEES

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

IV. RESPONSIBILITIES AND FUNCTIONS

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

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

To fulfill its purpose, the Committee shall:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                ANNUAL REPORT
                   FONAR PRESIDENT'S MESSAGE TO SHAREHOLDERS
                               October 8, 2008

Dear Shareholders:

FONAR is the original MRI company. Since being incorporated in 1978, the company
introduced the first  commercial MRI scanner (1980) and has remained a leader in
magnetic  resonance  imaging (MRI) research and development.  In recent years we
developed and commercialized an MRI scanner whose unique physical  configuration
enables it to scan  patients in any  position or posture - the FONAR  Upright(R)
Multi-Position(TM)  MRI.  Conventional MRI scanners can only scan patients lying
down,  i.e.  in  a  single,  static,   non-weight-bearing  position.  The  FONAR
Upright(R)  Multi-Position(TM)  MRI is the  only  MRI  that is  able to  provide
Dynamic(TM)  MRI,  which is imaging of the  patient in any  position * including
weight-bearing postures, bending, flexion and extension.

LANDMARK  INDEPENDENT  SPINE  STUDY BY UCLA  SCHOOL OF  MEDICINE

For many,  the  advantages  of  Dynamic(TM)  MRI are  obvious.  In fact,  we are
constantly  hearing  reports  from  users and  referring  physicians  of how the
Upright(R)  MRI  diagnoses  problems that  conventional  MRIs  underestimate  or
completely miss. Physicians everywhere,  particularly surgeons, enthusiastically
credit the Upright(R) MRI for giving them more complete diagnoses, which allowed
them to improve their patients' outcomes.

This is, of course,  very  gratifying,  but a key step for the FONAR  Upright(R)
Multi-Position(TM) MRI to substantially  penetrate the market is to obtain broad
acceptance of its unique technology by the medical community. Such acceptance is
not  quickly or easily  attained.  In fact,  there have been  several  important
studies  conducted at the  prestigious  University  of Aberdeen in Scotland with
very positive  results  regarding the enormous  diagnostic  value of Dynamic(TM)
MRI.  While these  studies  certainly  attracted  the  attention of those in the
medical  community,   many  of  them  have  been  demanding  more  evidence.  In
particular,  they look for clinical  proof in  large-sample  scientific  studies
preferably performed at prestigious  institutions and published in peer-reviewed
U.S. journals.

I am pleased to report that we have taken a giant forward in this regard. At the
22nd Annual  Meeting of the North  American  Spine  Society  (NASS) held October
23-27, 2007 in Austin,  Texas, the University of California,  Los Angeles (UCLA)
School of Medicine  presented four scientific papers comparing the visualization
of spine  pathology by Dynamic(TM) MRI to images obtained by Static MRI in 1,302
patients.   The  studies  were   performed   utilizing   the  FONAR   Upright(R)
Multi-Position(TM)  MRI scanner in  conjunction  with a software  image analysis
program   developed  by  FONAR  user  True  MRI  that   provides   comprehensive
quantitative  measurements  of  spinal  structures  in  Static  and  Dynamic(TM)
positions. The results were staggering.

Key among the results of these four  studies are:

     *    The   Static   MRI   "miss   rate"  of   spondylolistheses   (vertebra
          dislocations) at the critical L4-5 segment is 35.1%

     *    The   Static   MRI   "miss   rate"  of   spondylolistheses   (vertebra
          dislocations) at L3-4 is even higher at 38.7%

     *    The Static MRI overall "miss rate" is 18.1%

We now have the kind of  documented  evidence  the  medical  community  has been
waiting  for:  significant  findings  based on a large  sample  study (over 1000
patients) conducted at a prestigious  institution (The UCLA School of Medicine).
These results  establish  both the diagnostic  value of Dynamic(TM)  MRI and the
stunning inadequacy of Static-Only MRI.

The  UCLA  study  demonstrates  convincingly  that a  spine  surgeon  intent  on
achieving the very best outcomes for his patients,  as all surgeons are,  cannot
afford to take their patients to surgery without first obtaining images from the
Upright(R)   MRI.   These  images   provide  a  full   assessment  and  complete
characterization  of the  patient's  spinal  pathology,  which no other MRI can.
Static recumbent-only MRI is clearly falling short and does not provide surgeons
with what they need to achieve optimal results.

SALES & MARKETING

The focus of FONAR's  sales and  marketing  efforts is to  stimulate  demand and
awareness of the Upright MRI(R) among patients,  surgeons, referring physicians,
radiologists, independent MRI practice owners, and hospitals.

FONAR's   marketing   strategy   is   multi-pronged:    advertising   campaigns;
telemarketing;  trade show  participation;  direct sales efforts for U.S. market
penetration; and distribution channel partnerships.

ADVERTISING - The overall goal of FONAR  advertising  is to convince  physicians
that  utilizing the  Upright(R)  Multi-Position(TM)  MRI is no longer an option.
It's a necessity.

This year FONAR  advertising  concentrated  on reaching  physicians  through ads
placed in major medical journals. Targeting orthopedic surgeons,  neurosurgeons,
and  radiologists  in such  prestigious  journals as Spine  magazine,  The Spine
Journal,  The  Journal  of the  American  Medical  Association,  Radiology,  and
Diagnostic Imaging,  these ads highlight the unique advantages of the Upright(R)
MRI.

FONAR is also driving  physicians and consumers to its Web site  (www.fonar.com)
with advertisements on Google and Yahoo Search.

NEW   TELEMARKETING   SALES  EFFORT  -  FONAR  has  recently  launched  a  major
telemarketing effort to physicians.  The goal is to reach physicians  everywhere
with the benefits of FONAR's Upright(R)  Multi-Position(TM)  MRI. As part of the
effort,  the UCLA  study  mentioned  above  is  being  mailed  to  thousands  of
physicians,  who are called to alert them that the study is being mailed to them
and then called back after the study arrives.  The effort is already  generating
sales leads that FONAR would not otherwise have.

TRADE SHOW  PARTICIPATION  - In calendar  2007,  FONAR  exhibited  at the annual
meetings of several  surgery and radiology  societies:  The American  Academy of
Orthopaedic  Surgeons  (AAOS);  North  American Spine Society  (NASS),  American
Association of  Neurosurgery  (AANS),  the Congress of Neurosurgery  (CNS),  the
Radiological  Society of North America (RSNA), and the American College of Spine
Surgery  (ACSS).  In March 2007,  FONAR  exhibited at the annual  meeting of the
International Surgical Conference in Abu Dhabi in the UAE.

DIRECT  SALES  EFFORTS FOR U.S.  MARKET  PENETRATION  - FONAR has a direct sales
force for U.S. distribution. The team consists of industry veterans who are well
versed not only in the benefits of our product,  but in important peer- reviewed
studies that attest to the diagnostic value of Dynamic(TM) MRI.

DISTRIBUTION  CHANNEL  PARTNERSHIPS  --  Tecserena  GmbH of  Germany  has been a
European  distributor  for FONAR since the beginning of 2006. The sales force of
Tecserena formerly  represented Hitachi in Europe. We are pleased that Tecserena
has sold FONAR Upright(R) MRIs in Cologne,  Germany;  St.  Maartenskliniek,  the
largest  orthopaedic  hospital  in the  Netherlands;  Hanover,  Germany;  and in
Munich,  Germany.  Alfred  Schlemmer,  managing director of Tecserena said, "The
FONAR Upright(R)  Multi-Position(TM)  MRI is a one-of-a-kind  product, a product
that we firmly  believe  will  become a standard in MRI  diagnostics  in Europe,
especially of the spine.  There is nothing like it. Our basic marketing strategy
is to educate the medical community about the unique diagnostic  capabilities of
the FONAR unit. Once the marketplace understands them, sales follow."

ON-GOING SALES CHALLENGES

As has been the experience of every other  manufacturer of MRI equipment,  FONAR
sales continue to suffer from the effects of the Deficit  Reduction Act (DRA) of
2005.  The  January  1,  2007  implementation  of  the  Act  reduced  Medicare's
reimbursement for MRI services by 17% - 48%,  depending on the service provided.
Since  contracted  fees with many  commercial  payers are fixed  percentages  of
Medicare  fees,  the lower  reimbursement  problem has been further  compounded.
Consequently,  the DRA has had a  negative  effect  on new MRI  equipment  sales
across the country.

Also, in the wake of the sub-prime lending crisis, funding for capital equipment
purchases has not been easily obtainable, despite low interest rates.

FONAR, however, remains confident that once the impact of the DRA has been fully
absorbed and the lingering  effects of the sub-prime  lending crisis  dissipate,
the medical community will once again be purchasing the diagnostic  equipment it
needs.  And I am convinced,  perhaps more that ever, that the medical  community
needs Dynamic(TM) MRI. The sales future of any important  medical  innovation is
always bright.

MULTI-STATE DIAGNOSTIC IMAGING PROVIDER PURCHASES SECOND UPRIGHT(R) MRI

FONAR  reported in January of this year that the Center for  Diagnostic  Imaging
(CDI)  of   Minneapolis,   Minnesota,   purchased  a  second  FONAR   Upright(R)
Multi-Position(TM)  MRI just six months after installing its first. The sale was
placed  jointly  with  General  Electric  Healthcare  (GEHC),  a  manufacturer's
representative  of FONAR. CDI currently owns and operates 42 diagnostic  imaging
centers in eight states,  including  Minnesota,  Wisconsin,  Illinois,  Indiana,
Kansas,  Missouri,   Washington,   and  Florida.  Both  CDI  purchases  were  in
partnership  with the  Northwestern  College of Chiropractic  (Northwest  Health
Science University - NWHSU).

The first scanner was installed at a CDI  Minneapolis  outpatient  center in the
west metro suburb, St. Louis Park, in June 2007. "We've purchased a second FONAR
Upright(R)  Multi-Position(TM)  MRI to go into  one of our  Woodbury  outpatient
centers in the east metro  area,"  said  Robert  Baumgartner,  CEO of CDI.  "Our
ongoing collaboration with NWHSU follows our commitment to provide access to the
most  comprehensive  imaging  services for clinicians and patients to meet their
unique imaging needs."

"At CDI, we're committed to providing  patients the right exam at the right time
with accurate  results.  The FONAR Open Upright(R) MRI scanner  provides certain
patients  -  claustrophobic  patients,  larger  patients  or  those in need of a
Positional  MRI - access to the  imaging  exam needed to  accurately  diagnose a
suspected condition and to guide their care," said William Mullin, M.D., a spine
radiologist at CDI.

RADIATION-FREE METHOD TO DIAGNOSE AND MONITOR SCOLIOSIS TREATMENT

There is a great deal of concern about high  exposure to X-rays among  scoliosis
patients.  The America's National Cancer Institute (NCI) reports a significantly
higher  incidence  of  later-life  breast  cancer in women who were  exposed  to
multiple  doses of X-ray  when they  were  younger,  stating  that  "women  with
scoliosis,  or abnormal  curvature of the spine,  who were exposed to diagnostic
X-rays during  childhood and  adolescence  may be at increased risks of dying of
breast cancer....  The 5,466 women in the study, who received an average of 24.7
X-rays,  were found to have a 70% higher risk of breast cancer than women in the
general population."

I am  pleased  that  FONAR  has  developed  the first  radiation-free  method to
diagnose  and  monitor  scoliosis  when an  Upright(R)  image  (x-ray or MRI) is
essential to evaluating  scoliosis  and the extent of it. In some  instances the
scoliosis  may disappear  altogether  when the patient is lying down and his/her
body weight is removed.  The NCI study and the danger of inducing  breast cancer
makes x-ray an  unsatisfactory  method for  diagnosis and  monitoring  scoliosis
treatment.  We are  pleased  that  Fonar  Upright(R)  has been able to provide a
radiation-free  technology  that  children  and young people and others can have
access to without  being  subjected  to the risk of cancer.  The method has been
designed for use  exclusively on the Upright(R) MRI. We are working hard to make
this new  application  available to all Upright(R) MRI users.  At the same time,
FONAR is spreading the good news to physicians  in their medical  journals.  The
response over this new MR application,  particularly at pediatric hospitals, has
been very encouraging.

NATIONAL INVENTOR OF THE YEAR AWARD

On June 11, 2007, The Intellectual  Property Owners Education Foundation (IPOEF)
honored FONAR president and founder Professor Raymond V. Damadian,  M.D., as the
34th winner of the  'National  Inventor of the Year Award' for the  invention of
the FONAR  Upright(R)  Multi-Position(TM)  MRI.  The award was  presented by The
Honorable  Congressman  Howard  L.  Berman  (D-Calif.),  Chairman  of the  House
Judiciary Subcommittee on Intellectual Property at the Caucus Room, Cannon House
Office Building, Washington, D.C.

UPRIGHT(R) MRIs SOLD IN CANADA AND AUSTRALIA

I am  very  pleased  that  the  Upright(R)  MRI  has  penetrated  two  important
international markets during the past six months - Canada and Australia.

In December we sold an  Upright(R)  MRI in Canada to the  Welcome  Back  Clinic,
which plans to install it this year in the  province of British  Columbia.  They
are eager to use their Upright(R) MRI to provide  patients  suffering from spine
pain with a truly comprehensive  assessment of their spines. In April we sold an
Upright(R) MRI to a group medical practice in Australia, a country of 20 million
people presently served by approximately 100 MRI scanners.

We also  have  sold  Upright(R)  Multi-Position(TM)  MRIs in  England,  Germany,
Greece, Kuwait, the Netherlands, Puerto Rico, Scotland, Spain, and Switzerland.

NEW UPRIGHT(R) MRI APPLICATION

While it was obvious that the Upright(R)  MRI is an extremely  valuable tool for
spine  studies,  it is very  gratifying to learn of entirely new  Upright(R) MRI
applications  developed by Upright(R) MRI users. The value of the Upright(R) MRI
in the diagnosis and  evaluation  of Chiari  malformation  patients was recently
published  by The  Chiari  Institute  in the  Journal  of  Neurosurgery:  Spine,
December  2007,  Volume 7. The  prestigious  Chiari  Institute  is part of North
Shore-Long Island Jewish Health Systems. We are appreciative of Dr. Milhorat and
his team for  recognizing  the  Upright(R)  MRI's  power to  visualize  the full
cranial  settling,  cerebellar  ptosis,  cerebellar  tonsil  descent and foramen
magnum impaction that occurs in the Chiari Malformation-I/HDCT  patients so they
can be optimally addressed surgically.

HMCA

Our  management  subsidiary,  HMCA (Health  Management  Corporation of America),
continues to provide FONAR with a steady source of revenue in fees from managing
ten (10) MRI  businesses,  most of them  Upright(R)  MRI  centers,  in New York,
Florida and Georgia. As company revenues improve, we expect to grow this part of
our business.

CONCLUSION

We have a product that  physicians  desperately  need to improve the outcomes of
their patients * a product that only FONAR can provide.  The advancements in MRI
technology an aging American population and the entry of Baby-Boomers into their
retirement  years make spine  medicine an  increasingly  important  specialty of
medical  practice.  The FONAR Upright(R)  Multi-Position(TM)  MRI addresses this
increasing need.

Thanks to the recent UCLA  studies,  our product has taken a giant step  forward
towards gaining acceptance by the medical community.  Meanwhile, as this process
of acceptance  accelerates,  our scientists and engineers continue to improve it
and our sales and marketing  team applies its  experience and skill to sell many
more machines.

As of June 30, 2008, we had sold 162  Upright(R)  MRIs and installed 128 of them
worldwide.

Our customer  service  organization  continues to grow to  accommodate a growing
installed base. The resulting  increase in revenues from this division  provides
stability to the company and  underscores  the importance of our  customers,  to
whom we remain fully committed.

FONAR  has  been in  business  for 30  years.  As you can see  from  what I have
written,  our  FONAR  Upright(R)   Multi-Position(TM)   MRI  continues  to  gain
acceptance,  making us increasingly confident that this product's unique ability
to meet the needs of the medical  community  gives FONAR the strength to succeed
in even the most challenging competitive and financial environments.

Thank you for your faithful support.

Sincerely,

/s/ Raymond V. Damadian
Raymond V. Damadian
President and Chairman



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

                                    FORM 10-K
                              _____________________

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                           ACT OF 1934 [Fee Required]
                     For the fiscal year ended June 30, 2008

                                       OR

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

                           Commission File No. 0-10248
                           ___________________________

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

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


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

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                                      None
        ________________________________________________________________

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes ____ No ___X___ Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes ____ No ___X___

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

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

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

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

The aggregate market value of the shares of Common Stock held by  non-affiliates
as of December  31,  2007 based on the closing  price of $5.20 per share on such
date as reported on the NASDAQ System, was approximately $25 million.  The other
outstanding classes do not have a readily determinable market value.

As of September 15, 2008,  4,904,275 shares of Common Stock, 158 shares of Class
B Common  Stock,  382,513  shares of Class C Common Stock and 313,451  shares of
Class A Non-voting Preferred Stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None



PART I
ITEM 1.  BUSINESS
GENERAL

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

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

MEDICAL EQUIPMENT SEGMENT

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

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

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


PHYSICIAN MANAGEMENT AND DIAGNOSTIC SERVICES SEGMENT

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

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


FORWARD LOOKING STATEMENTS.

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

RECENT DEVELOPMENTS AND OVERVIEW.

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

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

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

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

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

We are vigorously  promoting  sales of the Upright(R) MRI which we regard as our
most promising  product.  The market for the Upright(R)  shows strong  progress.
Revenues recognized from the sale of Upright(R) MRI scanners increased in fiscal
2008 by 1.5% over fiscal 2007 from approximately $11.0 million in fiscal 2007 to
approximately  $11.2  million  in fiscal  2008 and by 5.6% in  fiscal  2007 from
approximately  $10.5  million in fiscal  2006.  The  following  chart  shows the
revenues attributable to our different model scanners for the fiscal years ended
June 30, 2006, June 30, 2007 and June 30, 2008.  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            Fiscal 2006   Fiscal 2007   Fiscal 2008
          -------------    -----------   -----------   -----------
          Upright(R)       $10,452,069   $11,041,251   $11,203,688
          Fonar 360(TM)    $   383,589   $    62,379   $         0
          Other            $         0   $         0   $         0

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

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

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

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

MEDICAL EQUIPMENT SEGMENT

PRODUCTS

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

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

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

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

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

Full-range-of-motion  studies of the joints in virtually any  direction  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 Upright(R) MRI will also be useful for MRI guided interventional  procedures
as  the  physician  would  have  unhindered   access  to  the  patient  with  no
restrictions in the vertical direction.

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

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

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

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

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

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

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

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

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

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

The Upright(R) MRI and Fonar 360(TM) scanners share much of the same fundamental
technology  and offer the same  speed,  precision  and  image  quality.  Fonar's
scanners  initiated the new market  segment of high-field  open MRI in which the
Fonar Upright(R) MRI 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  Upright(R) MRI and Fonar 360(TM)  scanners  utilize a 6000 gauss (0.6 Tesla
field strength) iron core electromagnet.  The greater field strength of the 6000
gauss magnet, as compared to lower field open MRI scanners that operate at 3,000
gauss (0.3 Tesla) when enhanced by the electronics  already  utilized by Fonar's
scanners,  produces images of higher quality and clarity. Fonar's 0.6 Tesla open
scanner magnets are among the highest field "open MRI" magnets in the industry.

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

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

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

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

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

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

During  fiscal  2008,  sales  of  our  Upright(R)  MRI  scanners  accounted  for
approximately  31.5% of our total  revenues  and 47.6% of our medical  equipment
revenues,  as compared to 33.2% of total revenues and 51.9% of medical equipment
revenues  in  fiscal  2007 and  31.6% of total  revenues  and  53.0% of  medical
equipment revenues in fiscal 2006. These sales show the market penetration being
achieved by the Upright(R) MRI scanner.

During  fiscal  2008,  we had no  revenues  attributable  to sales of our  Fonar
360(TM) scanner. During fiscal 2007 sales of our Fonar 360(TM) scanner accounted
for 0.2% of total  revenues  and 0.3% of medical  equipment  revenues and during
fiscal  2006  sales of our Fonar  360(TM)  scanner  accounted  for 1.2% of total
revenues and 1.9% of medical equipment revenues.

Our principal  selling,  marketing and advertising  efforts have been focused on
the Upright(R) MRI, which we believe is a particularly unique product, being the
only MRI scanner which is both open and allows for weight bearing imaging. Since
we perceive that the Upright(R) MRI is  successfully  penetrating the market and
enabled us to achieve  profitability  in fiscal 2005,  we expect to continue our
focus on the Upright(R) MRI in the immediate future,  notwithstanding the losses
incurred  in fiscal  2007 and  fiscal  2008.  We are  optimistic  that the Fonar
360(TM) and our other  products and works in progress  will also  contribute  to
increased product sales.

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

WORKS-IN-PROGRESS

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

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

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

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

PRODUCT MARKETING

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

Fonar's  internal  sales force is  approximately  8 persons.  Our internal sales
force  handles the  domestic  market,  although  we also have two  non-exclusive
domestic  independent  sales  representatives.  We continue  to use  independent
manufacturer's representatives and distributors for foreign markets. In addition
to its  internal  domestic  sales  force,  Fonar and  General  Electric  Medical
Systems,  a  division  of  General  Electric  Company,   have  entered  into  an
arrangement pursuant to which General Electric Medical Systems is an independent
manufacturer's representative for Fonar's Upright(R) MRI scanner in the domestic
market as well.  Neither General Electric nor any of Fonar's other  competitors,
however,  are entitled to make the Upright(R) MRI scanner. In August 2007, Fonar
engaged the services of a second  independent  sales  representative to focus on
spine  surgeons  or groups of spine  surgeons  pre-approved  by Fonar who have a
pre-existing relationship with the sales representative.

Fonar's website  includes an interactive  product  information desk for reaching
customers.  We plan to commence a program for  providing  demonstrations  of our
products to potential customers on an international basis.

Fonar has exhibited its new products at the annual  meeting of the  Radiological
Society of North America ("RSNA") in Chicago from November 1995 through 2007 and
plans to attend RSNA meetings in future  years.  The RSNA meeting is attended by
radiologists  from  all over  the  world.  Most  manufacturers  of MRI  scanners
regularly exhibit at this meeting.

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

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

We have launched an advertising campaign,  directed at physicians. It has led to
many inquires about purchase and to some sales of the Upright(R) MRI scanner. In
order to increase  Fonar's  presence in the medical market and to tell the story
of the Upright(R) MRI with its Multi-Position(R) diagnostic capability well, the
campaign features two-page color advertisements.  The advertising is directed at
three  target  audiences,  and each of the three is being  reached  through  the
leading medical journals that are addressed to that audience.

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

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

     3) All Physicians:  This effort is to the total physician audience, so that
the vast  number  of  doctors  who send  patients  for  MRI's  are  aware of the
diagnostic  advantages  of the Fonar  Upright(R)  Multi-  Position(R)  MRI.  The
advertisements appear in the Journal of the American Medical Association,  which
has a readership of over 350,000 physicians.

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

Most  recently,  we have commenced a  telemarketing  campaign for the purpose of
reaching  prospective  customers beyond the reach of our existing sales force so
they can be made aware of the medical  benefits of Fonar's  new  Upright(R)  MRI
imaging technology.

We have an extensive  advertising  effort on Google and Yahoo Search  Marketing.
Enter relevant terms,  such as "mri" or "mri for back pain", and an ad for Fonar
will very  likely  appear in the paid  search  listings on the right side of the
results page or along the top of it.

Also,  our new  advertising  for HMCA also serves as  advertising  for Fonar MRI
scanners.  We are  increasing  our  focus on our  HMCA  business  by  increasing
internet  awareness  of the  Upright(R)  scanning  centers  that HMCA manages by
installing  new  Websites  for every  location  and  embarking on a new internet
advertising campaign.  These websites and advertising give prospective customers
of Upright(R)  MRI scanners a view of operating  Upright(R)  MRI centers and the
benefits of using an Upright(R) MRI scanner.  The success of HMCA-managed  sites
not only increases management fees to HMCA but encourages new sales for Fonar as
well.

We are  directing  our MRI  marketing  efforts to meet the demand for high field
open MRI scanners.  Fonar plans to devote its principal efforts to marketing the
Upright(R)  MRI,  which is the only scanner in the industry  that has the unique
capability of scanning patients under  weight-bearing  conditions and in various
positions of pain or other symptoms.  In addition we will continue to market our
Fonar  360(TM) MRI scanners.  Utilizing a 6000 gauss (0.6 Tesla field  strength)
iron core  electromagnet,  the Upright(R) MRI and Fonar 360(TM)  scanner magnets
are  among the  highest  field  "open  MRI"  scanners  in the  industry.  Recent
announcements  in  the  press  have  reported  the  occurrence  of  MRI  Scanner
explosions (5 scanners)  secondary to entrapped  Helium gas evaporating from the
liquid Helium that  circulates in  conventional  MRI scanners to refrigerate the
super-conducting  wire  generating the magnet fields of these  magnets.  Fonar's
Upright(R)  MRI  magnet  does  not  utilize  liquid  Helium  and is free of this
liability as is the Fonar 360(TM).

The  Upright(R)  MRI is also  suited to fill a demand  for better  diagnoses  of
scoliosis  patients,  who must be standing for the exam.  Scoliosis patients are
typically  subjected  to routine  x-ray exams for years.  In the past,  an x-ray
machine was the only  modality  that could  provide  that  service.  Typical MRI
scanners  cannot provide this service because the patient cannot stand up inside
of them.  The Fonar  Upright(R) MRI scanner is the only MRI scanner which allows
the  patient  to stand  during the exam.  The Fonar  Upright(R)  Scanner  avoids
radiation of the x-ray  machines  currently  used for scoliosis  which have been
reported  recently by the National  Cancer  Institute to cause a 70% increase in
the risk of breast cancer.

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

Our areas of operations are principally in the United States.  During the fiscal
year ended June 30,  2008,  2.4% of the  Company's  revenues  were  generated by
foreign  sales,  as  compared  to 7.3% and  10.1%  for  fiscal  2007  and  2006,
respectively.

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

SERVICE AND UPGRADES FOR MRI SCANNERS

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

Income is generated  from the  installed  base in two  principal  areas  namely,
service  and  upgrades.  Service  and  maintenance  revenues  from our  external
installed base were approximately $11.0 million in fiscal 2008, $10.0 million in
fiscal  2007 and $8.6  million in fiscal  2006.  We expect  service  revenues to
continue to increase as warranties  expire on previously sold scanners,  and the
customers then enter into service contracts.

We also  anticipate  that our new  scanners  will result in  upgrades  income in
future fiscal years. The potential for upgrades income, particularly in the form
of  new  patient   supporting  upright  imaging  fixtures  and  receiver  coils,
originates in the  versatility and  productivity  of the new Upright(R)  Imaging
technology.  New medical uses for MRI technology are constantly being discovered
and are anticipated for the Upright(R)  Imaging technology as well. New features
can often be added to the  scanner  by the  implementation  of little  more than
versatile new software packages. For example,  software can be added to existing
MRI angiography  applications to synchronize  angiograms with the cardiac cycle.
By doing so the dynamics of blood vessel  filling and emptying can be visualized
with movies.  Such  enhancements are attractive to end users because they extend
the useful life of the equipment and enable the user to avoid  obsolescence  and
the expense of having to purchase new equipment.  At the present time,  however,
upgrade revenue is not significant. We had no upgrade revenue in fiscal 2008 and
fiscal 2007 and approximately $82,000 in upgrade revenue in fiscal 2006.

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,  2008,  we  incurred  expenditures  of
$5,463,963,  $457,372 of which was capitalized,  on research and development, as
compared  to  $6,328,265,  $636,167  of which was  capitalized  and  $7,581,898,
$714,253 of which was  capitalized,  during the fiscal years ended June 30, 2007
and June 30, 2006, respectively.

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

BACKLOG

Our backlog of unfilled  orders at September  26, 2008 was  approximately  $36.5
million, as compared to $49.2 million at September 28, 2007. It is expected that
a  substantial  portion of the existing  backlog of orders will be filled within
the 2009 fiscal year. Our contracts generally provide that if a customer cancels
an  order,  the  customer's   initial  down  payment  for  the  MRI  scanner  is
nonrefundable.

PATENTS AND LICENSES

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

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

We have  significantly  enhanced our patent position within the industry and now
possesses a substantial  patent  portfolio which provides us, under the aegis of
United States patent law, "the  exclusive  right to make,  use and sell" many of
the scanner  features which Fonar  pioneered and which are now  incorporated  in
most MRI  scanners  sold by the  industry.  Fonar  has 145  patents  issued  and
approximately  70  patents  pending.   A  number  of  Fonar's  existing  patents
specifically  relate to protecting Fonar's position in the high-field iron frame
open MRI market.  The patents further enhance Dr. Damadian's pioneer patent, the
1974 Patent, that initiated the MRI industry and provided the original invention
of MRI scanning. The 145 issued patents extend to various times up to 2026.

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

PRODUCT COMPETITION

MRI SCANNERS

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

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

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

2. They are more open and quiet.

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

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

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

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

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

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

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

OTHER IMAGING MODALITIES

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

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

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

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

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

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

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

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

GOVERNMENT REGULATION

FDA Regulation

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

Classes of Products

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

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

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

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

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

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

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

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

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

Premarketing Submission

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

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

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

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

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

Quality System Regulation

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

Medical Device Reporting Regulation

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

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

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

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

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

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

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

     *    provide  procedures  to insure the  timely  transmission  of  complete
          reports.

These procedures also include documentation and record keeping requirements for:

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

     *    all medical device reports and information submitted to the FDA;

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

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

FDA Enforcement

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

FDA-Initiated or Voluntary Recalls

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

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

Class I

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

Class II

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

Class III

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

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

Civil Money Penalties

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

Warning Letters

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

Seizure

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

Citation

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

Injunction

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

Prosecution

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

Foreign and Export Regulation

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

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

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

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

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

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

Because our export sales are not material at this point, foreign regulation does
not have a material  effect on us. In any case,  we do 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.

Deficit Reduction Act

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

HEALTH  MANAGEMENT  CORPORATION  OF AMERICA  PHYSICIAN AND  DIAGNOSTIC  SERVICES
MANAGEMENT BUSINESS

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

HMCA currently  manages 10 MRI facilities.  In April 2003, HMCA sold the portion
of its business which managed primary care medical practices,  and in July 2005,
HMCA sold the  portion of its  business  engaged in the  management  of physical
therapy and rehabilitation  practices. This was the result of HMCA's decision to
focus on  management  of MRI  facilities,  the  business  in which  HMCA is most
experienced. For the 2008 fiscal year, the revenues HMCA recognized from the MRI
facilities were $12.0 million. No revenues were recognized from physical therapy
and  rehabilitation  practices.  For the 2007 fiscal  year,  the  revenues  HMCA
recognized  from the MRI  facilities  were $11.9  million and no  revenues  were
recognized  from the  physical  therapy and  rehabilitation  practices.  For the
fiscal 2006 year,  the revenues HMCA  recognized  from the MRI  facilities  were
$12.7 million and the revenues  recognized from the physical and  rehabilitation
practices were $648,000, for total revenues of $13.3 million.

HMCA GROWTH STRATEGY

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

In connection  with its focus on managing MRI  facilities,  HMCA decided to sell
its business of managing physical therapy and rehabilitation practices. The sale
was completed on July 28, 2005, at the beginning of the 2006 fiscal year.

The sale was made  pursuant  to an asset  purchase  agreement.  The assets  sold
consisted principally of the management agreements with the physical therapy and
rehabilitation  facilities,  the  assignment  of  other  agreements  and  rights
utilized  in  our  physical  therapy  and  rehabilitation   facility  management
business,  the physical therapy equipment,  a portion of the accounts receivable
and office  furnishings  and  equipment we provided to the physical  therapy and
rehabilitation facilities.

The  sale  was made to  Health  Plus  Management  Services,  L.L.C.  There is no
material  relationship  between  Health  Plus and Fonar,  HMCA,  or any of their
respective subsidiaries, directors or officers or associates of any such person.
The two  principals  of Health Plus were  employed by HMCA up to the time of the
closing  of the  transaction.  In  consideration  for the  termination  of their
employment  agreements,  these two  individuals  each became entitled to receive
$800,000. In addition,  each became entitled to receive $200,000 for billing and
collection  services to be provided on behalf of HMCA with  respect to a portion
of the  accounts  receivable  of certain  physical  therapy  and  rehabilitation
facilities  which arose during the period when we were engaged in the management
of those facilities.  The $1,000,000  payable was paid in shares of Fonar common
stock.

The purchase price under the asset purchase agreement was $6.6 million,  payable
pursuant to a promissory note in 120 monthly  installments  commencing on August
28, 2005. The first twelve  installments are interest only and the remaining 108
payments  will consist of equal  installments  of principal  and interest in the
amount of $76,014  each.  The note is subject to  prepayment  provisions  to the
extent  Health Plus  resells all or part of the assets and  business or utilizes
the assets sold as collateral in any debt financing.

Pursuant to a Modification  Agreement  dated August 8, 2008,  Health Plus made a
prepayment  of principal in the amount of $2,000,000  in  consideration  for the
balance of the note being  discounted by  $1,000,000.  After taking into account
the  prepayment  of  $2,000,000  and the discount of  $1,000,000,  the remaining
balance  of  $2,378,130,  was  amortized  and made  payable  over a period of 60
consecutive  months, in equal  installments of principal and interest of $47,089
each pursuant to a new replacement  promissory note,  bearing interest at a rate
of 7% per annum.

On July 31, 2007, HMCA sold its 20% equity interest in a non-consolidated entity
providing  management  services to a scanning center in the Bronx,  New York for
approximately  $600,000  and its 50% equity  interest in a  consolidated  entity
providing  management  services  to a scanning  center in  Orlando,  Florida for
approximately $4.3 million.

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

PHYSICIAN AND DIAGNOSTIC MANAGEMENT SERVICES

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

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

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

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

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

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

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

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

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

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

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

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

In the case of  contracts  with the MRI  facilities,  fees were  charged by HMCA
during fiscal 2007 based on the number of procedures  performed.  In the case of
the physical therapy and rehabilitation  practices we previously  managed,  flat
fees were  charged on a monthly  basis.  Fees were subject to  adjustment  on an
annual basis, but must be based on mutual  agreement.  The per procedure charges
to the MRI facilities  during fiscal 2007 ranged from $275 to $500 per MRI scan.
Commencing in fiscal 2008, however,  the seven MRI facilities sold to Dr. Robert
Diamond by Dr.  Raymond  Damadian  were charged a flat fee,  pursuant to the new
contracts  entered into by HMCA following the sale of said MRI facilities at the
end of  fiscal  2007.  Dr.  Diamond  has been  reading  scans  for HMCA  managed
facilities  for more than seven  years.  Fees under the new  contracts  are also
subject to adjustment on an annual basis.

As of June 22, 2007, Dr. Robert Diamond  purchased the stock of the professional
corporations  owning the eight New York sites managed by HMCA,  previously owned
by Dr. Raymond V. Damadian,  the President,  Chairman of the Board and principal
stockholder of Fonar.  In connection  with the sale,  new management  agreements
were substituted for the existing management agreements, providing, however, for
the same  management  services.  The fees in  fiscal  2008,  however,  were flat
monthly fees in the aggregate amount of $682,500 per month.

Dr.  Damadian still owns the four MRI facilities in Georgia and Florida  managed
by HMCA. No MRI facilities or other medical facilities are owned by HMCA.

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

Commencing  upon the  termination of this  agreement,  however,  we hired Health
Diagnostics,  LLC, the parent  company of Integrity,  to perform all billing and
collection  procedures for HCMA's  clients on HMCA's behalf.  HMCA has agreed to
pay 6% of all adjusted deposits for these services.

HMCA MARKETING

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

DIAGNOSTIC IMAGING FACILITIES AND OTHER ANCILLIARY SERVICES

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

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

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

HMCA COMPETITION

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

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

GOVERNMENT REGULATION APPLICABLE TO HMCA

FEDERAL REGULATION

Stark Law

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

Anti-kickback Regulation

Under the federal  Anti-kickback  statute,  which is  applicable to Medicare and
Medicaid,  it is illegal,  among other things, for a provider of 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.

In fiscal  2008,  approximately  17.3% of the  revenues of HMCA's  clients  were
attributable to Medicare and 1.8% were attributable to Medicaid. In fiscal 2007,
approximately  20.1% of the  revenues of HMCA's  clients  were  attributable  to
Medicare and 1.6% were attributable to Medicaid.  In fiscal 2006,  approximately
18.2%  of  HMCA's   revenues  were   attributable  to  Medicare  and  1.1%  were
attributable to Medicaid.

Deficit Reduction Act

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

State Regulation

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

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

HMCA's clients generate revenue from patients covered by no-fault  insurance and
workers'  compensation  programs.  For the  fiscal  year  ended  June  30,  2008
approximately  37.9% of our clients'  receipts were from patients covered by no-
fault  insurance  and  approximately  6.5% of our  client's  receipts  were from
patients covered by worker's  compensation  programs.  For the fiscal year ended
June 30,  2007,  approximately  33.1% of  HMCA's  clients'  receipts  were  from
patients covered by no-fault insurance and approximately 4.8% of HMCA's clients'
receipts were from patients covered by workers  compensation  programs.  For the
fiscal year ended June 30, 2006  approximately  43% of HMCA's clients'  receipts
were from  patients  covered by no-fault  insurance  and  approximately  4.1% of
HMCA's  clients'  receipts  were from patients  covered by workers  compensation
programs.  In the event that changes in these laws alter the fee  structures  or
methods of providing  service,  or impose additional or different  requirements,
HMCA could be required to modify its  business  practices  and  services in ways
that could be more costly to HMCA or in ways that  decrease the  revenues  which
HMCA receives from its clients.

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

EMPLOYEES

As of July 1, 2008, we employed 268 persons on a full-time and part-time  basis.
Of such  employees,  28 were engaged in marketing and sales,  36 in research and
development,   39  in  production,  43  in  customer  support  services,  37  in
administration,  including 66 on site at facilities and offices  managed by HMCA
and 19 performing transcription services for those facilities.

ITEM 2. PROPERTIES

Fonar leases approximately  117,000 square feet of office and plant space at its
principal offices in Melville,  New York and at one other locations in Melville,
New  York at a  current  aggregate  annual  rental  rate of  $958,687  excluding
utilities,  taxes  and other  related  expenses.  The term of one of the  leases
includes  options  to renew up  through  2008 and the terms of the other  leases
extend to 2013.  Management  believes  that these  premises are adequate for its
current needs. HMCA leased approximately 16,850 square feet for its headquarters
in  Melville,  New  York  but  has  vacated  the  premises  to  consolidate  its
headquarters  with those of Fonar. HMCA maintains leased office premises for its
clients having an aggregate annual rental rate of  approximately  $868,000 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.

None.

Part II

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

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

                     Fiscal Quarter             High          Low
             ------------------------------     -----        -----
             January  -  March         2006     21.25        14.25
             April    -  June          2006     20.00         6.50
             July     -  September     2006     15.50         8.25
             October  -  December      2006     12.50         9.50
             January  -  March         2007      8.75         5.00
             April    -  June          2007      7.50         4.01
             July     -  September     2007     10.00         4.20
             October  -  December      2007      8.80         5.18
             January  -  March         2008      5.45         2.38
             April    -  June          2008      4.20         2.21
             July     -  September 15, 2008      2.43         1.35

On September 15, 2008, we had approximately  4,412 stockholders of record of our
Common  Stock,  12  stockholders  of  record  of our  Class B  Common  Stock,  4
stockholders  of record of our Class C Common  Stock and 3,876  stockholders  of
record of our Class A Non-voting Preferred Stock.

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

In July,  2008 we received a notice  from NASDAQ that our common  stock would be
delisted  due to failure to hold our  annual  meeting  during  fiscal  2008.  We
appealed  and  requested a hearing  before the  Hearing  Panel  stating  that we
planned,  subject to their approval to hold a joint two-year meeting on November
17, 2008.

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

Item 6. SELECTED FINANCIAL DATA

The following selected  consolidated  financial data has been extracted from our
consolidated  financial  statements for the five years ended June 30, 2008. This
consolidated  selected  financial  data should be read in  conjunction  with our
consolidated  financial  statements  and the related notes included in Item 8 of
this form.





                                   As of and For the Periods Ended June 30,
                        2008           2007          2006           2005           2004
                   -------------  -------------  -------------  -------------  -------------
                                                                

STATEMENT OF OPERATIONS

Revenues           $ 35,569,000   $ 33,212,000   $ 33,076,000   $104,899,000   $ 71,609,000

Cost of revenues   $ 24,893,000   $ 26,660,000   $ 26,950,000   $ 67,331,000   $ 44,945,000

Research and
Development
Expenses           $  5,007,000   $  5,692,000   $  6,868,000   $  6,007,000   $  5,491,000

Net (Loss) Income  ($13,508,000)  $(25,539,000)  $(29,963,000)  $  1,014,000   ( $9,494,000)

Basic and Diluted
Net Income (Loss)
per common share
- continuing
operations          $    (2.76)    $    (5.29)    $    (6.78)    $      .23     $   (2.61)

Basic weighted
average number of
shares outstanding    4,897,997      4,830,652      4,416,125      4,063,680      3,641,118

Diluted Weighted
average number of
shares outstanding    4,897,997      4,830,652      4,416,125      4,220,228      3,641,118


BALANCE SHEET DATA

Working capital    $(15,965,000)  $ (7,566,000)  $ 14,237,000   $ 36,224,000   $ 22,593,000

Total Assets       $ 35,226,000   $ 41,210,000   $ 57,230,000   $ 76,094,000   $ 77,201,000

Long-term debt
and obligations
under capital
leases (1)         $  1,130,000   $  1,213,000   $  1,406,000   $  1,392,000   $  6,702,000

Stock holder's
(deficiency) equity($4,245,000)   $  8,898,000   $ 30,419,000   $ 51,869,000   $ 43,154,000



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

INTRODUCTION.

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

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

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

HMCA commenced  operations in July,  1997 and generates  revenues from providing
comprehensive  management  services,   including  development,   administration,
accounting, billing and collection services, together with office space, medical
equipment,  supplies and non-medical  personnel to its clients.  Revenues are in
the form of fees  which are  earned  under  contracts  with MRI  facilities  and
physical rehabilitation practices. Since April 2003, HMCA has not engaged in the
management of primary care medical practices.  Since July 2005, HMCA has engaged
only in the  management  of MRI  facilities,  having  sold  the  portion  of its
business  engaged in the  management  of  physical  therapy  and  rehabilitation
practices.

For the  fiscal  years  ended  June 30,  2008,  June 30,  2007,  30.8% and 100%,
respectively, of HMCA's revenues were derived from contracts with 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 for fiscal 2007 were based on the number of  procedures  performed  and
ranged  from $275 to $500 per MRI scan.  Commencing  with fiscal  2008,  the MRI
facilities  were  charged a flat fee,  pursuant  to new  contracts  executed  in
connection  with the sale of the MRI facilities by Dr.  Raymond  Damadian to Dr.
Robert  Diamond  at the end of fiscal  2007.  The fees will be  reviewed  and if
appropriate, adjusted on an annual basis by mutual agreement.

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

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

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

We record a valuation  allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized.  As of June 30, 2008, we recorded a
valuation  allowance which reduced our deferred tax assets to equal our deferred
tax liability.

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

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

RESULTS OF OPERATIONS. FISCAL 2008 COMPARED TO FISCAL 2007

In fiscal 2008, we  experienced a net loss of $13.5 million on revenues of $35.6
million, as compared to a net loss of $25.5 million on revenues of $33.2 million
for fiscal 2007.  This  represents an increase in revenues of 7.1%. This was due
mostly to increased unrelated party sales and service revenues,  which increased
by 2.0% and 10.0% respectively.  Related party product sales and management fees
decreased by 100% and 69.0% respectively.  In addition,  total cost and expenses
decreased by 10.5%. In fiscal 2007 and the beginning of fiscal 2008 we have made
significant  cuts to reduce  losses and  negative  cash flow.  Our  consolidated
operating results improved by $8.6 million to an operating loss of $16.9 million
for fiscal  2008 as compared to an  operating  loss of $25.5  million for fiscal
2007.

Discussion of Operating Results of Medical Equipment Segment
Fiscal 2008 Compared to Fiscal 2007
------------------------------------------------------------

Revenues  attributable to our medical  equipment  segment  increased by 10.6% to
$23.5  million in fiscal 2008 from $21.3  million in fiscal  2007,  with product
sales  revenues  remaining  constant at $11.3  million in fiscal 2007 and fiscal
2008, but service revenue increasing by 10.2%, from $10.0 million in fiscal 2007
to $11.0 million in fiscal 2008.  This increase in revenues was  attributable to
an increase in sales of our  Upright(R)  MRI to unrelated  parties and increased
service  revenues,  notwithstanding  the  decrease in related  party  sales.  We
attribute the lower sales volumes in fiscal 2007 and 2008 primarily to a concern
on the part of potential  customers about MRI scan  reimbursements  from medical
insurance,  no-fault  insurance,  worker's  compensation  and  Federal and State
programs,  most significantly Medicare and Medicaid.  Even in our own management
of MRI  facilities by HMCA,  we have noticed an increasing  resistance to paying
claims by  insurers.  Also of  concern  is the  Deficit  Reduction  Act which is
reducing Medicare funding available for MRI imaging.

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

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

The increase in service  revenue is a result  primarily of our increase  scanner
base,  as scanners sold in previous  years become  service  customers  after the
warranty period expires.

Product sales to unrelated  parties  increased by 2.0% in fiscal 2008 from $11.1
million in fiscal 2007 to $11.3 million in fiscal 2008. Product sales to related
parties  decreased by 100% in fiscal 2008 from  $152,000 in fiscal 2007 to $0 in
fiscal 2008.

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

We believe that our aggregate  product sales to unrelated  parties of Upright(R)
Scanners shows that we are successfully meeting that challenge.

The operating results for the medical equipment segment improved by $8.1 million
from a loss of $22.2 million in fiscal 2007 to a loss of $14.1 million in fiscal
2008. This  improvement is  attributable  most  significantly  to an increase in
service revenue and to an increase in our scanner sales.

We  recognized  revenues of $11.2  million from the sale of our  Upright(R)  MRI
scanners in fiscal 2008. In fiscal 2007, we recognized revenues of $11.0 million
from the sale of Upright(R) MRI scanners.

Sales  of  MRI  scanners  to  related   parties,   consisting  of   professional
corporations  and other entities in which Dr. Damadian or members  of his family
have an interest,  represented  none of our revenues in fiscal 2008, as compared
to 0.5%, or $152,000,  of our revenues in fiscal 2006. We believe concerns about
payor  reimbursements  adversely  affected  these  sales  as  well as  sales  to
unrelated parties.

License and royalty revenue in fiscal 2008 increased to $1.2 million as compared
to $0 in fiscal 2007.

Research and development expenses, net of capitalized costs, decreased by 12% to
$5.0  million in fiscal  2008 as compared to $5.7  million in fiscal  2007.  Our
expenses  for fiscal 2008  represented  continued  research and  development  of
Fonar's scanners,  Fonar's new hardware and software  product,  Sympulse(TM) and
new surface coils to be used with the Stand-Up(R) MRI scanner.


Discussion of Operating Results of Physician and Diagnostic Services Management
Segment.
Fiscal 2008 Compared to Fiscal 2007
-------------------------------------------------------------------------------

Revenues  attributable  to  the  Company's  physician  and  diagnostic  services
management segment, HMCA, increased by 0.8% to $12.0 million in fiscal 2008 from
$11.9  million in fiscal  2007.  The  increase in revenues  reflects a change in
management  fees charged from a per  procedure  charge to a flat fee on 7 of the
MRI centers.  This was offset by a reduction of income in the MRI center located
in Orlando,  Florida in which HMCA sold its  partnership  interest in July 2007.
HMCA manages only MRI facilities.  Presently, 9 of the 10 MRI facilities managed
by HMCA have Upright(R) MRI scanners and additional upgrades are planned.

Cost of revenues as a percentage  of the related  revenues for our physician and
diagnostic  services  management segment decreased from $9.0 million or 75.2% of
related  revenues for the year ended June 30, 2007 to $8.6 million,  or 71.3% of
related  revenue  for the year  ended  June 30,  2008.  This  resulted  from our
inability to benefit from reduced  costs per scanner that would have resulted if
there had been a higher volume of sales in fiscal 2008.

Operating  results  of this  segment  improved  from an  operating  loss of $3.2
million in fiscal 2007 to  operating  loss of $2.8  million in fiscal  2008.  We
attribute the  improvement to a slight increase in revenue along with a decrease
in our cost of revenues.

Discussion of Certain Consolidated Results of Operations
Fiscal 2008 Compared to Fiscal 2007
--------------------------------------------------------

Interest and investment income decreased in 2008 compared to 2007. We recognized
interest  income of $728,711  in 2008 as  compared  to $819,637 in fiscal  2007,
representing an decrease of 11.1%.

Interest  expense of $535,322  was  recognized  in fiscal  2008,  as compared to
$279,912 in fiscal 2007, representing an increase of 91.2%.

Notwithstanding   that  revenue   increased  by  7.1%,   selling,   general  and
administrative expenses, decreased by 15.7% to $20.4 million in fiscal 2008 from
$24.2 million in fiscal 2007.

Compensatory  element  of stock  issuances  also  decreased  from  approximately
$121,000 in fiscal 2007 to $370 in fiscal 2008. This reflected  Fonar's decision
not to use its  stock  bonus  plans to pay  employees  and  others,  in order to
prevent dilution of its outstanding stock.

The higher  provision for bad debt of $2.2 million in fiscal 2008 as compared to
$2.0  million in fiscal  2007,  reflected  an  increase  in  reserves of certain
indebtedness by our physician and diagnostic services management segment.

Service  and repair  fees also have  steadily  increased,  as  reflected  by the
increase  in service  and repair  fees from $2.5  million in fiscal 2003 to $3.2
million in fiscal 2004 to $5.8  million in fiscal 2005 to $8.6 million in fiscal
2006 to $10.0 million in fiscal 2007 and to $11.0 million in fiscal 2008.

Continuing  our  tradition  as the  originator  of MRI, we remain  committed  to
maintaining  our  position  as the leading  innovator  of the  industry  through
aggressive  investing in research and  development.  In fiscal 2008 we continued
our  investment  in the  development  of our new  MRI  scanners,  together  with
software  and  upgrades,  with an  investment  of  $5,463,963  in  research  and
development,  $457,372 of which was  capitalized,  as  compared  to  $6,328,265,
$636,167 of which was capitalized,  in fiscal 2007. The research and development
expenditures were  approximately  23.2% of revenues  attributable to our medical
equipment  segment,  and 15.4% of total  revenues,  in 2008 and 29.8% of medical
equipment  segment  revenues,  and 19.1% of total revenues in fiscal 2007.  This
represented a 13.7% decrease in research and development  expenditures in fiscal
2008 as compared to fiscal 2007.

The  physician  and  diagnostic  services  management  segment,  HMCA,  revenues
decreased, from $13.4 million in fiscal 2006 to $11.9 in fiscal 2007 and then to
$12.0  million in fiscal  2008.  This is primarily  attributable  to the sale of
HMCA's physical therapy and rehabilitation  facility management business,  which
had generated revenues of $9.7 million in fiscal 2005.

We have been  taking  steps to improve  HMCA  revenues  by closing  unprofitable
facilities  and  continuing our program of replacing the MRI scanners at the MRI
facilities  we manage with  Upright(R)  MRI scanners and opening new  facilities
equipped with Upright(R) MRI scanners.

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

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

The first twelve  installments were interest only and the remaining 108 payments
were to consist of equal installments of principal and interest in the amount of
$76,014  each.  The note was  secured  by a first  lien on all of the  assets of
Health  Plus,  including  its  accounts  receivable.  The  note was  subject  to
prepayment  provisions  to the extent  Health  Plus  resells  all or part of the
assets and  business  or  utilizes  the assets  sold as  collateral  in any debt
financing.

Pursuant to a Modification  Agreement  dated August 8, 2008,  Health Plus made a
prepayment  of  $2,000,000  on the note and received a discount of $1,000,000 in
return. A new note was executed for the balance of the  indebtedness  remaining,
in the amount of  $2,378,130.25,  providing  for 60  consecutive  equal  monthly
payments of principal and interest of $47,089.83  each.  The security  agreement
and the mandatory prepayment provisions applicable to the original note are also
applicable to the replacement note.

HMCA had  recognized  revenue  from  the  management  of  physical  therapy  and
rehabilitation  facilities of approximately $9.7 million during both fiscal 2005
and 2004,  but only  $648,000 in fiscal 2006 due to the sale of this  portion of
HMCA's business in July, 2005. In fiscal 2007 and 2008, HMCA received no revenue
from the  physical  therapy  and  rehabilitation  business.  HMCA  recognized  a
diminimus  loss during the quarter ended  September 30, 2005. In addition,  HMCA
recorded a one time charge to earnings  during the quarter  ended  September 30,
2005 of $1.6 million related to the  termination of the employment  contracts of
the two principal individuals involved in the management of the physical therapy
and rehabilitation facilities.

RESULTS OF OPERATIONS. FISCAL 2007 COMPARED TO FISCAL 2006

In fiscal 2007,  we  experienced  net loss of $25.5 million on revenues of $33.2
million, as compared to a net loss of $30.0 million on revenues of $33.1 million
for fiscal 2006. This  represented an increase in revenues of 0.4%. This was due
mostly to increased unrelated product sales and service revenues which increased
by 36.1% and 19.8% respectively. Related party product sales and management fees
decreased by 94.9% and 10.7% respectively.  In addition, total cost and expenses
decreased  by only 6.6%.  We were  reluctant  at the time to make  drastic  cuts
because we  anticipated  that our sales  results  would improve and we wanted to
maintain our manufacturing capacity. Our consolidated operating results improved
by $4.2  million  to an  operating  loss of $25.5  million  for  fiscal  2007 as
compared to an operating loss of $29.7 million for fiscal 2006.

Discussion  of  Operating  Results  of Medical  Equipment  Segment  Fiscal  2007
Compared to Fiscal 2006
--------------------------------------------------------------------------------

Revenues  attributable  to our medical  equipment  segment  increased by 7.9% to
$21.3  million in fiscal 2007 from $19.7  million in fiscal 2006,  reflecting an
increase in product sales revenues of 1.0%, from $11.1 million in fiscal 2006 to
$11.3 million in fiscal 2007 and an increase in service  revenue of 16.9%,  from
$8.6  million in fiscal 2006 to $10.0  million in fiscal  2007.  This decline in
revenues was  attributable  to a reduction in sales of our  Upright(R)  MRI. The
increase in service  revenue was a result  primarily  of our  increased  scanner
base,  as scanners sold in previous  years became  service  customers  after the
warranty period expired.

Product sales to unrelated  parties  increased by 36.1% in fiscal 2007 from $8.2
million in fiscal 2006 to $11.1 million in fiscal 2007. Product sales to related
parties  decreased  by 94.9% in fiscal 2007 from $3.0  million in fiscal 2006 to
$152,000 in fiscal 2007.

The operating results for the medical equipment segment improved by $2.5 million
from a loss of $24.7 million in fiscal 2006 to a loss of $22.2 million in fiscal
2007. This  improvement was  attributable  most  significantly to an increase in
service of revenue and an increase in our scanner sales.

We  recognized  revenues of $11.0  million from the sale of our  Upright(R)  MRI
scanners in fiscal 2007. In fiscal 2006, we recognized revenues of $10.5 million
from the sale of  Upright(R)  MRI scanners and the balance of $383,589  from the
sale of our first Fonar 360(TM) MRI Scanner.

Sales  of  MRI  scanners  to  related   parties,   consisting  of   professional
corporations  and other entities in which Dr.  Damadian or members of his family
have an interest represented approximately 0.5%, or $152,000, of our revenues in
fiscal 2007,  as compared to 9.0%,  or $3.0  million,  of our revenues in fiscal
2006.

We had no license and royalty revenue in fiscal 2007 and fiscal 2006.

Research and development expenses,  net of capitalized costs, decreased by 17.1%
to $5.7 million in fiscal 2007 as compared to $6.9  million in fiscal 2006.  Our
expenses  for fiscal 2007  represented  continued  research and  development  of
Fonar's scanners, Fonar's new hardware and software product, Sympulse(R) and new
surface coils to be used with the Upright(R) MRI scanner.

Discussion of Operating Results of Physician and Diagnostic Services Management
Segment.
Fiscal 2007 Compared to Fiscal 2006
-------------------------------------------------------------------------------

Revenues  attributable  to  the  Company's  physician  and  diagnostic  services
management  segment,  HMCA,  decreased by 10.7% to $11.9  million in fiscal 2007
from $13.4 million in fiscal 2006.

The  decrease  in revenues  reflected  decreases  resulting  from sale of HMCA's
physical therapy and  rehabilitation  facility  management  business and delayed
collections. Following the sale, HMCA managed only MRI facilities.

Cost of revenues as a percentage  of the related  revenues for our physician and
diagnostic  services  management segment increased from $9.4 million or 70.4% of
related  revenues for the year ended June 30, 2006 to $9.0 million,  or 75.2% of
related  revenue  for the year  ended  June 30,  2007.  This  resulted  from our
inability to benefit from reduced  costs per scanner that would have resulted if
there had been a higher volume of sales in fiscal 2007.

Operating  results  of this  segment  declined  from an  operating  loss of $5.0
million in fiscal 2006 to an operating  loss of $3.2 million in fiscal 2007.  We
attributed the decline to HMCA's sale of its physical therapy and rehabilitation
facility management business.

Discussion of Certain Consolidated Results of Operations
Fiscal 2007 Compared to Fiscal 2006
--------------------------------------------------------

We  recognized  interest  income of  $819,637 in 2007 as compared to $809,691 in
fiscal 2006, representing an increase of 1.2%.

Interest  expense of $279,912  was  recognized  in fiscal 2007  increasing  from
$281,903 in fiscal 2006 and  representing  a increase of 0.7%.  The increase was
attributable primarily to new capital lease obligations.

Notwithstanding   that  revenue   decreased  by  0.4%,   selling,   general  and
administrative  expenses,  exclusive of compensatory element of stock issuances,
increased by 0.9% to $24.2  million in fiscal 2007 from $24.0  million in fiscal
2006.

The decrease in compensatory  element of stock issuances from approximately $1.9
million in fiscal 2006 to $121,000 in fiscal 2007  reflected  the  continued but
reduced  use of Fonar's  stock bonus  plans to pay  certain  highly  compensated
employees and others in stock rather than in cash.

The higher  provision for bad debt of $2.0 million in fiscal 2007 as compared to
$1.5 million in fiscal 2006, reflected an increase in reserves and write-offs of
certain  indebtedness  by  our  physician  and  diagnostic  services  management
segment.

Service and repair fees also increased,  as reflected by the increase in service
and repair fees from $2.2  million in fiscal 2002 to $2.5 million in fiscal 2003
to $3.2 million in fiscal 2004 to $5.8 million in fiscal 2005 to $8.6 million in
fiscal 2006 and $10.0 million in fiscal 2007.

In  fiscal  2007 we  continued  our  investment  in the  development  of our MRI
scanners,  together with software and upgrades, with an investment of $6,328,265
in research and development,  $636,167 of which was capitalized,  as compared to
$7,581,898,  $714,253 of which was capitalized, in fiscal 2006. The research and
development  expenditures were approximately  29.8% of revenues  attributable to
our medical equipment segment, and 19.1% of total revenues, in 2007 and 38.5% of
medical equipment segment revenues,  and 22.9% of total revenues in fiscal 2006.
This  represented a 17.1% decrease in research and  development  expenditures in
fiscal 2007 as compared to fiscal 2006.

The  physician  and  diagnostic  services  management  segment,  HMCA,  revenues
decreased  from $13.4  million in fiscal 2006 to $11.9  million in fiscal  2007.
This  was  primarily  attributable  to the  sale by HMCA of the  portion  of its
business  engaged in the  management  of  physical  therapy  and  rehabilitation
facilities in July of 2005 to Health Plus Management Services, L.L.C.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash  equivalents and marketable  securities  decreased by 30.6% from $3.4
million at June 30, 2007 to $2.4 million at June 30, 2008.

Marketable securities approximated $1.1 million as of June 30, 2008, as compared
to $2.0  million  as of June  30,  2007.  At June 30,  2008,  we  decreased  our
investments in U.S. Government  obligations from approximately  $539,000 at June
30, 2007 to  approximately  $0,  decreased  our  investments  in  corporate  and
government  agency  bonds from  approximately  $1.3  million at June 30, 2007 to
approximately  $1.0 million and decreased our  investments  in  certificates  of
deposits, notes and equivalents from $96,000 at June 30, 2007 to $0.

Cash used in operating  activities  for fiscal 2008  approximated  $4.7 million.
Cash used in operating activities was attributable substantially to the net loss
of $13.5  million and an increase  in customer  advances of $4.2  million and an
increase in billings in excess of costs and  estimated  earnings on  uncompleted
contracts of $2.3 million,  offset by an increase in accounts and management fee
receivable of $2.9 million.

Cash provided by investing activities for fiscal 2008 approximated $4.6 million.
The principal uses of cash from investing  activities were purchases of property
and equipment of $366,000, costs of capitalized software development of $457,000
and costs of patents and  copyrights of $230,000.  The principal  source of cash
provided by investing  activities was the proceeds of approximately $4.1 million
from the sale of a consolidated subsidiary.

Cash used in financing  activities  for fiscal 2008  approximated  $82,000.  The
principal  sources of cash in financing  activities  were proceeds from the long
term  debt of  $265,000  and  proceeds  of  $130,000  from  repayment  of  notes
receivable from employee stockholders, offset by the repayment of borrowings and
capital lease  obligations of $349,000 and  distributions to holders of minority
interests of $128,000.

Total  liabilities  increased by 23.7% during  fiscal 2008,  from  approximately
$31.8 million at June 30, 2007 to approximately  $39.3 million at June 30, 2008.
The increase in total liabilities  reflected principally an increase in billings
in excess of costs and estimated earnings on uncompleted contracts of 65.9% from
$3.5 million at June 30, 2007 to $5.8 million at June 30, 2008 and a increase in
customer  advances of 27.5% from $10.0 million at June 30, 2007 to $12.8 million
at June 30, 2008, resulting from our increased backlog.

Our  contractual  obligations  and the  periods in which they are  scheduled  to
become due are set forth in the following table:


Contractual                  Due in Less    Due in       Due in      Due after
Obligation         Total     than 1 Year   1-3 years    4-5 years     5 years
--------------  -----------  -----------  -----------  -----------  -----------
Long-term debt  $   705,855  $   173,050  $      -     $      -     $   532,805

Capital lease
Obligation      $   423,844  $   199,673  $   220,037  $     4,134  $      -

Operating
  leases        $ 6,143,282  $ 2,009,654  $ 1,899,953  $ 1,599,159  $   634,516
                -----------  -----------  -----------  -----------  -----------
Total cash
Obligations     $ 7,272,981  $ 2,382,377  $ 2,119,990  $ 1,603,293  $ 1,167,321
                ===========  ===========  ===========  ===========  ===========

As at June 30, 2008,  our  obligations  included  approximately  $2.5 million in
various state sales taxes.

At June 30, 2008,  however,  we had a working capital  deficit of  approximately
$16.0 million as compared to a working  capital  deficit of $7.6 million at June
30,  2007 and a  stockholders'  deficiency  of 44.2  million at June 30, 2008 as
compared to a  stockholders'  equity of $8.9 million at June 30,  2007.  For the
year  ended  June 30,  2008,  we  incurred  a net loss of $13.5  million,  which
included non-cash charges of approximately $5.9 million.

Our  principal  source of liquidity has been derived from  revenues,  as well as
cash provided by previous debt and equity financing.  In addition we have funded
our cash flow  deficit  for fiscal  2008  through  cash  provided by the sale of
marketable securities, other assets and debt financing.

In July 2007, we sold our 50% interest in a consolidated  subsidiary and our 20%
interest  in  a   non-consolidated   subsidiary,   and   received   proceeds  of
approximately $4.8 million.

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

In August 2008, the Company  entered into a modification  agreement with regards
to the asset purchase agreement with Health Plus Management  Services,  LLC. The
Company received a $2,000,000 payment on the note issued by Health Plus.

Our business plan includes an aggressive  program for  manufacturing and selling
our  Upright(R)  MRI  scanners.  In addition,  we are  enhancing  our revenue by
participating  in the  physician and  diagnostic  services  management  business
through our subsidiary,  HMCA and are upgrading the facilities which it manages,
most  significantly  by the  replacement  of  existing  MRI  scanners  with  new
Upright(R) MRI scanners.  Presently, of the 10 MRI facilities managed by HMCA, 9
are equipped with Upright(R) MRI scanners.

Our  business  plan also  calls  for a  continuing  emphasis  on  providing  our
customers  with enhanced  equipment  service and  maintenance  capabilities  and
delivering  state-of-the-art,  innovative and high quality equipment upgrades at
competitive prices. Fees for on-going service and maintenance from our installed
base of scanners  were $10.0  million for the year ended June 30, 2007 and $11.0
million for the year ended June 30, 2008.

In order to reduce  our net  losses  and  demands  on our cash and other  liquid
reserves,  we  instituted  an  aggressive  program  of cost  cutting  during and
following the end of fiscal 2008. These measures included  consolidating  HMCA's
office space with Fonar's office space, reductions in the size of our workforce,
compensation  and benefits,  as well as across the board  reduction of expenses.
The cost  reductions  were  intended  to enable us to  withstand  periods of low
volumes of MRI scanner  sales,  such as we have  experienced  in fiscal 2007 and
2008, by keeping expenditures at levels which, if necessary, can be supported by
service  revenues  and HMCA  revenues.  The  effect  of these  measures  will be
reflected  for the  most  part in  fiscal  2009  and are for the  most  part not
reflected  in the  results  for fiscal 2008 and  estimates  that the  annualized
savings related to these cost-cutting  measures  approximates $5 million. We are
also seeking equity and debt financing and have been engaged in discussions with
several possible sources.

Although  sales levels  remained weak in fiscal 2008, we are continuing to focus
our efforts on increased  advertising and marketing campaigns,  and distribution
programs to  strengthen  the demand for our  products and  services.  Management
anticipates  that Fonar's capital  resources will improve if Fonar's MRI scanner
products gain wider market  recognition  and  acceptance  resulting in increased
product sales. If we are not successful  with our marketing  efforts to increase
sales and weak demand continues,  we will experience a shortfall in cash, and it
will be necessary  to further  reduce  operating  expenses in a manner or obtain
funds through equity or debt  financing in sufficient  amounts to avoid the need
to curtail our operations  subsequent to June 30, 2009.  Current economic credit
conditions  have  contributed  to a slowing  business  environment.  Given  such
liquidity and credit constraints in the markets, the business may suffer, should
the credit  markets not improve in the near future.  The direct  impact of these
conditions is not fully known. However,  there can be no assurance that we would
be able to  secure  additional  funds  if  needed  and that if such  funds  were
available,  whether the terms or  conditions  would be acceptable to us. In such
case, the reduction in operating  expenses might need to be substantial in order
for us to generate positive cash flow to sustain our operations.

If we are unable to meet expenditures with revenues or financing then it will be
necessary to reduce expenses further, or seek other sources of funds through the
issuance  of debt or equity  financing  in order to  conduct  operations  as now
conducted subsequent to fiscal 2009.

Capital expenditures for fiscal 2008 approximated $367,000. Capitalized software
costs were $457,000, and capitalized patent costs were $230,000.

Fonar has not committed to making capital  expenditures  in the 2009 fiscal year
other  than its plans to  continue  research  and  development  expenditures  at
current  levels.  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 our 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 we invest extend beyond June 30, 2010.  Below is a tabular
presentation of the maturity profile of the fixed rate instruments held by us at
June 30, 2008.

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

                            Investments
                            in Fixed Rate    Weighted Average
                  Date      Instruments      Interest Rate
                 -------    -------------    ----------------
                 6/30/09     $   300,000          3.84%
                 6/30/10     $   800,000          2.56%
                             -----------
             Total:          $ 1,100,000

             Fair Value
             at 6/30/08      $ 1,040,085

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

See Note 12 to the  consolidated  Financial  Statements for information on long-
term debt.


Item 8.

                             FINANCIAL STATEMENTS

                      FONAR CORPORATION AND SUBSIDIARIES

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                            Page No.
                                                            -------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS
  At June 30, 2008 and 2007

CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Three Years Ended June 30, 2008, 2007 and 2006

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
  For the Three Years Ended June 30, 2008, 2007 and 2006

CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Three Years Ended June 30, 2008, 2007 and 2006

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
FONAR Corporation and Subsidiaries

We  have  audited  the  accompanying   consolidated   balance  sheets  of  FONAR
Corporation and  Subsidiaries  (the "Company") as of June 30, 2008 and 2007, and
the   related    consolidated    statements   of    operations,    stockholders'
(deficiency)/equity  and cash  flows for each of the three  years in the  period
ended June 30, 2008. These financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of FONAR
Corporation  and  Subsidiaries  at June 30, 2008 and 2007, and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended June 30, 2008, in conformity with accounting  principles  generally
accepted in the United States of America.

During each of the three years in the period ended June 30, 2008, a  significant
portion of the Company's revenues was from related parties.

/s/ Marcum & Kliegman LLP

Marcum & Kliegman LLP
New York, New York
October 6, 2008



                       FONAR CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS
                                     ------

                                                               June 30,
                                                      --------------------------
                                                          2008           2007
                                                      ------------  ------------


Current Assets:
  Cash and cash equivalents                           $ 1,325,512   $ 1,469,821
  Marketable securities                                 1,068,168     1,979,309
  Accounts receivable - net of allowances for
    doubtful accounts of $1,401,028 and $1,306,209
    at June 30, 2008 and 2007, respectively             4,688,803     3,527,699
  Accounts receivable - related parties - net of
    allowances for doubtful accounts of
    $619,180 and $646,621 at June 30, 2008 and
  2007,  respectively                                     468,791       444,541
  Medical receivables - net of allowances for
    doubtful accounts of $769,000 and $190,000
    at June 30, 2008 and 2007, respectively             1,227,858     2,781,014
  Management fee receivable - net of allowances for
    doubtful accounts of $3,958,733 and $2,110,306
    at June 30, 2008 and 2007, respectively             5,040,523     5,095,280
  Management fee receivable - related medical
    practices - net of allowances for doubtful
    accounts of $2,413,483 and $2,093,180 at
    June 30, 2008 and 2007, respectively                1,372,261     1,354,185
  Costs and estimated earnings in excess of
    billings on uncompleted contracts                       6,285          -
  Inventories                                           3,255,915     4,465,924
  Current portion of advances and notes to related
    medical practices                                     214,004       215,832
  Current portion of note receivable less discount
    for below market interest                           2,508,306       578,823
  Prepaid expenses and other current assets               810,772     1,103,349
                                                      ------------  ------------
      Total Current Assets                             21,987,198    23,015,777

Property and Equipment - Net                            3,932,533     5,159,085

Advances and Notes to Related Medical Practices -
  net of allowances for doubtful accounts of
  $264,791 and $364,791 at June 30, 2008
  and 2007, respectively                                  263,363       473,822

Notes Receivable less discount for below market
interest - net of allowance for doubtful
accounts of $65,000 and $0 at June 30, 2008 and
  2007, respectively                                    2,296,560     5,527,845

Other Intangible Assets - Net                           4,809,564     5,345,445

Other Assets                                            1,936,415     1,688,201
                                                      ------------  ------------
      Total Assets                                    $35,225,633   $41,210,175
                                                      ============  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                                   LIABILITIES
                                   -----------
                                                              June 30,
                                                      --------------------------
                                                          2008          2007
                                                      ------------  ------------
Current Liabilities:
  Current portion of long-term debt and capital
    leases                                            $   372,722   $   257,639
  Accounts payable                                      4,019,993     3,939,797
  Other current liabilities                             8,316,263     7,755,392
  Unearned revenue on service contracts                 4,732,061     4,606,867
  Unearned revenue on service contracts -
    related parties                                       461,584       460,422
  Customer advances                                    12,804,311    10,039,072
  Customer advances - related party                     1,472,000        41,566
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                   5,773,286     3,480,689

                                                      ------------  ------------
      Total Current Liabilities                        37,952,220   30,581,444
                                                      ------------  ------------
Long-Term Liabilities:
  Due to related medical practices                         97,663        92,663
  Long-term debt and capital leases, less
    Current portion                                       756,976       955,563
  Other liabilities                                       496,837       150,539
                                                      ------------  ------------
      Total Long-Term Liabilities                       1,351,476     1,198,765
                                                      ------------  ------------
      Total Liabilities                                39,303,696    31,780,209
                                                      ------------  ------------
Commitments, Contingencies and Other Matters

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                        STOCKHOLDERS' (DEFICIENCY) EQUITY
                        ---------------------------------

                                                              June 30,
                                                      --------------------------
                                                          2008          2007
                                                      ------------  ------------
Minority Interest                                     $   166,966   $   531,938
                                                      ------------  ------------
Stockholders' (Deficiency) Equity:
  Class A non-voting preferred stock - $.0001
    par value; authorized - 1,600,000 shares;
    issued and outstanding - 313,451 shares
    at June 30, 2008 and 2007                                  31            31
  Preferred stock - $.001 par value;
    authorized - 2,000,000 shares; issued
    and outstanding - none                                   -             -
  Common stock - $.0001 par value; authorized -
    30,000,000 shares at
    June 30, 2008 and 2007, respectively;
    issued - 4,915,918 and 4,885,850 shares
    at June 30, 2008 and 2007, respectively;
    outstanding - 4,904,275 and 4,874,207
    shares at June 30, 2008 and 2007, respectively            490           487
  Class B common stock (10 votes per share) -
    $.0001 par value; authorized - 800,000
    shares; issued and outstanding - 158
shares at June 30, 2008 and 2007                             -             -
  Class C common stock (25 votes per share) -
$.0001 par value; authorized - 2,000,000
    shares; issued and outstanding - 382,513
    shares at June 30, 2008 and 2007                           38            38
  Paid-in capital in excess of par value              172,276,540   172,071,727
  Accumulated other comprehensive loss                    (72,723)     (103,604)
  Accumulated deficit                                (175,379,874) (161,871,507)
  Notes receivable from employee stockholders            (394,141)     (523,754)
  Treasury stock, at cost - 11,643 shares
    of common stock at June 30, 2008 and 2007            (675,390)     (675,390)
                                                      ------------  ------------
      Total Stockholders' (Deficiency) Equity          (4,245,029)    8,898,028
                                                      ------------  ------------
      Total Liabilities and Stockholders'
        (Deficiency) Equity                           $35,225,633   $41,210,175
                                                      ============  ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                       For the Years Ended June 30,
                                              -----------------------------------------
                                                   2008         2007          2006
                                              ------------- ------------- -------------
                                                                 
Revenues
  Product sales - net                         $ 11,326,388  $ 11,103,374  $  8,161,158
  Product sales - related parties - net               -          152,237     2,983,281
  Service and repair fees - net                  9,992,413     9,081,043     7,581,674
  Service and repair fees - related
    parties - net                                1,047,918       933,335       981,942
  Management and other fees                      8,337,000          -          647,999
  Management and other fees - related
    medical practices - net                      3,706,636    11,941,943    12,720,275
  License fees and royalties                     1,158,478        -             -
                                              ------------- ------------- -------------
      Total Revenues - Net                      35,568,833    33,211,932    33,076,329
                                              ------------- ------------- -------------
Costs and Expenses
  Costs related to product sales                11,143,826    12,267,225     9,132,140
  Costs related to product sales - related
    parties                                           -          155,618     2,820,472
  Costs related to service and repair fees       4,669,508     4,767,790     4,948,870
  Costs related to service and repair fees
    - related parties                              489,698       490,026       640,954
  Costs related to management and other fees     5,548,605          -          527,392
  Costs related to management and other fees
    - related medical practices                  3,041,828     8,979,821     8,879,688
  Research and development                       5,006,591     5,692,098     6,867,645
  Selling, general and administrative,
    inclusive of compensatory element of stock
    issuances of $360, $120,818, and
    $1,895,462 for the years ended June 30,
    2008, 2007 and 2006, respectively           20,386,748    24,309,803    25,873,719
  Provision for bad debts                        2,208,820     2,002,122     1,472,635
  Termination costs paid with common stock           -             -         1,600,000
  Amortization of management agreements              -             -            37,300
                                              ------------- ------------- -------------
      Total Costs and Expenses                  52,495,624    58,664,503    62,800,815
                                              ------------- ------------- -------------
      Loss from Operations                     (16,926,791)  (25,452,571)  (29,724,486)

Other Income and (Expenses):
  Interest expense                                (535,322)     (279,912)     (281,903)
  Investment income                                694,910       777,628       796,517
  Interest income - related parties                 33,801        42,009        13,174
  Other income - net                               129,368       289,929       327,000
  Minority interests in income of partnerships  (  219,058)   (  915,950)   (1,039,625)
  Gain on sale of investment                       571,161          -            -
  Gain on sale of consolidated subsidiary        3,394,975          -            -
  Loss on note receivable                       (  658,351)         -            -
                                              ------------- ------------- -------------
      Loss Before (Benefit from) Provision
        for Income Taxes                       (13,515,307)  (25,538,867)  (29,909,323)

(Benefit from) Provision for Income Taxes           (6,940)         -           54,034
                                              ------------- ------------- -------------
       Net Loss                               $(13,508,367) $(25,538,867) $(29,963,357)
                                              ============= ============= =============
Basic and Diluted Loss Per Common Share           $(2.76)       $(5.29)        $(6.78)
Weighted Average Number of Common                 =======       =======        =======
  Shares Outstanding
                                                 4,897,997     4,830,652     4,416,125
                                                 =========     =========     =========


See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2008

                                             Class A
                                           Non-Voting            Common Stock
                                            Preferred       --------------------
                                             Stock            shares     Amount
                                           ----------       ---------   --------
Balance  -  June  30,  2007                 $     31        4,874,207   $  487

Net loss                                         -               -         -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax                  -               -         -
Stock issued to employees under
  stock bonus plans                              -                 68      -
Issuance of stock for goods and services         -             30,000         3
Payments on notes receivable
  from employee stockholders                     -               -          -
                                           ----------       ---------    -------

Balance - June 30, 2008                     $      31       4,904,275    $  490
                                           ==========       =========    =======

See accompanying notes to consolidated financial statements.


                      FONAR CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
                       FOR THE YEAR ENDED JUNE 30, 2008


                                                                       Paid-in
                                             Class B     Class C     Capital in
                                             Common      Common      Excess of
                                             Stock       Stock       Par Value
                                             -------     -------    ------------
                                             Shares
                                             ------
Balance - June 30, 2007                        158        $  38     $172,071,727

Net loss                                      -             -               -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    During the year, net of tax                -            -               -
Stock issued to employees under stock
    bonus plans                                -            -                360
Issuance of stock for goods and services       -            -            204,453
Payments on notes receivable from
  employee stockholders                        -            -               -
                                             -------     -------    ------------
Balance - June 30, 2008                         158       $  38     $172,276,540
                                             =======     =======    ============

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2008

                                                     Notes
                                                     Receivable    Accumulated
                                                     From          Other
                                          Treasury   Employee      Comprehensive
                                            Stock    Stockholders  Loss
                                         ----------  ------------  -------------
Balance - June 30, 2007                  $(675,390)  $  (523,754)   $ (103,604)

Net loss                                      -             -             -

Other comprehensive loss, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax               -             -            30,881
Stock issued to employees under
    stock bonus plans                         -             -              -
Issuance of stock for goods and services      -             -              -
Payments on notes receivable from
    employee stockholders                     -          129,613           -
                                         ----------  ------------  -------------
Balance - June 30, 2008                  $(675,390)  $  (394,141)  $    (72,723)
                                         ==========  ============  =============

See accompanying notes to consolidated financial statements.



                      FONAR CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
                       FOR THE YEAR ENDED JUNE 30, 2008

                                      Accumulated                  Comprehensive
                                        Deficit          Total     Income (Loss)
                                     --------------  ------------  -------------
Balance - June 30, 2007              $(161,871,507)  $ 8,898,028   $     -

Net loss                               (13,508,367)  (13,508,367)  (13,508,367)

Other comprehensive loss, net of tax:
  Unrealized gains on securities
    arising during the year,
      net of tax                              -           30,881        30,881
Stock issued to employees under stock
  bonus plans                                 -              360          -
Issuance of stock for goods and
  services                                    -          204,456          -
Payments on notes receivable from
  employee stockholders                       -          129,613          -
                                     --------------  ------------  -------------
Balance - June 30, 2008              $(175,379,874)  $(4,245,029)  $(13,477,486)
                                     ==============  ============= =============

See accompanying notes to consolidated financial statements.


                     FONAR CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY *
                       FOR THE YEAR ENDED JUNE 30, 2007

                                             Class A
                                           Non-Voting            Common Stock
                                            Preferred       --------------------
                                             Stock            shares     Amount
                                           ----------       ---------   -------
Balance - June 30, 2006                     $     31        4,588,161    $ 459

Net loss                                        -                -        -
Other comprehensive gains, net of tax:
    Unrealized gains on securities arising
      during the year, net of tax               -                -        -
Cash surrender value of life insurance          -                -        -
Exercise of stock options                       -               3,680     -
Compensatory element of stock options           -                -        -
Stock issued to employees under stock
  bonus plans                                   -               5,030     -
Issuance of stock for goods and services        -             227,936       23
Issuance of stock for consulting services       -               7,000        1
Sale of stock for cash                          -              43,600        4
Cancel shares from notes receivable             -              (1,200)    -
Payments on notes receivable
  from employee stockholders                    -                -        -
                                           ----------       ---------   -------
Balance  -  June  30,  2007                 $     31        4,874,207    $ 487
                                           ==========       =========   =======


* On April 17, 2007, the Company effected a one-for twenty-five reverse split of
its issued and  outstanding  Common Stock,  treasury shares of the Common Stock,
the Class B Common  Stock,  the Class C Common  Stock,  the Class A Non-  Voting
Preferred Stock and the Preferred Stock. The accompanying consolidated financial
statements,  notes and other  references  to share and per share  data have been
retroactively  restated  to reflect  the  reverse  stock  splits for all periods
presented.

See accompanying notes to consolidated financial statements.



                      FONAR CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       FOR THE YEAR ENDED JUNE 30, 2007

                                                                      Paid-in
                                            Class B     Class C     Capital in
                                            Common      Common      Excess of
                                            Stock       Stock       Par Value
                                            -------     -------    -------------
                                            Shares
                                            ------
Balance - June 30, 2006                       158        $  38     $168,424,269

Net loss

Other comprehensive gains, net of tax:
  Unrealized gains on securities arising
    During the year, net of tax              -            -                -
Cash surrender value of life insurance       -            -           1,234,130
Exercise of stock options                    -            -              49,680
Compensatory element of stock options        -            -                 920
Stock issued to employees under stock
    bonus plans                              -            -              41,698
Issuance of stock for goods and services     -            -           1,912,375
Issuance of stock for consulting services    -            -              78,199
Sale of stock for cash                       -            -             372,756
Cancel shares from notes receivable          -            -             (42,300)
Payments on notes receivable from
    employee stockholders                    -            -                -
                                            -------     -------    -------------
Balance - June 30, 2007                       158        $  38     $172,071,727
                                            =======     =======    =============

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2007

                                                     Notes
                                                     Receivable    Accumulated
                                                     From          Other
                                          Treasury   Employee      Comprehensive
                                            Stock    Stockholders  Loss
                                         ----------  ------------  -------------
Balance - June 30, 2006                  $(675,390)   $ (751,890)   $ (246,080)

Net loss                                      -             -             -

Other comprehensive gains, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax               -             -          142,476
Cash surrender value of life insurance        -             -             -
Exercise of stock options                     -             -             -
Compensatory element of stock options         -             -             -
Stock issued to employees under stock bonus
  plans                                       -             -             -
Issuance of stock for goods and services      -             -             -
Issuance of stock for consulting services     -             -             -
Sale of stock for cash                        -             -             -
Cancel shares for notes receivable            -           42,300          -
Payments on notes receivable from employee
  stockholders                                -          185,836          -
                                         ----------  ------------  -------------
Balance - June 30, 2007                  $(675,390)   $ (523,754)   $ (103,604)
                                         ==========  ============  =============

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2007

                                      Accumulated                  Comprehensive
                                        Deficit          Total     Income (Loss)
                                     --------------  ------------  -------------
Balance - June 30, 2006              $(136,332,640)  $ 30,418,797   $      -

Net loss                               (25,538,867)   (25,538,867)  (25,538,867)

Other comprehensive gains, net of tax:
  Unrealized gains on securities arising
    during the year, net of tax               -           142,476       142,476
Cash surrender value of life insurance        -         1,234,130          -
Exercise of stock options                     -            49,680          -
Compensatory element of stock options         -               920          -
Stock issued to employees under stock
  bonus plans                                 -            41,698          -
Issuance of stock for goods and services      -         1,912,398          -
Issuance of stock for consulting services     -            78,200          -
Sale of stock for cash                        -           372,760          -
Cancel shares from notes receivable           -              -             -
Payments on notes receivable from employee
  stockholders                                -           185,836          -
                                     --------------  ------------  -------------
Balance - June 30, 2007              $(161,871,507)  $  8,898,028  $(25,396,391)
                                     ==============  ============  =============

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2006


                                             Class A
                                           Non-Voting            Common Stock
                                            Preferred       --------------------
                                             Stock            shares     Amount
                                           ----------       ---------   --------
Balance - June 30, 2005                     $     31        4,190,078    $  419

Net loss                                        -                -         -
Other comprehensive loss, net of tax:
    Unrealized losses on securities arising
      during the year, net of tax               -                -         -
Exercise of stock options                       -              68,193         7
Compensatory element of stock options           -                -         -
Stock issued to employees under stock
  bonus plans                                   -             117,202        12
Issuance of stock for goods and services        -             190,377        19
Issuance of stock for consulting services       -              22,311         2
Payments on notes receivable
  from employee stockholders                    -                -          -
                                           ----------       ---------   --------
Balance - June 30, 2006                     $     31        4,588,161    $  459
                                           ==========       =========   ========

See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2006

                                                                      Paid-in
                                            Class B     Class C     Capital in
                                            Common      Common      Excess of
                                            Stock       Stock       Par Value
                                            -------     -------    -------------
                                            Shares
                                            ------
Balance - June 30, 2005                       158        $  38     $159,940,597

Net loss                                     -            -                -

Other comprehensive loss, net of tax:
  Unrealized losses on securities arising
    during the year, net of tax              -            -                -
Exercise of stock options                    -            -           1,206,906
Compensatory element of stock options        -            -             109,936
Stock issued to employees under stock
  bonus plans                                -            -           2,894,293
Issuance of stock for goods and services     -            -           3,781,319
Issuance of stock for consulting services    -            -             491,218
Payments on notes receivable from employee
  stockholders                               -            -                -
                                            -------     -------    -------------
Balance - June 30, 2006                        158       $  38     $168,424,269
                                            =======     =======    ============

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2006

                                                     Notes
                                                     Receivable    Accumulated
                                                     From          Other
                                          Treasury   Employee      Comprehensive
                                            Stock    Stockholders  Loss
                                         ----------  ------------  -------------
Balance - June 30, 2005                  $ (675,390) $  (845,641)  $   (182,250)

Net loss                                      -             -              -

Other comprehensive loss, net of tax:
  Unrealized losses on securities arising
    during the year, net of tax               -             -           (63,830)
Exercise of stock options                     -         (422,673)          -
Compensatory element of stock options         -             -              -
Stock issued to employees under stock
  bonus plans                                 -             -              -
Issuance of stock for goods and services      -             -              -
Issuance of stock for consulting services     -             -              -
Payments on notes receivable from
  employee stockholders                       -          516,424           -
                                         ----------  ------------  -------------
Balance - June 30, 2006                  $(675,390)  $  (751,890)  $   (246,080)
                                         ==========  ============  ============

See accompanying notes to consolidated financial statements.



                       FONAR CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED JUNE 30, 2006

                                      Accumulated                  Comprehensive
                                        Deficit          Total     Income (Loss)
                                     --------------  ------------  -------------
Balance - June 30, 2005              $(106,369,283)  $51,868,521   $       -

Net loss                               (29,963,357)  (29,963,357)   (29,963,357)

Other comprehensive loss, net of tax:
  Unrealized losses on securities arising
    during the year, net of tax               -          (63,830)       (63,830)
Exercise of stock options                     -          784,240           -
Compensatory element of stock options         -          109,936           -
Stock issued to employees under stock
  bonus plans                                 -        2,894,305           -
Issuance of stock for goods and services      -        3,781,338           -
Issuance of stock for consulting services     -          491,220           -
Payments on notes receivable from employee
  stockholders                                -          516,424           -
                                     --------------  ------------  -------------
Balance - June 30, 2006              $(136,332,640)  $ 30,418,797  $(30,027,187)
                                     ==============  ============  =============

See accompanying notes to consolidated financial statements.



                      FONAR CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                       For the Years Ended June 30,
                                              -----------------------------------------
                                                   2008         2007          2006
                                              ------------- ------------- -------------
                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                    $(13,508,367) $(25,538,867) $(29,963,357)

  Adjustments to reconcile net loss
    to net cash used in
    operating activities:
      Minority interest in income of
        partnerships                               219,058       915,950     1,039,625
      Depreciation and amortization              2,793,592     2,675,831     3,286,865
      Loss from sale of physical medicine
        management business                           -             -          143,598
      Gain on sale of equipment                       -             -           (2,839)
      Provision for bad debts                    2,208,820     2,002,122     1,472,635
      Compensatory element of stock
        issuances                                      360       120,819     3,495,462
      Stock issued for costs and expenses          204,456     1,912,397     3,781,337
      Gain on sale of consolidated
        subsidiary                              (3,394,975)         -             -
      Gain on sale of investment                (  571,161)         -             -
      Loss on note receivable                      658,351          -             -

  (Increase) decrease in operating
    assets, net:
      Accounts, management fee and
        Medical receivable                      (2,905,437)    2,028,501       659,240
      Notes receivable                             578,451        71,400        22,000
      Costs and estimated earnings
        In excess of billings on
        Uncompleted contracts                       (6,285)    2,957,679     7,580,484
      Inventories                                1,210,009     2,611,135     2,760,731
      Principal payments received on
        Sales-type lease                             -           279,028       173,751
      Prepaid expenses and other
        Current assets                             292,577       177,299       504,287
      Other assets                                (251,214)      (88,021)       39,716
      Advances and notes to related
        Parties medical practices                  200,528        76,591        36,986
  Increase (decrease) in operating
    Liabilities, net:
      Accounts payable                              80,196    (  946,884)   (3,569,204)
      Other current liabilities                    687,227     1,938,546      (420,720)
      Customer advances                          4,195,673     4,575,181     3,830,908
      Billings in excess of costs and
        Estimated earnings on uncompleted
        Contracts                                2,292,597       364,491     2,661,558
      Other liabilities                            346,298       (64,432)      (55,401)
      Due to related medical practices               5,000          -          (35,065)
      Income taxes payable                           -            (8,088)       (3,146)
                                              ------------- ------------- -------------
        NET CASH USED IN
          OPERATING ACTIVITIES                  (4,664,246)   (3,939,322)   (2,560,549)
                                              ------------- ------------- -------------

See accompanying notes to consolidated financial statements.


                      FONAR CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                       For the Years Ended June 30,
                                              -----------------------------------------
                                                   2008         2007          2006
                                              ------------- ------------- -------------
                                                                 
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of marketable securities          $   (765,203) $       -     $   (300,000)
  Sales of marketable securities                 1,707,225     3,101,009     4,709,559
  Purchases of property and equipment           (  366,574)   (  432,721)   (2,440,530)
  Costs of capitalized software development       (457,372)     (636,167)     (714,254)
  Proceeds from sale of equipment                   -               -           97,466
  Cost of patents                                 (229,886)     (514,570)     (443,431)
  Proceeds from sale of investment                 571,161          -             -
  Proceeds from sale of consolidated
     subsidiary                                  4,142,134          -             -
        NET CASH PROVIDED BY                  ------------- ------------- -------------
          INVESTING ACTIVITIES
                                                 4,601,485     1,517,551       908,810
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from long-term Debt
 Repayment of borrowings and capital lease
    Obligations                                    265,000         -           555,152
 Net proceeds from exercise of stock
    Options and warrants                          (348,504)     (192,492)     (298,671)
 Distributions to holders of minority
    Interests                                       -             49,680       784,240
 Net proceeds from sale of stock
 Repayment of notes receivable from               (127,657)   (1,080,872)     (865,329)
    Employee stockholders                           -            372,760         -

        NET CASH (USED IN) PROVIDED BY             129,613       185,836       516,424
          FINANCING ACTIVITIES                ------------- ------------- -------------

NET DECREASE IN CASH AND CASH                   (   81,548)   (  665,088)      691,816
  EQUIVALENTS                                 ------------- ------------- -------------

CASH AND CASH EQUIVALENTS - BEGINNING OF        (  144,309)   (3,086,859)     (959,923)
  YEAR

CASH AND CASH EQUIVALENTS - END OF YEAR          1,469,821     4,556,680     5,516,603
                                              ------------- ------------- -------------
                                              $  1,325,512  $  1,469,821   $ 4,556,680
                                              ============= ============= =============


See accompanying notes to consolidated financial statements.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

NOTE 1 - DESCRIPTION OF BUSINESS AND LIQUIDITY AND CAPITAL RESOURCES

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

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

FONAR,  through its wholly-owned  subsidiary  Health  Management  Corporation of
America  ("HMCA")  provides  comprehensive  management  services  to  diagnostic
imaging  facilities.  The services provided by the Company include  development,
administration,  leasing of office  space,  facilities  and  medical  equipment,
provision of supplies,  staffing and supervision of non-medical personnel, legal
services,   accounting,   billing  and  collection  and  the   development   and
implementation of practice growth and marketing strategies. As of June 30, 2008,
HMCA manages 11 diagnostic imaging facilities located in the states of New York,
Georgia and Florida.

Liquidity and Capital Resources
-------------------------------

In September  2008,  the Company sold its 92.3% interest (to a related party) in
an entity that provided management services to a scanning center in Bensonhurst,
New York and received cash proceeds of approximately $2.3 million.

In August 2008, the Company signed a modification  agreement with regards to the
asset purchase  agreement with Health Plus (See Note 23). The Company received a
$2,000,000 payment on the note issued by Health Plus.

In July 2007, the Company sold its 50% interest (to an unrelated third party) in
an entity that provided  management  services to a diagnostic center in Orlando,
Florida and 20% interest in an  unconsolidated  entity and received  proceeds of
approximately $4.8 million.

At June 30, 2008, the Company had a working capital deficit of $15,965,022 and a
stockholders'  deficiency of  $4,245,029.  For the year ended June 30, 2008, the
Company incurred a net loss of $13,508,367,  which included  non-cash charges of
approximately  $5,866,000.  The Company has funded its cash flow deficit for the
year  ended  June 30,  2008  through  cash  provided  by the sale of  marketable
securities,  other assets and debt financing. In addition, during June 2008, the
Company  implemented  a  restructuring  program,  including a  reduction  of its
workforce,  across the board salary  reductions,  elimination  of  manufacturing
facilities  and  restructuring  of its  diagnostic  imaging  management  service
business.  Management  estimates  that the annualized  savings  related to these
cost-cutting measures approximates $5,000,000.

Although  sales levels  remained weak in fiscal 2008, we are continuing to focus
our efforts on increased  advertising and marketing campaigns,  and distribution
programs to  strengthen  the demand for our  products and  services.  Management
anticipates  that Fonar's capital  resources will improve if Fonar's MRI scanner
products gain wider market  recognition  and  acceptance  resulting in increased
product sales. If we are not successful  with our marketing  efforts to increase
sales and weak demand  continues,  we will experience a shortfall in cash and it
will be necessary  to further  reduce  operating  expenses in a manner or obtain
funds through equity or debt  financing in sufficient  amounts to avoid the need
to curtail our operations  subsequent to June 30, 2009.  Current economic credit
conditions  have  contributed  to a slowing  business  environment.  Given  such
liquidity and credit constraints in the markets, the business may suffer, should
the credit  markets not improve in the near future.  The direct  impact of these
conditions  is not fully  known.  However,  there can be no  assurance  that the
Company  would be able to secure  additional  funds if  needed  and that if such
funds were available, whether the terms or conditions would be acceptable to the
Company.  In such case,  the  reduction in operating  expenses  might need to be
substantial  in order for the Company to generate  positive cash flow to sustain
the operations of the Company.


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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  operations if
the securities  are traded for short-term  profit.  Otherwise,  such  unrealized
gains and losses are charged or credited to comprehensive income (loss).

Management  determines the proper  classifications of investments in obligations
with fixed maturities and marketable  equity  securities at the time of purchase
and  re-evaluates  such  designations as of each balance sheet date. At June 30,
2008 and  2007,  all  securities  covered  by SFAS No.  115 were  designated  as
available  for sale.  Accordingly,  these  securities  are stated at fair market
value, with unrealized gains and losses reported in comprehensive income (loss).
Realized gains and losses on sales of  investments,  as determined on a specific
identification  basis,  are included in  investment  income in the  accompanying
Consolidated Statements of Operations.

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

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



                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Property and  equipment  procured in the normal  course of business is stated at
cost.  Property and equipment  purchased in connection  with an  acquisition  is
stated at its estimated fair value,  generally  based on an appraisal.  Property
and equipment is being depreciated for financial  accounting  purposes using the
straight-line method over the shorter of their estimated useful lives, generally
five to seven years,  or the term of a capital lease,  if applicable.  Leasehold
improvements  are being  amortized  over the  shorter of the useful  life or the
remaining lease term. Upon retirement or other disposition of these assets,  the
cost and related  accumulated  depreciation of these assets are removed from the
accounts  and the  resulting  gains or losses are  reflected  in the  results of
operations.  Expenditures for maintenance and repairs are charged to operations.
Renewals  and  betterments  are  capitalized.  Maintenance  and repair  expenses
totaled approximately  $402,000,  $423,000 and $434,000 for the years ended June
30, 2008, 2007 and 2006.

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

1) Capitalized Software Development Costs

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

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

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

2) Patents and Copyrights

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


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

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

Revenue from sales of other items is recognized upon shipment.

Revenue  under   management  and  lease  contracts  is  recognized   based  upon
contractual  agreements  for  management  services  rendered  by the Company and
leases of medical equipment  primarily under various  long-term  agreements with
various  medical  providers  (the "PCs").  Through  June 22, 2007,  the PCs were
primarily  owned by Raymond V.  Damadian,  M.D.,  President  and Chairman of the
Board of FONAR.  Commencing  with June 23, 2007,  all of the New York based PCs,
consisting of six PC's and eight diagnostic imaging facilities, were acquired by
an unrelated third party.  Through June 30, 2007, the Company's  agreements with
the PCs stipulate fees for services rendered and equipment leased, are primarily
calculated  on  activity  based  efforts  at  pre-determined  rates  per unit of
activity. Commencing July 1, 2007, the contractual fees for services rendered to
the New York based PCs were changed to fixed monthly fees per diagnostic imaging
facility  ranging  from  approximately   $45,000  to  $125,000.   All  fees  are
re-negotiable at the anniversary of the agreements and each year thereafter.


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

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.

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

Advertising  costs are expensed as incurred.  Advertising  expense  approximated
$1,293,000,  $1,082,000 and $936,000 for the years ended June 30, 2008, 2007 and
2006, respectively.

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

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

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

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

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

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

Minority Interest
-----------------

The Company records  adjustments to minority  interest for the allocable portion
of income or loss that the minority  interest  holders are  entitled  based upon
their portion of certain of the  subsidiaries  that they own.  Distributions  to
holders of minority  interests are adjusted to the respective  minority interest
holders' balance.

The Company suspends  allocation of losses to minority interest holders when the
minority  interest balance for a particular  minority interest holder is reduced
to zero.  Any excess loss above the minority  interest  holders'  balance is not
charged to minority interest as the minority interest holders have no obligation
to fund such losses.


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock  Options and  Warrants and Similar Equity Instruments and Earnings  (Loss)
Per Share
--------------------------------------------------------------------------------

Basic earnings  (loss) per share ("EPS") is computed  based on weighted  average
shares  outstanding  and excludes any potential  dilution.  In  accordance  with
Emerging  Issues Task Force ("EITF  03-6"),  "Participating  Securities  and the
Two-Class  Method under FASB Statement No. 128" ("EITF 03-6"),  the Company uses
the  two-class  method to calculate  the effect of the  Company's  participating
convertible  securities  on basic  EPS,  which  include  the Class A  Non-voting
Preferred  stock,  Class B common  stock and Class C common  stock,  and the if-
converted  method is used to calculate the effect of  participating  convertible
securities  on  diluted  EPS.  In  addition,  these  participating   convertible
securities were not included in the computation of basic EPS for the years ended
June 30, 2008, 2007 and 2006 because the participating securities did not have a
contractual obligation to share in the losses of the Company.

Diluted EPS reflects the  potential  dilution from the exercise or conversion of
all dilutive  securities  into common stock based on the average market price of
common  shares  outstanding  during  the  period.  The  number of common  shares
potentially  issuable upon the exercise of options and warrants or conversion of
the participating convertible securities that were excluded from the diluted EPS
calculation, because they are antidilutive as a result of the net losses, was as
follows:  267,062,  278,932  and  284,328  as of June 30,  2008,  2007 and 2006,
respectively.

In December  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  (SFAS) No. 123  (revised  2004),
"Share-Based  Payment",  SFAS 123R.  SFAS 123R  requires the  compensation  cost
relating  to  stock-based  payment   transactions  be  recognized  in  financial
statements.  That cost will be measured based on the fair value of the equity or
liability instruments issued on the grant date of such instruments,  and will be
recognized  over the period  during which an  individual  is required to provide
service in exchange  for the award  (typically  the vesting  period).  SFAS 123R
covers a wide range of stock-based  compensation  arrangements  including  stock
options,  restricted stock plans,  performance-based  awards, stock appreciation
rights,  and employee  stock  purchase  plans.  SFAS 123R  replaces SFAS 123 and
supersedes APB Opinion 25.

On July 1, 2005,  the Company  adopted SFAS 123R using the modified  prospective
method, in which  compensation  cost is recognized  beginning with the effective
date (a) based on the  requirements  of SFAS 123R for all  share-based  payments
granted  after the  effective  date and (b) based on the fair value as  measured
under SFAS 123 for all awards  granted to employees  prior to the effective date
of SFAS 123R that remain unvested on the effective date.


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Options and Warrants and  Similar Equity Instruments  and  Earnings (Loss)
Per Share (Continued)
--------------------------------------------------------------------------------

The adoption of SFAS 123R's fair value method did not have a significant  impact
on our  result of  operations.  SFAS  123R also  requires  the  benefits  of tax
deductions  in  excess  of  recognized  compensation  cost to be  reported  as a
financing  cash flow,  rather than as an operating  cash flow as required  under
current literature. It is unlikely that the Company will have near term benefits
from tax deductions.  This  requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption.  The Company cannot
estimate  what those amounts will be in the future  because of various  factors,
including  but not limited to the timing of employee  exercises  and whether the
Company  will be in a taxable  position.  At this time,  there  would be not tax
impact related to the prior periods since the Company has a net loss.

For the period  ending prior to July 1, 2005,  as permitted  under SFAS No. 148,
"Accounting for Stock-Based  Compensation  Transactions and  Disclosure",  which
amended SFAS No. 123, "Accounting for Stock-Based Compensation", the Company had
elected to continue to follow the intrinsic  value method in accounting  for its
stock-based  employee   compensation   arrangements  as  defined  by  Accounting
Principles  Board  Opinion  ("APB")  No.  25  "Accounting  for  Stock  Issued to
Employees",  and related  interpretations  including FASB Interpretation No. 44,
"Accounting  for  Certain  Transactions   Involving  Stock   Compensation",   an
interpretation  of APB No. 25. No  stock-based  employee  compensation  cost was
reflected  in  operations,  as all  options  granted  under  those  plans had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant.

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.

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, 2008, the Company had cash on deposit of approximately $638,000 in excess of
federally insured limits.

Related Parties:  Net revenues from related parties  accounted for approximately
13%, 39% and 50% of the  consolidated  net revenues for the years ended June 30,
2008, 2007 and 2006, respectively.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

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, 2008,  2007 and 2006, 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:  The carrying amount  approximates fair value because
of the short-term maturity of those instruments.

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

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

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

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

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.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

In February  2006,  the FASB issued SFAS No. 155,  Accounting for Certain Hybrid
Financial  Instruments-An Amendment of FASB No. 133 and 140. The purpose of SFAS
statement No. 155 is to simplify the  accounting  for certain  hybrid  financial
instruments by permitting  fair value  re-measurement  for any hybrid  financial
instrument  that contains an embedded  derivative  that otherwise  would require
bifurcation.  SFAS No.155 also eliminates the restriction on passive  derivative
instruments that a qualifying  special-purpose  entity may hold. SFAS No. 155 is
effective for all financial  instruments  acquired or issued after the beginning
of any entity's  first  fiscal year  beginning  after  September  15, 2006.  The
adoption of this standard on July 1, 2007 did not have a material  effect on the
Company's consolidated financial statements.

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets,  an Amendment of SFAS No. 140. SFAS No. 156 requires separate
recognition of a servicing  asset and a servicing  liability each time an entity
undertakes  an  obligation  to  service a  financial  asset by  entering  into a
servicing  contract.  This  statement  also requires that  servicing  assets and
liabilities be initially recorded at fair value and subsequently adjusted to the
fair value at the end of each reporting  period.  This statement is effective in
fiscal years  beginning  after September 15, 2006. The adoption of this standard
on July 1, 2007 did not have a  material  effect on the  Company's  consolidated
financial statements.

In June 2006,  the EITF  reached a consensus  on Issue No.  06-3  ("EITF  06-3")
"Disclosure  Requirements  for Taxes  Assessed by a  Governmental  Authority  on
Revenue-Producing  Transactions".  The  consensus  allows  companies  to  choose
between two  acceptable  alternatives  based on their  accounting  policies  for
transactions  in which the company  collects  taxes on behalf of a  governmental
authority,  such as sales  tax.  Under the gross  method,  taxes  collected  are
accounted  for as a  component  of sales  revenue  with an  offsetting  expense.
Conversely,  the net method allows a reduction to sales  revenue.  If such taxes
are reported gross and are significant,  companies should disclose the amount of
those  taxes.  The  guidance  should be applied  to  financial  reports  through
retrospective application for all periods presented, if amounts are significant,
for interim and annual  reporting  beginning  after December 15, 2006 with early
adoption is  permitted.  The  adoption of this  standard on July 1, 2007 did not
have a material effect on the Company's consolidated financial statements.

In September,  2006,  the FASB issued SFAS No. 157,  "Fair Value  Measurements",
which defines fair value,  establishes a framework for measuring fair value, and
expands disclosures about fair value  measurements.  This standard applies under
other accounting  pronouncements that require or permit fair value measurements,
but does not require any new fair value  measurements.  SFAS No. 157 will become
effective for the Company in fiscal 2009. We are currently  assessing the impact
of SFAS No. 157;  however,  we do not believe the adoption of this standard will
have a material effect on the Company's consolidated financial statements.


                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Effective   January  1,  2007,  the  Company  adopted  the  provisions  of  FASB
Interpretation   No.  48,   "Accounting  of   Uncertainty  in  Income   Taxes-an
interpretation  of FASB  Statement  No.  109"  (FIN  48).  FIN 48  prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
corporate tax return.  For those benefits to be recognized,  a tax position must
be  more-likely-than-not to be sustained upon examination by taxing authorities.
Differences  between tax positions taken or expected to be taken in a tax return
and the benefit  recognized  and  measured  pursuant to the  interpretation  are
referred to as "unrecognized  benefits". A liability is recognized (or amount of
net operating  loss carry forward or amount of tax refundable is reduced) for an
unrecognized tax benefit because it represents an enterprise's  potential future
obligation to the taxing authority for a tax position that was not recognized as
a result  of  applying  the  provisions  of FIN 48. In  accordance  with FIN 48,
interest  costs  related  to  unrecognized  tax  benefits  are  required  to  be
calculated (if applicable) and would be classified as "Interest  expense,  net".
Penalties  if  incurred  would be  recognized  as a component  of  "General  and
administrative"  expenses. The Company files corporate income tax returns in the
United States  (federal) and in various state and local  jurisdictions.  In most
instances,  the Company is no longer subject to federal,  state and local income
tax examinations by tax authorities for years prior to 2004. The adoption of the
provisions  of  FIN  48  did  not  have  a  material  impact  on  the  Company's
consolidated financial position and results of operations.  As of June 30, 2008,
no liability  for  unrecognized  tax benefits was required to be recorded.  (See
Note 13)

In February 2007, the FASB issued SFAS No. 159, "Fair Value Option for Financial
Assets and  Financial  Liabilities".  SFAS No. 159  provides  companies  with an
option to report selected  financial assets and liabilities at fair value.  SFAS
No. 159's  objective is to reduce both  complexity in  accounting  for financial
instruments  and the volatility in earnings  caused by measuring  related assets
and liabilities  differently.  SFAS No. 159 also  establishes  presentation  and
disclosure  requirements  designed to facilitate  comparisons  between companies
that choose  different  measurement  attributes  for similar types of assets and
liabilities.  SFAS No. 159 requires companies to provide additional  information
that will help investors and other users of financial  statements to more easily
understand the effect of the Company's choice to use fair value on its earnings.
It also  requires  entities  to  display  the fair  value of  those  assets  and
liabilities  for which the  Company  has chosen to use fair value on the face of
the balance sheet.  SFAS No. 159 is effective as of the beginning of an entity's
first fiscal year beginning after November 15, 2007. Early adoption is permitted
as of the  beginning of the previous  fiscal year provided that the entity makes
that  choice in the first 120 days of that  fiscal year and also elects to apply
the  provisions of Statement  157. The Company did not early adopt SFAS No. 159.
We are currently assessing the impact of SFAS No. 159; however we do not believe
the adoption of this  standard will have a material  effect on our  consolidated
financial statements.



                     FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

In March 2007, the FASB ratified the Emerging Issues Task Force (EITF) consensus
on EITF Issue No. 06-10. "Accounting for Collateral Assignment Split Dollar Life
Insurance".  This EITF indicates that an employer  should  recognize a liability
for postretirement  benefits related to collateral assignment split- dollar life
insurance  arrangements.  In  addition,  the  EITF  provides  guidance  for  the
recognition  of an asset related to a collateral  assignment  split-dollar  life
insurance  arrangement.  The EIFT is effective for fiscal years  beginning after
December  15, 2007.  The Company will adopt the EITF as required and  management
does not expect it to have any impact on the  Company's  results of  operations,
financial condition and liquidity.

In December 2007, the FASB issued SFAS No. 141R, "Business  Combinations" ("SFAS
141R"),  which  replaces  SFAS  No.  141,  "Business  Combinations".  SFAS  141R
establishes  principles  and  requirements  for  determining  how an  enterprise
recognizes  and  measures  the fair  value of  certain  assets  and  liabilities
acquired  in  a  business  combination,   including  noncontrolling   interests,
contingent  consideration,  and certain acquired  contingencies.  SFAS 141R also
requires  acquisition-related  transaction  expenses and restructuring  costs be
expensed as incurred  rather than  capitalized  as a component  of the  business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition  date is on or after the beginning of the first annual
reporting  period  beginning on or after December 15, 2008. SFAS 141R would have
an impact on accounting for any businesses  acquired after the effective date of
this pronouncement.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements - An Amendment of ARB No. 51" ("SFAS  160").
SFAS 160 establishes  accounting and reporting  standards for the noncontrolling
interest in a subsidiary  (previously referred to as minority  interests).  SFAS
160  also   requires   that  a  retained   noncontrolling   interest   upon  the
deconsolidation  of a subsidiary be initially  measured at its fair value.  Upon
adoption of SFAS 160, the Company will be required to report its  noncontrolling
interests as a separate component of stockholders' equity. The Company will also
be required to present net income allocable to the  noncontrolling  interest and
net income  attributable to the  stockholders  of the Company  separately in its
consolidated statements of income. Currently, minority interests are reported as
a liability in the Company's  consolidated balance sheets and the related income
attributable to the minority interests is reflected as an expense in arriving at
net loss.  SFAS 160 is effective for fiscal years,  and interim  periods  within
those fiscal years,  beginning on or after December 15, 2008.  SFAS 160 requires
retroactive  adoption  of  the  presentation  and  disclosure  requirements  for
existing minority interests. All other requirements of SFAS 160 shall be applied
prospectively.



                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No 133" ("SFAS
No.  161").  SFAS No. 161 changes the  disclosure  requirements  for  derivative
instruments and hedging  activities.  Entities are required to provide  enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related  interpretations,  and (c) how  derivative  instruments  and
related hedged item affect an entity's financial position, financial performance
and  cash  flows.  The  guidance  in SFAS No.  161 is  effective  for  financial
statements  issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require,  comparative  disclosures for earlier periods at initial  adoption.
The Company doe not believe  that the  implementation  of SFAS No. 161 will have
any impact on the Company's consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally  Accepted
Accounting  Principles".  SFAS No. 162  identifies  the  sources  of  accounting
principles  and the framework  for  selecting  the  principles to be used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformity  with generally  accepted  accounting  principles in the
United  States.  It is effective  60 days  following  the SEC's  approval of the
Public Company  Accounting  Oversight  Board  amendments to AU Section 411, "The
Meaning of Present  Fairly in  Conformity  With  Generally  Accepted  Accounting
Principles".  The adoption of this  statement in not expected to have a material
effect on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163,  "Accounting for Financial  Guarantee
Insurance  Contracts - An Interpretation of FASB Statement No. 60". SFAS No. 163
requires that an insurance  enterprise  recognize a claim  liability prior to an
event of default when there is evidence that credit  deterioration  has occurred
in an insured financial  obligation.  It also clarifies how Statement 60 applies
to financial  guarantee  insurance  contracts,  including  the  recognition  and
measurement to be used to account for premium revenue and claim liabilities, and
requires expanded disclosures about financial guarantee insurance contracts.  It
is effective for financial  statements  issued for fiscal years  beginning after
December 15, 2008, except for some disclosures about the insurance  enterprise's
risk-management  activities.  SFAS No. 163 requires that  disclosures  about the
risk-management  activities  of the  insurance  enterprise  be effective for the
first period  beginning after issuance.  Except for those  disclosures,  earlier
application is not  permitted.  The adoption of the statement is not expected to
have a material effect on our consolidated financial statements.



                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment At Cost
------------------

The Company had a 20% equity interest in an unconsolidated entity. The income on
this investment is included under other income. This equity interest was sold to
an unrelated third party on July 31, 2007 (See Note 24).

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

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


NOTE 3 - MANAGEMENT AGREEMENTS

In  connection  with two  acquisitions  completed  in June of 1997 and August of
1998,  a portion  of the  purchase  price was  allocated  to  various  long-term
management  agreements.  These management  agreements were sold on July 28, 2005
(see Note 23).  Amortization  of management  agreements for the years ended June
30, 2008, 2007 and 2006 was $0, $0 and $37,300, respectively.

On May 23,  2005,  HMCA and its  subsidiary  Dynamic  Management  Services,  LLC
("Dynamic")  terminated their management  agreements with three related physical
medicine  practices,  under which HMCA and Dynamic  were  managing  six physical
medicine  facilities.  Commensurate  with  this  termination,  HMCA and  Dynamic
entered into new management  agreements with four unrelated medical practices to
manage  five  of  the  same  physical  medicine  facilities.   Pursuant  to  the
Termination and Replacement  Agreements,  the related medical practices assigned
to HMCA and Dynamic medical  receivables  valued at $11,775,000 in consideration
of management fees outstanding of $7,669,993 and termination fees of $4,105,007.
The balance of the medical  receivables as of June 30, 2008 is  $1,227,858.  The
$4,105,007  was  accounted  for  as a  recovery  of the  capitalized  management
agreements.

On July 28, 2005,  the  Replacement  Management  Agreements,  along with certain
related assets, were sold (see Note 23).



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 4 - MARKETABLE SECURITIES

The following is a summary of marketable securities at June 30, 2008 and 2007:

                                                     June 30, 2008
                                      -----------------------------------------
                                                     Unrealized     Fair Market
                                         Cost            Loss          Value
                                      -----------    -----------    -----------
Corporate and government agency bonds $ 1,100,000    $ ( 59,915)    $ 1,040,085
Equities - other                           40,891       (12,808)         28,083
                                      -----------    -----------    -----------
                                      $ 1,140,891    $ ( 72,723)    $ 1,068,168
                                      ===========    ===========    ===========

                                                     June 30, 2007
                                      -----------------------------------------
                                                     Unrealized     Fair Market
                                         Cost            Loss          Value
                                      -----------    -----------    -----------
Certificate of deposits               $   100,000    $  ( 4,035)    $   95,965
U.S. Government Obligations               548,062       ( 8,610)       539,452
Corporate and government agency bonds   1,400,000      ( 90,496)     1,309,504
Equities - other                           34,851       (   463)        34,388
                                      -----------    -----------    -----------
                                      $ 2,082,913    $ (103,604)    $ 1,979,309
                                      ===========    ===========    ===========

All debt  securities  are due within two years.  At June 30, 2008, the amount of
cost due within one year was $300,000.


NOTE 5 - MANAGEMENT FEE RECEIVABLE AND ACCOUNTS RECEIVABLE

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

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

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

As of June 22, 2007, an unrelated  third  party  purchased  the  stock  of  the
professional  corporations  owning  the  eight  New  York  sites managed by the
Company,  previously owned by Dr. Raymond V. Damadian, the President,  Chairman
of the Board  and  principal stockholder of Fonar. In connection with the sale,
new  management  agreements   were  substituted  for  the  existing  management
agreements, providing, however,  for  the same management services. The fees in
fiscal 2008, however, are currently fixed  monthly fees in amounts ranging from
$45,000 to $125,000 per month. Dr. Damadian  still owns the four MRI facilities
in  Georgia and Florida managed by the Company.  No  MRI  facilities  or  other
medical facilities are owned by the Company.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


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

Management Fee Receivable (Continued)
-------------------------------------

Collection by the Company of its  management  fee  receivable may be impaired by
the  uncollectibility  of  the  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 and certain other  disallowed  claims.  Approximately  44%, 38% and
47%,  respectively,  of the PC's 2008,  2007 and 2006 net revenues  were derived
from no-fault and personal injury protection  claims.  The Company considers the
aging of its accounts  receivable  in  determining  the amount of allowance  for
doubtful  accounts and contractual  allowances.  The Company generally takes all
legally  available steps to collect its  receivables.  Credit losses  associated
with the receivables are provided for in the consolidated  financial  statements
and have historically been within management's expectations.

On February 8, 2006,  the Deficit  Reduction Act of 2005 ("DRA") was signed into
law by  President  George W. Bush.  The DRA would result in caps on Medicare and
Medicaid  payment  rates  for  most  imaging  services,  including  MRI  and CT,
furnished in physicians'  offices and other non-hospital  based settings.  Under
the cap,  payments  for these  imaging  services  could not exceed the  hospital
outpatient  payment rates for those  services.  This change  applied to services
furnished by the P.C.'s on or after January 1, 2007.  Although the  professional
corporations  managed by the Company bill for scans on a "global  basis",  which
means a single fee per scan, the limitation is applicable  only to the technical
component  of the  services,  which is the  payment or  portion  of the  payment
attributable  to the  non-professional  services.  If the fee for the  technical
component of the service (without including geographic  adjustments) exceeds the
hospital  outpatient  payment  amount for the service  (also  without  including
geographic  adjustments),  under the Physician  Fee  Schedule,  then the payment
would be limited to the Physician Fee Schedule rate.

Currently, a statute in the State of Florida requires all drivers, licensed  in
the  State  of  Florida,  to carry a $10,000 no-fault insurance policy covering
personal injury protection  benefits.  This statute expired in October 2007 but
will  be  in effect again in a  slightly  revised  form  on  January  1,  2008.
Management  does  not  believe  that the expiration of this statute will have a
material impact on the Company's  consolidated financial position or results of
consolidated operations in the future.

While the  Company has  prepared  certain  estimates  of the impact of the above
discussed  changes and possible  changes,  it is not possible to fully  quantify
their impact on its business. There can be no assurance that the impact of these
changes  will not be  greater  than  estimated  or that any future  health  care
legislation  or  reimbursement  changes will not adversely  affect the Company's
business.

Net  revenues  from  management  and other  fees  charged  to the  related  PC's
accounted for  approximately  10%, 36% and 38%, of the consolidated net revenues
for the years ended June 30, 2008, 2007 and 2006, respectively.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

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

Management Fee Receivable (Continued)
-------------------------------------

HMCA  entered  into a management  agreement  in  September  2007 with  Integrity
Healthcare  Management  Inc  ("Integrity").  Under the  terms of the  agreement,
Integrity provided the billings and collections for HMCA's facilities as well as
assist  in the  management  of the  facilities.  Integrity  was  to  receive  as
compensation an annual fee equal to one-half of the increase in the consolidated
cash flow of HMCA and the  facilities  over the period from July 1, 2006 through
June 30, 2007. The original term of the agreement was one year with an automatic
year to year renewal, but may be terminated by either party without cause at the
end of any  year.  During  June  2008,  HMCA  terminated  the  agreement  and no
management  fees were earned by  Integrity.  Integrity is a subsidiary of Health
Diagnostics,  LLC. The director of Health Diagnostics, LLC, Timothy Damadian, is
a son of the  President  and  Chief  Executive  Officer  of Fonar,  Dr.  Raymond
Damadian.   Commencing  with  June  2008,  however,  the  Company  hired  Health
Diagnostics,  LLC, the parent  company of Integrity,  to perform all billing and
collection  procedures  on our  behalf.  The Company has agreed to pay 6% of all
adjusted deposits for these services.

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

Audited financial  information  related to the unconsolidated  twelve diagnostic
imaging  facilities  owned by PC's and managed by the Company is not  available.
Substantially  all of these medical  practices' books and records are maintained
on a cash basis,  their assets are  depreciated on an accelerated  tax basis and
have a December 31 year end.

Summarized unaudited income statement data for the years ended December 31, 2007
and 2006 related to the unconsolidated  medical practices managed by the Company
are as follows:

                                 (000's omitted)

                                              2007        2006
                                           ---------    ---------
              Patient Revenue - Net        $ 16,490     $ 18,244
                                           =========    =========
              (Loss) Income from
                Operations (Income Tax
                - Cash Basis)              $   (385)    $    496
                                           =========    =========
              Net Income (Loss)
              (Income Tax - Cash Basis)    $    131     $   (312)
                                           =========    =========



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

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

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

Credit risk with respect to the Company's accounts receivable related to product
sales and  service  and repair  fees is  limited  due to the  customer  advances
received prior to the  commencement of work performed and the billing of amounts
to customers as sub-assemblies are completed. Service and repair fees are billed
on a monthly or  quarterly  basis and the Company  does not  continue  providing
these  services if accounts  receivable  become past due.  The Company  controls
credit risk with  respect to accounts  receivable  from  service and repair fees
through its credit evaluation process, credit limits,  monitoring procedures and
reasonably  short   collection   terms.  The  Company  performs  ongoing  credit
authorizations  before a product  sales  contract is entered into or service and
repair  fees  are  provided.  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, 2008 and 2007 is
as follows:

                                   As of June 30,
                             ---------------------------
                                 2008           2007
                             ------------   ------------
Costs incurred on uncompleted
  Contracts                  $ 4,031,388    $ 2,136,262
Estimated earnings             1,297,111        938,549
                             ------------   ------------
                               5,328,499     3,074,811
Less: Billings to date        11,095,500     6,555,500
                             ------------   ------------
                             $(5,767,001)   $(3,480,689)
                             ============   ============


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


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,
                                          ----------------------------
                                              2008            2007
                                          ------------    ------------
         Costs and estimated earnings
           in excess of billings on
           uncompleted contracts          $     6,285     $       -
         Less:  Billings in excess
           of costs and estimated
           earnings on uncompleted
           contracts                        5,773,286       3,480,689
         Less:  Billings in excess of
           costs and estimated earnings
           on uncompleted contracts -
           related party                         -               -
                                          ------------    ------------
                                          $(5,767,001)    $(3,480,689)
                                          ============    ============


2) Customer advances consist of the following:

                                              As of June 30, 2008
                                    -------------------------------------
                                                   Related
                                       Total       Parties       Other
                                    -----------  -----------  -----------
       Total advances               $25,371,811  $ 1,472,000  $23,899,811
       Less: Advances on contracts
               under construction    11,095,500          -    11,095,500
                                    -----------  -----------  -----------
                                    $14,276,311  $ 1,472,000  $12,804,311
                                    ===========  ===========  ===========

2) Customer advances consist of the following (continued):

                                             As of June 30, 2007
                                  -----------------------------------------
                                                 Related
                                     Total       Parties        Other
                                  ------------  ------------  -------------
     Total advances               $16,636,138    $   41,566    $16,594,572
     Less: Advances on contracts
             under construction     6,555,500         -          6,555,500
                                  ------------  ------------  -------------
                                  $10,080,638    $   41,566    $10,039,072
                                  ============  ============  =============



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 7 - INVENTORIES

Inventories included in the accompanying consolidated balance sheets consist of:

                                                      As of June 30,
                                                 ------------------------
                                                    2008         2007
                                                 -----------  -----------

      Purchased parts, components and supplies   $ 1,847,381  $ 3,284,569
      Work-in-process                              1,408,534    1,181,355
                                                 -----------  -----------
                                                 $ 3,255,915  $ 4,465,924
                                                 ===========  ===========


NOTE 8 - PROPERTY AND EQUIPMENT

Property and equipment, at cost, less accumulated depreciation and amortization,
at June 30, 2008 and 2007, is comprised of:

                                                     As of June 30,
                                              ---------------------------
                                                  2008          2007
                                              ------------   ------------
         Diagnostic equipment under capital
           leases                             $   780,150     $  780,150
         Diagnostic equipment                   2,783,397      2,816,325
         Research, development and
           demonstration equipment              9,605,961      9,368,963
         Machinery and equipment                3,582,539      3,582,539
         Furniture and fixtures                 2,164,373      2,155,818
         Equipment under capital leases         1,504,123      1,504,123
         Leasehold improvements                 5,201,350      5,453,829
         Building                                 939,614        939,614
                                              ------------   ------------
                                               26,561,507     26,601,361
         Less: Accumulated depreciation
                 and amortization              22,628,974     21,442,276
                                              ------------   ------------
                                               $3,932,533     $5,159,085
                                              ============   ============

Depreciation and amortization of property and equipment for the years ended June
30, 2008, 2007 and 2006 was $1,570,453, $1,941,056 and $2,518,116, respectively.

Equipment  under capital leases has a net book value of $295,073 and $484,889 at
June 30, 2008 and 2007, respectively.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 9 - OTHER INTANGIBLE ASSETS

Other intangible assets, net of accumulated  amortization,  at June 30, 2008 and
2007 are comprised of:

                                                    As of June 30,
                                              ------------------------
                                                 2008           2007
                                              ----------    ----------
     Capitalized software development Costs   $5,606,350    $5,148,979
     Patents and copyrights                    3,885,919     4,093,673
                                              ----------    ----------
                                               9,492,269     9,242,652
          Less: Accumulated amortization       4,682,705     3,897,207
                                              ----------    ----------
                                              $4,809,564    $5,345,445
                                              ==========    ==========


Information  related to the above intangible assets for the years ended June 30,
2008, 2007 and 2006 is as follows:

                                        2008        2007         2006
                                    -----------  -----------  -----------
      Balance - Beginning of Year   $5,345,445   $4,929,483   $4,503,247
      Amounts capitalized              687,258    1,150,737    1,157,685
      Amortization                  (1,223,139)    (734,775)    (731,449)
                                    -----------  -----------  -----------
      Balance - End of Year         $4,809,564   $5,345,445   $4,929,483
                                    ===========  ===========  ===========

Amortization  of patents and copyrights for the years ended June 30, 2008,  2007
and 2006 amounted to $592,059, $124,015 and $110,493, respectively.

Amortization of capitalized  software development costs for the years ended June
30, 2008, 2007 and 2006 was $631,080, $610,760 and $620,956, respectively.

The estimated  amortization of patents and copyrights and  capitalized  software
development costs for the five years ending June 30, 2013 is as follows:

                                                         Capitalized
                                                          Software
              For the Years                 Patents and  Development
             Ending June 30,      Total     Copyrights      Costs
             ---------------   ----------   -----------  -----------
                  2009         $  699,816   $  158,304   $  541,512
                  2010            627,319      139,816      487,503
                  2011            583,910      145,246      438,664
                  2012            512,679      156,908      355,771
                  2013            446,744      164,975      281,769
               Thereafter       1,939,096    1,818,772      120,324
                               ----------   ----------   ----------
                               $4,809,564   $2,584,021   $2,225,543
                               ==========   ==========   ==========

The weighted  average am ortization  period for other  intangible  assets is 9.1
years and has no residual value.



                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008


NOTE 10 - NOTES RECEIVABLE


Notes receivable as of June 30, 2008 and 2007 consist of the following:

                             June 30,2008    June 30, 2007
                             ------------    -------------
Note Receivable - Sale of
  assets (Note 23 & 25)      $ 4,484,674     $  6,105,662
Note Receivable - (a)             65,000           65,000
Note Receivable - (b)            334,276          375,000
Note Receivable - Other             -               5,000
                               ---------       ----------

Total Notes Receivable         4,883,950        6,550,662

Discount of note receivable
  (Note 23 & 25)              (   14,084)      (  443,994)
Allowance                     (   65,000)           -
                              ----------      -----------
Net Notes Receivable         $ 4,804,866     $  6,106,668
                              ==========      ===========
Current Portion              $ 2,508,306     $    578,823
Long-Term Portion            $ 2,296,560     $  5,527,845


a) The note receivable represents a note due from a customer for the purchase of
a  system.  The note is  payable  over  two  years.  The  balance  of this  note
receivable is $65,000 as of June 30, 2008 and 2007.

b) The note receivable represents a note due from a customer for the purchase of
an Upright  MRI  system.  The note is payable in 48  consecutive  equal  monthly
payments.


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.

On April  17,  2007,  the  Company  amended  its  certificate  of  incorporation
decreasing the number of authorized  shares of Common Stock from  150,000,000 to
30,000,000, Class B Common Stock from 4,000,000 to 800,000, Class C Common Stock
from 10,000,000 to 2,000,000,  Class A Non-voting Preferred Stock from 8,000,000
to 1,600,000 and Preferred stock from 10,000,000 to 2,000,000.



                     FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008


NOTE 11 - CAPITAL STOCK (Continued)

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

Class B common  stock is  convertible  into shares of common stock on a one-for-
one basis.  Class B common stock has 10 votes per share.  There were 158 of such
shares outstanding at June 30, 2008 and 2007.

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

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

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

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

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

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



                     FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008


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.

FONAR's 1993  Incentive  Stock  Option Plan (the "FONAR 1993 Plan"),  adopted on
March 26, 1993, was intended to qualify as an incentive  stock option plan under
Section 422A of the Internal  Revenue Code of 1954,  as amended.  The FONAR 1993
Plan  permitted  the issuance of stock  options  covering an aggregate of 60,000
shares of common  stock of FONAR.  The FONAR 1993 Plan  terminated  on March 25,
2003. No options to purchase shares of common stock remained available for grant
under the FONAR  1993 Plan at that time.  During  the year ended June 30,  2008,
2,360 options  expired,  therefore,  there are no options that were issued under
the FONAR 1993 Plan that remain outstanding.

FONAR's 1997 Nonstatutory Stock Option Plan, adopted on May 9, 1997, permits the
issuance of stock  options  covering an  aggregate  of 200,000  shares of common
stock of FONAR. The options may be issued at such prices and upon such terms and
conditions as are determined by FONAR.  The 1997 Plan terminated on May 8, 2007.
During the year ended June 30, 2008, 6,012 options were forfeited,  therefore of
the options granted under this plan 78,166 remain outstanding.

FONAR's 2002  Incentive  Stock  Option Plan (the "FONAR 2002 Plan"),  adopted on
July 1, 2002,  is intended to qualify as an  incentive  stock  option plan under
Section 422A of the Internal  Revenue Code of 1954,  as amended.  The FONAR 2002
Plan  permits the  issuance of stock  options  covering an  aggregate of 100,000
shares of common stock of FONAR. The options have an exercise price equal to the
fair market value of the underlying stock on the date the option is granted, are
nontransferable, are exercisable for a period not exceeding ten years and expire
upon the voluntary termination of employment. The FONAR 2002 Plan will terminate
on June 30, 2012.  As of June 30,  2008,  options to purchase  50,943  shares of
common stock of FONAR were  available  for future grant under this plan.  During
the year ended June 30, 2008,  3,497 options were  forfeited,  therefore  19,233
shares remain outstanding.

FONAR's 2005  Incentive  Stock  Option Plan (the "FONAR 2005 Plan"),  adopted on
February  16,  2005,  is intended to qualify as an  incentive  stock option plan
under Section 422A of the Internal  Revenue Code of 1954, as amended.  The FONAR
2005 Plan permits the issuance of stock options  covering an aggregate of 80,000
shares of common stock of FONAR. The options have an exercise price equal to the
fair market value of the underlying stock on the date the option is granted, are
non-transferable,  are  exercisable  for a period not exceeding  ten years,  and
expire upon the voluntary  termination of  employment.  The FONAR 2005 Plan will
terminate  on February 14, 2015.  As of June 30, 2008,  80,000  shares of common
stock of FONAR were available for future grant under this Plan.



                    FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008

NOTE 11 - CAPITAL STOCK (Continued)

Options (Continued)
-------

Stock option activity and weighted average exercise prices under these plans and
grants for the years ended June 30, 2008, 2007 and 2006 were as follows:

                                                     Weighted
                                                     Average    Aggregate
                                      Number of      Exercise   Intrinsic
                                       Options        Price       Value
                                      ----------    ---------   --------
         Outstanding, June 30, 2005      113,426      30.50        -
         Granted                          71,633      17.75        -
         Exercised                      ( 68,193)     17.75        -
         Forfeited                      (  2,200)     28.50        -
                                      ----------    ---------
         Outstanding, June 30, 2006      114,666      30.00        -
         Granted                             240      13.50        -
         Exercised                      (  3,680)     13.50        -
         Forfeited                      (  1,956)     28.44        -
                                      ----------    ---------
         Outstanding, June 30, 2007      109,270      30.55        -
         Granted                               -        -          -
         Exercised                             -        -          -
         Forfeited / Expired            ( 11,869)     29.70        -
                                      ----------    ---------
         Outstanding, June 30, 2008       97,401      30.66        -
                                      ==========    =========

         Exercisable at:
           June 30, 2006                 114,666     $30.00
           June 30, 2007                 109,270     $30.55
           June 30, 2008                  97,401     $30.66

During the year ended June 30, 2007, 240 options were granted and exercised by a
consultant. The compensatory element of the options granted was $920. During the
year ended June 30, 2006,  71,633  options were  granted,  of which,  2,000 were
granted to an employee and 69,633 were granted to consultants.  The compensatory
element of the  options  granted  was  $109,936.  During the year ended June 30,
2006,  68,193 of the options granted in 2006 were  exercised.  The fair value of
the options granted in 2007 and 2006 to the consultants was calculated under the
Black Scholes pricing method factoring in the short-term  exercise  period.  The
value of the employee  options  granted  during the year ended June 30, 2006 was
determined  to be  deminimus,  as  calculated  using the Black  Scholes  pricing
method.  The calculation was based on an expected life of three years,  interest
rate of 4% and a 34% volatility.



                      FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008

NOTE 11 - CAPITAL STOCK (Continued)

Options (Continued)
-------

The range of exercise prices for options  outstanding as of June 30, 2008 was as
follows:

                                                         Weighted
                                                         Average
                                         Number of       Remaining
                                          Options       Contractual
             Range of Exercise Price    Outstanding    Life in Years
             -----------------------    -----------    -------------
             $18.75 - $28.13                69,105         2.8
             $29.00 - $42.18                20,479         3.8
             $46.88                          7,817         3.1
                                        -----------
                                            97,401
                                        ===========


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.  As of June 30,  2008,  there were no
shares of HMCA common stock available for future grant under this plan.

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  400,000 shares at an option price of
$1.00 per share were granted on December  16,  1998.  During the year ended June
30, 2003,  the Company  issued 45,000 shares of FONAR common stock at a value of
$1,226,251 to a related party in exchange for the options  outstanding under the
HMCA 1997 Incentive and 1998  Non-Statutory  Stock Option Plans.  As of June 30,
2008,  100,000 shares of HMCA common stock were available for future grant under
this plan.

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, 2008.  As of
June 30, 2008,  options to purchase  1,330,000  shares of HMCA common stock were
available for future grant under this plan.

Stock option share activity and weighted  average exercise prices under the HMCA
plans and grants for the three years ended June 30, 2008,  2007 and 2006 were as
follows:



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 11 - CAPITAL STOCK (Continued)

Options (Continued)
--------
                                         Weighted
                                         Average      Aggregate
                              Number of  Exercise     Intrinsic
                               Options   Price         Value
                              ---------  ---------     ---------
Outstanding, June 30, 2006     660,000    $1.00            -
Forfeited                         -                        -
                              ---------
Outstanding, June 30, 2007     660,000    $1.00            -
Forfeited                         -                        -
                              ---------
Outstanding, June 30, 2008     660,000    $1.00            -
                              =========

          Exercisable at:
            June 30, 2006         -
            June 30, 2007         -
            June 30, 2008         -

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

On August 9, 2007,  the Company  filed a  registration  statement on Form S-8 to
register  100,000  shares under  FONAR's  2007 Stock Bonus Plan.  As of June 30,
2008,  69,932  shares of common stock of FONAR were  available  for future grant
under this plan.

Warrants
--------

As of June 30, 2008, 42,000 warrants remain outstanding, which expire on May 24,
2009.  The  exercise  price is  $19.75.  The  holder of the  warrants  has anti-
dilution  rights which  provide for  proportionate  adjustments  of the exercise
price and  number of  underlying  shares  in the  event of stock  splits,  stock
dividends or reverse stock splits and sales of the Company's  common stock below
the warrant exercise price.

Reverse Stock Split
-------------------

On April 17, 2007, the Company effected a  one-for-twenty-five  reverse split of
its issued and  outstanding  Common Stock,  treasury shares of the Common Stock,
the Class B Common  Stock,  the  Class C Common  Stock,  the Class A  Non-Voting
Preferred Stock and the Preferred Stock. The accompanying consolidated financial
statements,  notes and other  references  to share and per share  data have been
retroactively  restated  to reflect  the  reverse  stock  splits for all periods
presented.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


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

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

                                                                June 30,
                                                       -------------------------
                                                           2008          2007
                                                       -----------   -----------
Capital lease requiring monthly payments of $13,623,
including  interest  at a rate of  10.51%  per annum
through July 2010. The loan is collateralized by the
related equipment.                                     $  315,545    $  428,954

Capital lease requiring  monthly payments of $2,997,
including  interest  at a rate of  8.36%  per  annum
through October 2008. The loan is  collateralized by
the related equipment.                                     11,704        47,572

Note payable  requiring monthly payments of interest
at a rate of 7% until May 2009  followed  by monthly
payments of $3,908 through May 2026. A final payment
of $532,805 will be due on May 29, 2026. The loan is
collateralized by the related building.                   532,805       545,237

Other  (including  capital  leases for  property and
equipment).                                               269,644       191,439
                                                      ------------   -----------
                                                        1,129,698     1,213,202
Less:  Current portion                                    372,722       257,639
                                                      ------------   -----------
                                                      $   756,976    $  955,563
                                                      ============   ===========

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

                            Years Ending
                              June 30,
                            ------------
                               2009        $  372,722
                               2010           183,450
                               2011            36,587
                               2012             4,134
                             Thereafter       532,805
                                           ----------
                                           $1,129,698
                                           ==========

                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

NOTE 13 - INCOME TAXES

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

                                      Years Ended June 30,
                             ----------------------------------
                                2008        2007        2006
                             ----------  ----------  ----------
                  Current:
                    Federal  $     -     $     -     $   33,546
                    State      ( 6,940)        -         20,488
                             ----------  ----------  ----------
                             $ ( 6,940)  $     -     $   54,034
                             ==========  ==========  ==========

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

                                                   Years Ended June 30,
                                          ----------------------------------
                                             2008        2007        2006
                                          ----------  ----------  ----------
    Taxes at federal statutory rate         (34.0)%     (34.0)%     (34.0)%
    State and local income taxes
       (benefit), net of federal benefit      0.0          0.0         0.2
    Permanent differences                     0.9          2.0         1.7
    Increase in the valuation allowance      33.1         32.0        32.3
                                          ----------  ----------  ----------
    Effective income tax rate                 0.0%         0.0%        0.2%
                                          ==========  ==========  ==========

As of June 30, 2008, the Company has net operating loss ("NOL") carryforwards of
approximately  $166,295,000  that will be  available  to offset  future  taxable
income.  The  utilization  of certain of the NOLs is limited by separate  return
limitation year rules pursuant to Section 1502 of the Internal Revenue Code. The
expiration dates of NOL carryforwards are as follows:

                              June 30,
                              --------
                                2012  $  4,848,000
                                2013       845,000
                                2019    15,801,000
                                2020    18,718,000
                                2021    19,657,000
                                2022    19,667,000
                                2023    16,114,000
                                2024     9,257,000
                                2025        44,000
                                2026    27,001,000
                                2027    22,698,000
                                2028    11,645,000
                                      ------------
                                      $166,295,000
                                      ============



                     FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008

NOTE 13 - INCOME TAXES (Continued)

The Company has, for federal income tax purposes,  research and  development tax
credit carryforwards  aggregating $3,870,239,  which are accounted for under the
flow-through method. The tax credit carryforwards expire as follows:

                              June 30,
                              --------
                                2012    $   70,145
                                2013       402,590
                                2019       432,195
                                2020       378,193
                                2021       448,221
                                2022       441,865
                                2023       444,970
                                2024       440,499
                                2025       285,564
                                2026       245,053
                                2027        62,208
                                2028       218,736
                                        ----------
                                        $3,870,239
                                        ==========

In addition,  for New York State income tax purposes, the Company has tax credit
carryforwards,  aggregating  approximately  $1,100,000,  which are accounted for
under the flow-through  method. The tax credit  carryforwards  expire during the
years ending June 30, 2006 to June 30, 2024.

Significant  components of the Company's  deferred tax assets and liabilities at
June 30, 2008 and 2007 are as follows:
                                                        June 30,
                                            ---------------------------
                                                 2008            2007
                                            ------------   ------------
Deferred tax assets:
  Allowance for doubtful accounts           $ 3,596,865    $ 2,624,314
  Non-deductible accruals                       383,359        328,943
  Net operating carryforwards                66,518,124     62,478,267
  Tax credits                                 4,970,084      4,732,454
  Inventory capitalization for tax purposes     113,101        157,378
  Property and equipment and depreciation     1,217,280      1,090,958
  Capital losses carryforwards                    -            536,845
  Charitable contributions                        4,500          3,200
                                            ------------   ------------
                                             76,803,313     71,952,359
Valuation allowance                         (75,915,772)   (70,992,657)
                                            ------------   ------------
Net deferred tax assets                         887,541        959,702
                                            ------------   ------------

Deferred tax liabilities:
  Capitalized software development costs       (887,541)      (959,702)
                                            ------------   ------------
Gross deferred tax liabilities                 (887,541)    (  959,702)
                                            ------------   ------------
Net deferred tax liabilities                $    -         $      -
                                            ============   ============

The net change in the valuation  allowance for deferred tax assets  increased by
approximately $4,923,000 and $9,991,000,  respectively, for the years ended June
30, 2008 and 2007.



                      FONAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2008

NOTE 14 - OTHER CURRENT LIABILITIES

Included in other current liabilities are the following:

                                                         June 30,
                                               --------------------------
                                                   2008           2007
                                               -----------    -----------
       Royalties                               $   622,780    $   635,338
       Accrued salaries, commissions and
         Payroll taxes                             900,934      1,105,655
       Accrued interest                            876,389        573,461
       Litigation accruals                         193,349        193,349
       Sales tax payable                         2,543,795      2,579,345
       Legal and other professional fees           633,659        509,245
       Accounting fees                             502,594        480,000
       Insurance premiums                          409,928        196,518
       Penalty - Sales tax                         632,500        457,500
       Penalty - 401k plan                         250,000        250,000
       Other                                       750,335        774,981
                                               -----------    -----------
                                               $ 8,316,263    $ 7,755,392
                                               ===========    ===========

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Leases
------

The Company rents its operating  facilities and certain  equipment,  pursuant to
operating lease agreements  expiring at various dates through December 2013. The
leases for certain  facilities  contain escalation clauses relating to increases
in real property taxes as well as certain maintenance costs.

In May 2002,  HMCA  entered  into a sub-lease  agreement  (as amended in January
2003) with an entity owned by a relative of Raymond V.  Damadian.  The sub-lease
agreement  expired on May 31, 2008.  As of June 1, 2008,  the  sub-lease  tenant
occupies  the entire  space and paid the monthly  rent of $ 39,064 on a month to
month basis.  Rental  income under the  sub-lease  agreement for the years ended
June 30,  2008,  2007 and 2006  amounted  to  $99,371,  $112,197  and  $102,329,
respectively. The amount due from the related party at June 30, 2008 was $26,199
and is included  in current  portion of  advances  and notes to related  medical
practices (see Note 18).

During 2003,  HMCA entered into a sub-lease  agreement  with a third party.  The
sub-lease agreement expired on June 30, 2006. Rental income under the sub- lease
agreement  for the  years  ended  June  30,  2008,  2007 and  2006  amounted  to
approximately $0, $0 and $87,000, respectively. The rental income is included in
the consolidated  statements of operations under costs related to management and
other fees - related medical practices.

In March 2008, HMCA entered into a s sub-lease agreement with a third party. The
sub-lease  agreement  expires on  February  28,  2009 but can be renewed for one
additional year. Rental income under the sub-lease  agreement for the year ended
June 30,  2008  amounted  to  $48,493.  The  rental  income is  included  in the
consolidated  statements  of operations  under costs  related to management  and
other fees - unrelated medical practices.



                     FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008


NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)

Future  minimum  operating  lease  commitments,   along  with  sub-lease  income
consisted of the following at June 30, 2008:

                                   Facilities
                                      And
                                    Equipment
                   Year Ending     (Operating     Sub-Lease
                    June 30,          Lease)       (Income)
                   -----------    ------------    ----------
                      2009        $ 2,106,640     $ (96,986)
                      2010          1,092,193          -
                      2011            807,760          -
                      2012            832,110
                      2013            767,049          -
                   Thereafter         634,516          -
                                  ------------    ----------
      Total minimum obligations   $ 6,240,268     $( 96,986)
                                  ============    ==========

Rent  expense for  operating  leases  approximated  $3,078,000,  $2,841,000  and
$2,923,000 for the years ended June 30, 2008, 2007 and 2006, respectively.

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

The Company has a license  agreement which requires 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,  2008,  2007  and 2006
approximated  $67,000,  $67,000  and  $65,000,  respectively.  In April 2008 BTG
International  Ltd.  commenced  action in  Superior  Court,  New Castle  County,
Delaware  for the  outstanding  royalties  of $666,734  plus  interest and other
costs. The Company answered the complaint raising affirmative defenses including
duress,  failure of consideration and violation of United States Antitrust Laws.
As of June 30,  2008,  the  Company  has  accrued  $710,461  for  royalties  and
interest. The Company plans to vigoursly defend this complaint.

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 was $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 was recognized as income ratably over
the  five-year  period  ended June 30,  2005.  The Company  also  entered into a
non-exclusive sales representative  agreement.  The agreement requires the third
party to sell at least two Fonar MRI  scanners or if it does not,  pay an amount
equal to the  Company's  gross margin on the unsold MRI  scanners.  As the third
party did not sell any scanners in the past contract year, the Company  received
the gross margin  payment on two scanners of  $1,158,478 in November  2007.  The
amount  is shown in the  Company's  consolidated  statements  of  operations  as
revenue, license fees and royalties for the year ended June 30, 2008.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)

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

The Company has a  non-contributory  401(k) Plan (the "401(k) Plan"). The 401(k)
Plan  covers all  non-union  employees  who are at least 21 years of age with no
minimum service requirements.  There were no employer  contributions to the Plan
for the years ended June 30, 2008, 2007 and 2006. (see Other Matters below)

The  stockholders of the Company  approved the 2000 Employee Stock Purchase Plan
("ESPP") at the Company's annual  stockholders'  meeting in April 2000. The ESPP
provides  for  eligible  employees  to acquire  common stock of the Company at a
discount,  not to exceed 15%.  This plan has not been put into effect as of June
30, 2008.

Litigation
----------

The Company is subject to legal proceedings and claims arising from the ordinary
course  of its  business,  including  personal  injury,  customer  contract  and
employment  claims. In the opinion of management,  the aggregate  liability,  if
any, with respect to such actions,  will not have a material  adverse  effect on
the consolidated financial position or results of operations of the Company.


NASDAQ Notice of Non-compliance
-------------------------------

The Company  received a letter from The NASDAQ Stock Market LLC  indicating  the
Company is not in compliance with  Marketplace  Rules 4350(e) and 4350(g) due to
the fact that is has not yet solicited  proxies and held its annual  meeting for
the fiscal year end June 30, 2007. As a result,  the notice  indicated  that the
Company's  securities  would be subject  to  delisting  from The NASDAQ  Capital
Market  unless  the  Company   requested  a  hearing  before  a  NASDAQ  Listing
Qualifications Panel. On July 15, 2008, the Company requested a hearing with the
NASDAQ Listing  Qualifications  Panel. The request was granted.  The hearing was
held on August 28, 2008 with no decision  rendered.  The Company is scheduled to
hold a joint two-year annual meeting on November 17, 2008.

Other Matters
-------------

In March 2007, the Company and New York State taxing authorities conducted a
conference to discuss a sales tax matter to determine if certain sales
transactions are subject to sales tax withholdings.  At the present time, such
discussions are ongoing and the Company cannot yet determine the outcome.
Management is of the belief the resolution of this matter will not materially
impact the consolidated financial statements.  The Company has recorded a
provision of $250,000 to cover any potential tax liability including interest.



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 15 - COMMITMENTS AND CONTINGENIES (Continued)

Other Matters (Continued)
-------------------------

The Company is also  delinquent in filing sales tax returns for certain  states,
for which the Company has  transacted  business.  The Company has  recorded  tax
obligations  of  $1,941,000   plus  interest  and  penalties  of   approximately
$1,370,000.  The  Company  is  in  the  process  of  determining  is  regulatory
requirements in order to become compliant.

The Company has determined  they may not be in compliance with the Department of
Labor and Internal  Revenue Service  regulations  concerning the requirements to
file Form 5500 to report  activity of its 401K  Employee  Benefit  Plan and Flex
Plan.  The filings do not require  the Company to pay tax,  however  they may be
subject to penalty for  non-compliance.  The Company has recorded provisions for
any  potential  penalties  totaling  $250,000.  The Company has engaged  outside
counsel to handle such matters to determine the necessary requirements to ensure
compliance. Such non-compliance could impact the eligibilty of the plan. At this
time the outcome cannot be determined.


NOTE 16 - OTHER INCOME

Other income consists of:

                              For the Years Ended June 30,
                          ------------------------------------
                             2008         2007         2006
                          ----------   ----------   ----------
Income from investment    $    5,000   $  142,000   $  156,000
Other income (expense)       124,368      147,929      171,000
                          ----------   ----------   ----------
                          $  129,368   $  289,929   $  327,000
                          ==========   ==========   ==========



NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION

During the years ended June 30, 2008,  2007 and 2006, the Company paid $214,394,
$241,661 and $281,903 for  interest,  respectively.  During the years ended June
30,  2008,  2007 and 2006,  the Company  paid $0,  $8,088 and $57,180 for income
taxes, respectively.

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

- During the Year Ended June 30, 2007:

a) The Company paid premiums for life insurance on its Chief Executive  Officer.
The insurance  policies are owned by a life insurance  trust. The cash surrender
value of the life insurance  policies of $1,234,000  was  contributed to capital
during the first quarter of fiscal 2007 pursuant to a split dollar agreement.



                       FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008


NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)

Non-Cash Transactions (Continued)
---------------------------------

- During the Year Ended June 30, 2006:

a) The Company acquired equipment of $132,262 under capital lease obligations.

b) The Company received notes receivable from employee  stockholders of $422,673
in connection with issuance of 674,339 shares of its common stock.

c) In connection  with the Company's sale of it's subsidiary in January 2006, an
equipment loan totaling $374,565 was assumed by the purchaser.


NOTE 18 - ADVANCES AND NOTES TO RELATED MEDICAL PRACTICES

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  $85,000.  In  addition,
during fiscal 2001, Canarsie purchased a QUAD MRI scanner from the Company,  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, 2008 is $32,382.  Interest income on this note for the years
ended June 30,  2008,  2007 and 2006  amounted  to $3,852,  $9,249 and  $12,791,
respectively.

The Company has cumulative  advances due from a former  subsidiary,  Tallahassee
Magnetic Resonance Imaging, P.A., totaling $546,183.  This balance is payable as
follows:  (1) Monthly  payments of interest only of $2,730 until August 2007 (2)
$546,183 in 40 monthly  installments,  including  interest at 6%,  pursuant to a
promissory  note.  The  balance  due  under  this  note as of June  30,  2008 is
$414,724.  Interest  income on this note for the years  ended June 30,  2008 and
2007 amounted to $29,949 and $32,760, respectively.

The maturities of advances and notes to related medical  practices over the next
three years are as follows:

                             Years Ending
                               June 30,
                             ------------
                                 2009       $214,004
                                 2010        170,268
                                 2011         93,095
                                            --------
                                            $477,367
                                            ========


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 19 - SALE OF SUBSIDIARY

On January 31, 2006, the Company sold 100% of the stock of Tallahassee  Magnetic
Resonance Imaging,  P.A. to Raymond V. Damadian for a deminimus amount since the
liabilities  exceeded the assets.  No gain or loss was  recognized on this sale.
Revenue recognized from this entity totaled $590,883 and $1,272,859 for the year
ended June 30, 2006 and 2005, respectively.


NOTE 20 - SEGMENT AND RELATED INFORMATION

The Company  provides segment data in accordance with the provisions of SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information".

The Company operates in two industry  segments - manufacturing and the servicing
of medical equipment and management of diagnostic imaging services.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies.  All intersegment sales are market-
based.  The  Company  evaluates   performance  based  on  income  or  loss  from
operations.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 20 - SEGMENT AND RELATED INFORMATION (Continued)

Summarized financial information concerning the Company's reportable segments is
shown in the following table:

                                                 Management of
                                    FONAR          Diagnostic
                                   Medical           Imaging
                                  Equipment          Centers          Totals
                                 ------------    --------------    -----------
Fiscal 2008:
-----------
Net revenues from external
  customers                      $ 23,525,197    $ 12,043,636     $ 35,568,833
Intersegment net revenues        $    889,167    $    -           $    889,167
Loss from operations             $(14,133,689)   $ (2,793,102)    $(16,926,791)
Depreciation and amortization    $  1,851,746    $    941,846     $  2,793,592
Compensatory element of stock
  issuances                      $        360    $    -           $        360
Total identifiable assets        $ 19,203,367    $ 16,022,266     $ 35,225,633
Capital expenditures             $    943,197    $    110,635     $  1,053,832

Fiscal 2007:
-----------
Net revenues from external
  customers                      $ 21,269,989    $ 11,941,943     $ 33,211,932
Intersegment net revenues        $  1,053,106    $     -          $  1,053,106
Loss from operations             $(22,219,240)   $ (3,233,331)    $(25,452,571)
Depreciation and amortization    $  1,562,393    $  1,113,438     $  2,675,831
Compensatory element of stock
  issuances                      $    116,068    $      4,750     $    120,818
Total identifiable assets        $ 21,098,416    $ 20,111,759     $ 41,210,175
Capital expenditures             $  1,370,227    $    213,231     $  1,583,458

Fiscal 2006:
-----------
Net revenues from external
  customers                      $ 19,708,055    $ 13,368,274     $ 33,076,329
Intersegment net revenues        $    587,465    $    -           $    587,465
Loss from operations             $(24,742,622)   $ (4,981,864)    $(29,724,486)
Depreciation and amortization    $  2,028,332    $  1,258,533     $  3,286,865
Compensatory element of stock
  issuances                      $  1,172,254    $    723,208     $  1,895,462
Termination costs paid with
  common stock                   $     -         $  1,600,000     $  1,600,000
Total identifiable assets        $ 31,264,366    $ 25,965,178     $ 57,229,544
Capital expenditures             $  1,552,275    $  2,045,940     $  3,598,215


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


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 0.0%, 15.8% and 23.2%
of product  sales  revenues to third  parties for the years ended June 30, 2008,
2007 and 2006, respectively.

The  foreign  product  sales,  as a  percentage  of product  sales to  unrelated
parties, were made to customers in the following countries:

                               For the Years Ended June 30,
                               -----------------------------
                                 2008       2007       2006
                               -------     ------     ------
                    Kuwait      (0.5)%     (7.9)%      9.7%
                    England       -          .2        7.6
                    Holland       -        11.7         -
                    Germany       -        11.8        5.9
                    Greece       0.5         -          -
                               -------     ------     ------
                                 0.0%      15.8%      23.2%
                               =======     ======     ======

Foreign Service and Repair Fees
-------------------------------
The Company's areas of service and repair are principally in the United States.
The  Company  had  foreign  revenues of service and repair of medical equipment
amounting to 7.8%, 6.8% and 8.2%  of  consolidated  net service and repair fees
for  the years ended June 30, 2008, 2007 and 2006, respectively.   The  foreign
service and repair fees, as a percentage of total service and repair fees, were
provided principally to the following countries:

                                For the Years Ended June 30,
                               -----------------------------
                                 2008       2007       2006
                               -------     ------     ------
                  Korea            -%         .1%        .9%
                  Spain           1.6        1.7        2.0
                  Puerto Rico     1.3        1.1        1.1
                  Saudi Arabia     -        ( .1)        .9
                  Poland           -          .4         .9
                  Switzerland     1.0        1.1         .7
                  Germany         1.0         .3         .2
                  England         1.2         .9         .2
                  Holland          .7         .2         -
                  Scotland        1.0        1.1        1.3
                               -------     ------     ------
                                  7.8%       6.8%       8.2%
                               =======     ======     ======


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



                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

NOTE 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)

                     (000's omitted, except per share data)

                                     For the Quarters Ended
                     ------------------------------------------------
                     September 30,  December 31,  March 31,  June 30,
                         2007           2007        2008       2008     Total
                     -------------  ------------  ---------  --------  --------
Total Revenues
  - Net                $  8,669       $ 10,680    $  8,071   $ 8,149   $35,569
Total Costs and
  Expenses               12,775         14,556      10,792    14,373    52,496

Net Loss                 (  209)        (3,838)     (2,695)   (6,766)  (13,508)

Basic and Diluted
  Net Loss Per Share     $(0.04)        $(0.78)     $(0.55)   $(1.38)   $(2.76)



                     (000's omitted, except per share data)

                                     For the Quarters Ended
                     ------------------------------------------------
                     September 30,  December 31,  March 31,  June 30,
                         2007           2007        2008       2008     Total
                     -------------  ------------  ---------  --------  --------
Total Revenues
  - Net                $  7,783       $  7,672    $  8,782   $ 8,975   $33,212
Total Costs and
  Expenses               13,874         13,071      14,097    17,623    58,665

Net Loss                 (6,105)        (5,470)     (5,401)   (8,563)  (25,539)

Basic and Diluted
  Net Loss Per Share      (1.29)        $(1.13)     $(1.11)   $(1.76)   $(5.29)

Loss per share from operations for each quarter was computed independently using
the weighted-average  number of shares outstanding during the quarter.  However,
loss per share for the year was computed  using the  weighted-average  number of
shares  outstanding  during the year. As a result, the sum of the loss per share
for the four quarters may not equal the full year loss per share.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008


NOTE 22 - ALLOWANCE FOR DOUBTFUL ACCOUNTS

The following  represents a summary of allowance  for doubtful  accounts for the
years ended June 30, 2008, 2007 and 2006, respectively:

                                 Balance                              Balance
Description                  June 30, 2007   Additions  Deductions June 30, 2008
-----------                  ------------- ------------ ---------- -------------
Receivables from equipment
  sales and service contracts  $1,306,209   (1)$ 169,820  $  75,001  $ 1,401,028
Receivables from equipment
  sales and service contracts
  - related parties               646,621           -        27,441      619,180
Management fee
  receivable                    2,110,306   (1)1,848,427               3,958,733
Management fee receivable from
  related medical practices     2,093,180   (1)  320,303       -       2,413,483
Medical receivables               190,000   (1)  579,000       -         769,000
Advance and notes to related
  parties                         364,791           -       100,000      264,791
Notes receivable                    -       (1)   65,000       -          65,000


                                 Balance                              Balance
Description                  June 30, 2006   Additions  Deductions June 30, 2007
-----------                  ------------- ------------ ---------- -------------
Receivables from equipment
  sales and service contracts  $  644,087   (1)$ 662,122  $    -      $1,306,209
Receivables from equipment
  sales and service contracts
  - related parties               646,621           -          -         646,621
Management fee receivable from
  related medical practices     3,053,486   (1)1,150,000       -       4,203,486
Medical receivables                  -      (1)  190,000       -         190,000
Advance and notes to related
  parties                         364,791           -          -         364,791


                                 Balance                              Balance
Description                  June 30, 2005   Additions  Deductions June 30, 2006
-----------                  ------------- ------------ ---------- -------------
Receivables from equipment
  sales and service contracts  $  498,452   (1)$ 145,635  $    -     $   644,087
Receivables from equipment
  sales and service contracts
  - related parties               646,621           -          -         646,621
Management fee receivable from
  Related medical practices     2,017,163   (1)1,327,000    290,677    3,053,486
Advance and notes to related
  Parties                         364,791           -          -         364,791

(1)  Included in provision for bad debts.


                       FONAR CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2008

NOTE 23 - SALE OF PHYSICAL MEDICINE MANAGEMENT BUSINESS

On July  28,  2005,  FONAR,  HMCA and  Dynamic  entered  into an Asset  Purchase
Agreement with Health Plus Management Services, L.L.C. ("Health Plus"), pursuant
to which HMCA and its  subsidiary  Dynamic  sold to Health  Plus the  portion of
their  business which was engaged in the business of managing  physical  therapy
and rehabilitation  facilities,  together with the assets used in the conduct of
such business.

The assets sold  consisted  principally of the  management  agreements  with the
physical therapy and rehabilitation  facility management business,  the physical
therapy  equipment,  a portion of the  accounts  receivable  and  furniture  and
fixtures  the  Company  provided  to the  physical  therapy  and  rehabilitation
facilities.

The two  principals  of Health Plus were  employed by HMCA and Dynamic up to the
time of the closing of the business.  In  consideration  for the  termination of
their  employment  agreement,  these two  individuals  each  became  entitled to
receive  $800,000.  In addition,  each became  entitled to receive  $200,000 for
collection services to be provided on behalf of HMCA and Dynamic with respect to
a  portion  of  the  accounts   receivable  of  certain   physical  therapy  and
rehabilitation facilities which arose during the period when HMCA was engaged in
the  management of those  facilities.  The  $1,000,000  payable to each of these
individuals was satisfied in shares of FONAR common stock in 2006.

The purchase price under the Asset Purchase  Agreement was  $6,600,000,  payable
pursuant  to  a  promissory  note  (the  "Note")  in  120  monthly  installments
commencing on August 28, 2005. The first twelve  installments  are interest only
and the remaining 108 payments will consist of equal  installments  of principal
and interest in the amount of $76,014 each.  The Note is secured by a first lien
on all of the assets of Health Plus, including its accounts receivable. The Note
is subject to  prepayment  provisions  to the extent  Health Plus resells all or
part of the assets and business or utilizes the assets sold as collateral in any
debt financing.  The note provides for interest at 5% per annum.  The fair value
assigned to the note was  $6,078,068  reflecting  a discount of $521,932 for the
below  market  interest  rate.  The Company  recorded a loss of $143,598 on this
transaction during the year ended June 30, 2006. The note was modified in August
2008 (see Note 25).

NOTE 24 - SALE OF INVESTMENT AND CONSOLIDATED SUBSIDIARY

Sale of Investment
------------------

On July 31, 2007, the Company sold its 20% equity interest in an  unconsolidated
entity (management company for a diagnostic center) to an unrelated third party.
The selling price was $629,195.  The Company  realized a gain on the sale of the
equity interest of $571,161.

The gain was calculated as follows:

      Selling Price:                             $ 629,195
            Less: Closing costs                   ( 58,034)
                                                 ----------
      Selling Price - Net                          571,161
      Basis                                              0
                                                 ----------
      Gain on sale of investment                 $ 571,161
                                                 ==========


                     FONAR CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 2008


NOTE 24 - SALE OF INVESTMENT AND CONSOLIDATED SUBSIDIARY (Continued)

Sale of Consolidated Subsidiary
-------------------------------

On July 31, 2007,  the Company  sold its 50%  interest  (to an  unrelated  third
party) in an entity which provided management services to a diagnostic center in
Orlando,  FL. The Company  continues to manage other  diagnostic  centers in the
Florida region.

The unrelated  third party  purchased all assets and assumed all  liabilities of
the diagnostic  center which  included  cash,  the  management  fee  receivable,
furniture and fixtures and other miscellaneous  assets. The purchase price under
the for the 50%  interest  was  $4,499,768  and after  closing  costs the amount
received was $4,256,372.

The  following is the  calculation  of the gain on sale of the 50% interest in a
consolidated subsidiary:

      Selling Price:                                    $ 4,499,768
      Less: Closing costs                                ( 243,396)
                                                        -----------
      Selling Price - Net:                             $ 4,256,372

      Assets sold:
        Cash                               $   114,238
        Management fee receivable            1,166,100
        Property and equipment - net           22,673
        Other Assets                            14,759
        Minority Interest                    ( 456,373)
                                           -----------
      Subtotal                                             861,397
                                                        -----------

      Gain on sale of consolidated entity               $ 3,394,975
                                                        ===========

NOTE 25 - SUBSEQUENT EVENTS

On July 25, 2008, the Company  entered into a settlement  agreement with regards
to property the Company leased and has vacated at 405 Smith Street, Farmingdale,
New York. The Company has agreed to pay $270,740 plus interest at 7.5% per annum
in 36 monthly installments.

On August 8, 2008, the Company  signed a modification  agreement with regards to
the  Asset  Purchase  Agreement  with  Health  Plus  (see  Note  23).  Under the
modification  agreement Health Plus made a $2,000,000  principal  payment on the
promissory note in exchange for a discount on the original note of $1,000,000.

The original  promissory note ("Note") was modified to $2,378,130  payable in 60
consecutive  months in equal  installments of principal and interest of $47,090.
The  Note is  secured  by a first  lien on all of the  assets  of  Health  Plus,
including its accounts receivable and is subject to prepayment provisions to the
extent  Health Plus  resells all or part of the assets and  business or utilizes
the assets sold as  collateral  in any debt  financing.  The note  provides  for
interest at 7% per annum. The Company recorded a change to earnings representing
the net discount on this note of $658,351 on this transaction during the quarter
ended June 30, 2008.

On September 30, 2008,  the Company sold to a related  party its 92.3%  interest
(to a related  party) in an  entity  which  provided  management  services  to a
scanning  center in  Bensonhurst,  NY. The  Company  continues  to manage  other
diagnostic centers in the New York region.

The buyer  purchased  all assets and assumed  all  liabilities  of the  scanning
center which  included  cash,  the  management  fee  receivable,  furniture  and
fixtures  and  other  miscellaneous  assets.  The  purchase  price for the 92.3%
interest  was  $2,307,500  all of  which  was  paid in  cash at the  time of the
closing.


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

There  have  been  no  disagreements  with  our  independent  registered  public
accounting firm or other matters requiring disclosure under Regulation S-K, Item
304(b).

ITEM 9A(T). CONTROLS AND PROCEDURES

We maintain  disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e) and 15d-15(e)) that are designed to ensure that  information  required
to be disclosed in reports that we file or submit under the Securities  Exchange
Act of 1934 is recorded,  processed,  summarized,  and reported  within the time
periods specified in the Securities and Exchange  Commission's  rules and forms,
and that such  information is accumulated  and  communicated  to our management,
including our Chief Executive Officer and our principal  financial  officer,  as
appropriate,  to allow timely decisions regarding the required  disclosures.  In
designing and evaluating the disclosure  controls and  procedures,  we recognize
that any controls and procedures,  no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.

Our  principal   executive  and  financial  officers  have  concluded  that  our
disclosure controls and procedures over financial reporting were effective as of
June 30,  2008.  Management's  assessment  is that  our  internal  control  over
financial  reporting  for the year ended June 30, 2008 is  effective.  There has
been no change in our internal  control over  financial  reporting that occurred
during the fourth quarter of fiscal year 2008 that has materially  affected,  or
is reasonably likely to materially  affect,  our internal control over financial
reporting.

This  annual  report  does not include an  attestation  report of the  company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the company's
registered  public accounting firm pursuant to temporary rules of the Securities
and Exchange  Commission  that permit the company to provide  only  management's
report in this annual report.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors serve from the date of their election until the next annual meeting of
stockholders  and until  their  successors  are elected  and  qualify.  With the
exception of Dr. Raymond V. Damadian,  who does not receive any fees for serving
as a director,  each director  receives $20,000 per annum for his or her service
as a director. Officers serve at the discretion of the Board of Directors.

A majority  of our board of  directors  is composed  of  independent  directors:
Robert  J.  Janoff,  Charles  N.  O'Data  and  Robert  Djerejian.   These  three
individuals also serve as the three members of the audit  committee,  which is a
standing  committee  of  board of  directors  having a  charter  describing  its
responsibilities.  Mr.  O'Data  has  been  designated  as  the  audit  committee
financial  expert.  His relevant  experience  is  described in his  biographical
information.  We have  adopted  a code of  ethics  applicable  to,  among  other
personnel,  our  principal  executive  officer,   principal  financial  officer,
controllers and persons performing  similar  functions.  The code is designed to
deter wrongdoing and to promote:  1. honest and ethical  conduct,  including the
ethical  handling of actual or apparent  conflicts of interest  between personal
and   professional   relationships;   2.  full,  fair,   accurate,   timely  and
understandable disclosure in reports and documents that we file or submit to the
Securities and Exchange  Commission and in other public  communications we make;
3. compliance with applicable  governmental laws, rules and regulations;  4. the
prompt internal  reporting of violations of the code to an appropriate person or
persons identified in the code and 5.  accountability for adherence to the code.
We will  provide a copy of the code to any person who  requests a copy. A person
may request a copy by writing to Fonar Corporation,  110 Marcus Drive, Melville,
New York 11747, to the attention of the Legal Department or Investor Relations.

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

      Raymond V. Damadian, M.D.       72         President, Treasurer,
                                                 Chairman of the Board
                                                 and a Director

      Claudette J.V. Chan             70         Director and Secretary

      Robert J. Janoff                81         Director

      Charles N. O'Data               72         Director

      Robert Djerejian                77         Director


Raymond V.  Damadian,  M.D. has been the Chairman of the Board and  President of
Fonar since its  inception  in 1978 and  Treasurer  since  February,  2001.  Dr.
Damadian was employed by the State  University  of New York,  Downstate  Medical
Center,  New  York,  as an  Associate  Professor  of  Biophysics  and  Associate
Professor of Internal  Medicine from 1967 until  September  1979.  Dr.  Damadian
received an M.D.  degree in 1960 from Albert Einstein  College of Medicine,  New
York, and a B.S. degree in mathematics from the University of Wisconsin in 1956.
In addition,  Dr. Damadian conducted  post-graduate work at Harvard  University,
where  he  studied  extensively  in  the  fields  of  physics,  mathematics  and
electronics.  Dr.  Damadian is the author of numerous  articles and books on the
nuclear  magnetic  resonance  effect in human tissue,  which is the  theoretical
basis  for the Fonar MRI  scanners.  Dr.  Damadian  is a 1988  recipient  of the
National  Medal  of  Technology  and in 1989  was  inducted  into  the  National
Inventors Hall of Fame, for his  contributions  in conceiving and developing the
application of magnetic resonance technology to medical  applications  including
whole body  scanning and  diagnostic  imaging.  Dr.  Damadian is the  President,
Treasurer and director of HMCA.

Claudette  J.V.  Chan  has  been a  Director  of Fonar  since  October  1987 and
Secretary of Fonar since January 2008.  Mrs. Chan was employed from 1992 through
1997 by Raymond V. Damadian,  M.D. MR Scanning  Centers  Management  Company and
since 1997 by HMCA, as "site  inspector,"  in which  capacity she is responsible
for  supervising  and  implementing  standard  procedures  and  policies for MRI
scanning centers.  From 1989 to 1994 Mrs. Chan was employed by St. Matthew's and
St. Timothy's  Neighborhood  Center,  Inc., as the director of volunteers in the
"Meals  on  Wheels"  program,  a  program  which  cares  for  the  elderly.   In
approximately  1983, Mrs. Chan formed the Claudette Penot  Collection,  a retail
mail-order business  specializing in women's apparel and gifts, of which she was
the President until she stopped  operating the business in  approximately  1989.
Mrs. Chan practiced and taught in the field of nursing until 1973,  when her son
was born.  She  received a bachelor of science  degree in nursing  from  Cornell
University in 1960. Mrs. Chan is the sister of Raymond V. Damadian.

Robert J. Janoff has been a Director of Fonar since  February  1989.  Mr. Janoff
has been a self-employed  New York State licensed private  investigator for more
than  thirty-five  years and was a Senior Adjustor in Empire Insurance Group for
more than 15 years until retiring from that position on July 1, 1997. Mr. Janoff
also served, from June 1985 to June 1991, as President of Action Data Management
Strategies,  Ltd.,  a  supplier  of  computer  programs  for  use  by  insurance
companies.  Mr. Janoff was a member of the Board of Directors of Harmony Heights
of Oyster  Bay,  New York for over 25 years,  which is a  nonprofit  residential
school for girls with learning disabilities.

Charles N. O'Data has been a Director of Fonar since February 1998. From 1968 to
1997, Mr. O'Data was the Vice President for Development  for Geneva  College,  a
liberal arts college located in western Pennsylvania. In that capacity, he acted
as  the  College's  chief  investment  officer.  His  responsibilities  included
management of the College's  endowment fund and fund raising.  In July 1997, Mr.
O'Data  retired  from  Geneva  College  after 36 years of  service  to  assume a
position of  National  Sales  Executive  for SC Johnson  Company's  Professional
Markets  Group,  a unit of SC Johnson Wax, and  specialized  in  healthcare  and
education  sales,  a position he held until the spring of 1999.  In his capacity
with SC Johnson he was responsible for sales to the nation's three largest Group
Purchasing  Organizations  which  included  some  4,000  hospitals.  Mr.  O'Data
presently acts as an independent  financial consultant to various entities.  Mr.
O'Data served on the board of the Medical Center,  Beaver,  Pennsylvania,  now a
part of Heritage  Valley Health System,  a 500 bed acute care  facility,  for 22
years,  three as its Chair.  Mr. O'Data also served on the board of the Hospital
Council  of  Western  Pennsylvania,   a  shared-services  and  group  purchasing
organization  covering seven states. He founded The Beaver County Foundation,  a
Community Foundation, in 1992, and serves as its President. Mr. O'Data is listed
as a finance  associate in the Middle States  Association,  Commission on Higher
Education. The commission is the formal accrediting body for higher education in
the eastern  region of the country.  In this capacity he evaluates the financial
aspects  of  educational  organizations.  Mr.  O'Data  is a  graduate  of Geneva
College, where he received a B.S. degree in Economics in 1958.

Robert  Djerejian  has been a Director for Fonar since June 2002.  Since 1996 he
has served as a senior consultant for Haines,  Lundberg & Waehler  International
(HLW  International),  an architectural,  engineering,  planning interior design
firm, which among other hi-tech  specialties designs hospitals and laboratories.
Prior to that time he was the Senior Managing Partner of HLW International for a
period of 22 years  where he  received  numerous  design  awards  including  the
National  Honor Award from the Endowment for the Arts and The Design  Excellence
Award from the NY Society of the American  Institute of  Architects.  During his
management  of the firm he brought  the firm to  international  prominence  with
offices in London,  Shanghai and Saudi Arabia. He currently  consults to private
clientele in design  management in planning,  design and construction  services.
Mr.  Djerejian is an Emeritus member of the Board of Trustees of Pratt Institute
since 1992, where he chaired the Nominations Committee and was the Vice Chairman
of the Executive  Committee.  He served as a Board Member coordinating the joint
venture  of  Corcoran  College  of Art &  Design  in  Washington  DC with  Pratt
Institute as one of the founding  directors  forming the Delaware College of Art
and Design.  He is a member of the American  institute of Architects  and the NY
Society of Architects.  Mr. Djerejian is a graduate of Pratt Institute School of
Architecture, where he received his B.A. in Architecture in 1955.



ITEM 11. EXECUTIVE COMPENSATION.

With the  exception of the Chief  Executive  Officer,  the  compensation  of the
Company's  executive  officers is based on a  combination  of salary and bonuses
based on performance.  The Chief Executive Officer's  compensation consists of a
salary.

The Chief  Executive  Officer's  salary  varies only  slightly and is by his own
decision  relatively low. It is not expected to increase  materially in the near
future.  At such time as we become  consistently and sufficiently  profitable or
there is a reconsideration of our compensation  policy, the compensation payable
to the Chief Executive Officer may be reconsidered.  As presently existing,  the
Chief Executive Officer's  compensation  package includes no understandings with
respect to bonuses,  options or other incentives;  as such, it is not subject to
our general policy later discussed.

The Board of Directors  does not have a compensation  Committee.  Dr. Raymond V.
Damadian, President, Chief Executive Officer and Chairman of the Board, controls
over 50% of the voting  power of our  capital  stock.  Dr.  Damadian is the only
executive  officer  who is a member  of the  Board of  Directors.  Dr.  Damadian
participates in the determination of executive compensation for our officers.

The Board of Directors has  established an audit  committee.  The members of the
committee are Robert J. Janoff, Charles N. O'Data and Robert Djerejian.

Our compensation policy includes a combination of salary, commissions,  bonuses,
stock bonuses and stock options, designed to incentivize our employees. There is
no universal  plan  applicable to all of our  employees.  The fixed and variable
components of our employees' compensation tend to be individualized,  based on a
combination of the employees'  performance,  responsibilities and position,  our
assessment of how best to motivate a person in such a position and the needs and
preferences of the particular  employees,  as negotiated  between  employees and
their supervisors or management.

There is set forth in the following Summary  Compensation Table the compensation
provided  by us during  fiscal  2008 to our Chief  Executive  Officer,  who also
serves as our  acting  Principal  Financial  Officer.  There is set forth in the
following  Outstanding  Equity Awards Table and Director  Compensation Table the
required information.

The Company paid premiums for life insurance on its Chief Executive Officer. The
insurance policies are owned by a life insurance trust. The cash surrender value
of the life  insurance  policies in the  approximate  amount of $1.2 million was
contributed  to capital  during the first fiscal quarter of fiscal 2007 pursuant
to a split dollar agreement.




I.  SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
Name and                                              All
All Other                                            Other        Total
Principal                                           Compen-       Compen-
Total                       Salary        Bonus      sation        sation
Position        Year          ($)          ($)         ($)           ($)
    (a)          (b)          (c)          (d)         (i)           (j)
----------      ----      ----------      -----      -------      ----------
Raymond V.      2008      $90,087.83        -           -         $90,087.83
Damadian,       2007      $90,162.36        -           -         $90,162.36
President       2006      $93,059.68        -           -         $93,059.68
and CEO
--------------------------------------------------------------------------------

II. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Name           Number of       Option       Option
               Securities      Exercise     Expiration
               Underlying      Price        Date
               Unexercised     ($)
               Options
               (#)
               Exercisable
                   (a)            (b)           (c)
----------     -----------     --------     -----------
Raymond V.
Damadian,
CEO/CFO              463        28.125        12/26/10
--------------------------------------------------------------------------------

III. DIRECTOR COMPENSATION


Name                         Fees Earned or              Total
                            Paid in Cash ($)              ($)
        (a)                       (b)                     (c)
-------------------         ----------------         -----------
Raymond V. Damadian                     0                      0

Claudette J.V. Chan           $ 20,160.00            $ 20,160.00

Robert J. Janoff              $ 20,000.24            $ 20,000.24

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

Robert Djerejian              $ 19,999.98            $ 19,999.98


EMPLOYEE COMPENSATION PLANS

Equity Compensation Plan Information as of June 30, 2008

                    (a)                  (b)              (c)
Plan                Number of            weighted-        Number of securities
category            securities           average          remaining available
                    to be issued         exercise         for future issuance
                    upon exercise        price of         under equity
                    of outstanding       outstanding      compensation plans
                    options,             options,         (excluding securities
                    warrants             warrants         reflected in
                    and rights           and rights       column (a)
--------------      ---------------      -----------      ---------------------
Equity
compensation
plans approved
by security
holders                  97,400            $ 30.66             $ 130,943

Equity
compensation
plans not
approved by
security
holders                    -                  N/A                   -
                    ===============      ===========      =====================
Total                    97,400            $ 30.66             $ 130,943

Fonar's 1993 Incentive Stock Option Plan, adopted on March 26, 1993,  terminated
on March 25, 2003.   During the year ended June 30, 2008, 2,360 options expired,
therefore,  there are no options that were issued under the FONAR 1993 plan that
remain outstanding.

Fonar's 1997 Nonstatutory  Stock Option Plan,  adopted on May 9, 1997 terminated
on May  8,  2007.  Of  the  options  granted  under  this  plan,  78,166  remain
outstanding.

Fonar's 2002 Incentive  Stock Option Plan,  adopted on July 1, 2002, is intended
to qualify as an incentive  stock option plan under Section 422A of the Internal
Revenue Code of 1954, as amended.  The 2002 Incentive  Stock Option Plan permits
the issuance of stock options  covering an aggregate of 100,000 shares of Common
Stock of Fonar.  The  options  have an  exercise  price equal to the fair market
value  of  the  underlying  stock  on  the  date  the  option  is  granted,  are
nontransferable, are exercisable for a period not exceeding ten years and expire
upon the voluntary  termination of  employment.  The 2002 Stock Option Plan will
terminate on June 30,  2012.  As of June 30,  2008,  options to purchase  50,943
shares of Common Stock of Fonar were  available for future grant under the plan.
Of the options granted under this plan 19,234 remain outstanding.

Fonar's  2005  Incentive  Stock Option  Plan,  adopted on February 15, 2005,  is
intended to qualify as an incentive  stock option plan under Section 422A of the
Internal  Revenue  code of 1954,  as amended.  The Plan  permits the issuance of
stock  options  covering an aggregate of 80,000 shares of common stock of Fonar.
The  options  have an  exercise  price  equal  to the fair  market  value of the
underlying stock on the date the option is granted,  are  non-transferable,  are
exercisable for a period not exceeding ten years,  and expire upon the voluntary
termination of  employment.  The Plan will terminate on February 14, 2015. As of
June 30, 2008,  80,000 shares of common stock of Fonar were available for future
grant under this plan.

Fonar adopted its  2007 Stock Bonus Plan, on  August 7, 2007.  This Plan permits
Fonar to issue an  aggregate of 100,000 shares of common stock of Fonar as bonus
or compensation.  As of  September 24, 2008,  69,932 shares  were available  for
issuance.

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 terminated on March 9, 2007.

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  excerciseability  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.

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.


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

The  following  table sets forth the number and  percentage of shares of Fonar's
securities held by each director, by each person known by us to own in excess of
five percent of Fonar's voting securities and by all officers and directors as a
group as of September 15, 2008.

Name and Address of                      Shares            Percent
Beneficial Owner (1)                Beneficially Owned     of Class
-------------------------------     ------------------     --------
Raymond V. Damadian, M.D.
c/o Fonar Corporation
Melville, New York
 Director, President, Treasurer
 CEO, 5% + Stockholder
    Common Stock                         120,302             2.46%
    Class C Stock                        382,447            99.98%
    Class A Preferred                     19,093             6.09%

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

Robert J. Janoff
Director
    Common Stock                           3,600              *
    Class A Preferred                         80              *

Charles N. O'Data
Director
    Common Stock                              28              *

Robert Djerejian
Director
    Common Stock                                0             *

All Officers and Directors
as a Group (5 persons)
    Common Stock                          124,036            2.54%
    Class C Stock                         382,447           99.98%
    Class A Preferred                      19,205            6.13%
___________________________
*   Less than one percent

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


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Background.

Between 1990 and 1996, Raymond V. Damadian, M.D. MRI Scanning Centers Management
Company,  also  referred  to as  "RVDC",  a  Delaware  corporation  of which Dr.
Damadian was the sole stockholder,  director and President, purchased and leased
scanners  from  Fonar  to  establish  a  network  of  professional  corporations
operating MRI scanning centers, also referred to as the "Centers",  in New York,
Florida,  Georgia and other locations.  Dr. Raymond V. Damadian is the Chairman,
President and principal  stockholder  of Fonar and was also the owner,  director
and  President of each of these  professional  corporations.  RVDC  provided the
necessary  management  and the  scanners  to the  Centers,  although  in certain
situations, a Center would acquire the scanner directly from Fonar.

ACQUISITION OF RVDC.

Effective June 30, 1997,  Fonar's  wholly-owned  subsidiary,  Health  Management
Corporation  of  America,  also  referred to as "HMCA",  formerly  known as U.S.
Health Management Corporation, acquired RVDC by purchasing all of the issued and
outstanding  shares of RVDC from Dr. Damadian for 400 shares of the Common Stock
of Fonar. The transactions  can be rescinded by Dr.  Damadian,  however,  in the
event of a change of control in Fonar or the  bankruptcy  of Fonar.  There is no
time limit on the right to rescind.  In connection with the  transaction,  Fonar
granted  RVDC a  nonexclusive  royalty  free  license  to  Fonar's  patents  and
software.  These  licenses  may be  terminated  by  Fonar  in the  event  of the
bankruptcy of RVDC or a change in control of RVDC.

AGREEMENTS WITH HMCA

Effective  July 1, 1997,  new  management  agreements  were  entered into by the
Centers and HMCA.  Since that time  certain of the  original  Centers  have been
closed and new Centers  opened.  Each new Center also  entered into a management
agreement with HMCA.

Pursuant  to  the  management  agreements,   HMCA  is  providing   comprehensive
management and administrative services and office facilities,  including billing
and collection of accounts,  payroll and accounts payable  processing,  supplies
and utilities to the Centers.  Under the  management  agreements,  HMCA provides
service through Fonar for the scanners at the Centers.  In total, 11 MRI Centers
have management  agreements  with HMCA. Dr.  Damadian was the sole  stockholder,
director and president of each of the Centers.

The fees to HMCA under the management agreements with the MRI Centers were based
on the number of procedures performed.

At the end of fiscal 2007, Dr. Damadian sold all of his stock in the MRI Centers
located in New York State. The new owner is one of the radiologists who has been
reading and interpreting scans performed at those facilities. In connection with
the sale, HMCA entered into new management agreements with the MRI Centers under
which HMCA performs  essentially  the same services for the MRI Centers as prior
to the sale.  The fees  charged,  however,  are flat fees  charged  on a monthly
basis.

Dr.  Damadian  remains  the owner of three MRI  Centers  in  Florida  and one in
Georgia.  The fees payable to HMCA for its services to these MRI Centers  remain
based on the number of procedures  performed,  ranging between $300 and $400 per
procedure.

During the fiscal  years ended June 30, 2008 and June 30, 2007 the net  revenues
received by HMCA from the MRI Centers owned by Dr.  Damadian were  approximately
$3.7 million and $11.9 million respectively.

OTHER TRANSACTIONS

Robert Janoff, a director of the Company, was a limited partner in a partnership
in which we had a 92%  partnership  interest.  The  partnership  manages  an MRI
scanning  center in Bensonhurst,  Brooklyn,  New York and was party to a service
contract  at an annual rate of $110,000 on its scanner for the period of July 1,
2007 through June 30, 2008. We sold our interest in the  partnership  at the end
of September, 2008.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The  aggregate  fees billed by Marcum & Kliegman LLP for the audit of our annual
consolidated  financial  statements  for the fiscal year ended June 30, 2008 and
the  reviews  of the  financial  statements  included  in our Forms 10-Q for the
fiscal year ended June 30, 2008 were $574,674. An audit of internal controls was
not required this year.

The  aggregate  fees billed by Marcum & Kliegman LLP for the audit of our annual
financial  statements  for the fiscal year ended June 30, 2007 and our  internal
controls,  and the reviews of the  financial  information  included in our Forms
10-Q for the fiscal year ended June 30, 2007 were $679,052.

Audit Related Fees

No fees were billed by Marcum & Kliegman LLP for the fiscal years ended June 30,
2008 or June 30,  2007 for  services  related  to the  audit  or  review  of our
financial statements that are not included under the caption "Audit Fees".

No fees were billed by Marcum & Kliegman LLP for the fiscal years ended June 30,
2008 or June 30, 2007 for designing, operating,  supervising or implementing any
of our financial information systems or any hardware or software systems for our
financial information.

Tax Fees

The  aggregate  fees  billed by Marcum & Kliegman  LLP for tax  compliance,  tax
advice and tax planning in the fiscal year ended June 30, 2008 were $115,668.

The  aggregate  fees  billed by Marcum & Kliegman  LLP for tax  compliance,  tax
advice and tax planning in the fiscal year ended June 30, 2007 were $153,337.

All Other Fees

The  aggregate  fees  billed by  Marcum &  Kliegman  LLP for all other  services
rendered by them  during the fiscal  years ended June 30, 2008 and June 30, 2007
were $6,125 and $49,878,  respectively,  which  included  services in connection
with the  registration of securities,  employee  benefit plan audits and reviews
and  procedures  that we  requested  Marcum & Kliegman to  undertake  to provide
assurances on matters not required by laws or regulations.

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

Our audit  committee  believes  that the  provision  by Marcum & Kliegman LLP of
services in addition to audit  services in fiscal 2008 and 2007 were  compatible
with maintaining their independence.



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

a) FINANCIAL STATEMENTS AND SCHEDULES

The following consolidated financial statements are included in Part II, Item 8.

     Report of Independent Registered Public Accounting Firm

     Report of Independent Registered Public Accounting Firm on Internal Control
over Financial Reporting.

     Consolidated Balance Sheets as at June 30, 2008 and 2007.

     Consolidated  Statements of  Operations  for the Three Years Ended June 30,
2008, 2007 and 2006.

     Consolidated  Statements of Stockholders'  Equity for the Three Years Ended
June 30, 2008, 2007 and 2006.

     Consolidated  Statements  of Cash Flows for the Three  Years Ended June 30,
2008, 2007 and 2006.

     Notes to Consolidated Financial Statements.

     Information required by schedules called for under Regulation S-X is either
not applicable or is included in the consolidated  financial statements or notes
to the financial statements.


b) REPORTS ON FORM 8-K

     None.

c) EXHIBITS

     3.1   Certificate  of   Incorporation,   as  amended,   of  the  Registrant
incorporated  by  reference  to  Exhibit  3.1 to the  Registrant's  registration
statement on Form S-1,Commission File No. 33-13365.

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

     3.3 Section A of Article  Fourth of the  Certificate of  Incorporation,  as
amended,  of the  Registrant  incorporated  by  reference  to Exhibit 4.3 to the
Registrant's registration statement on Form S-3, Commission File No. 333-63782.

     3.4 Section A of Article  Fourth of the  Certificate of  Incorporation,  as
amended,  of the  Registrant  incorporated  by  reference  to Exhibit 3.3 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2003,
Commission File No. 0-10248.

     3.5 By-Laws,  as amended,  of the Registrant  incorporated  by reference to
Exhibit 3.2 to the Registrant's  registration  statement on Form S-1, Commission
File No. 33-13365.

     4.1 Specimen Common Stock Certificate  incorporated by reference to Exhibit
4.1 to the Registrant's  registration statement on Form S-1, Commission File No.
33-13365.

     4.2 Specimen Class B Common Stock Certificate  incorporated by reference to
Exhibit 4.2 to the Registrant's  registration  statement on Form S-1, Commission
File No. 33-13365.


     4.3 Form of 4%  Convertible  Debentures due June 30, 2002  incorporated  by
reference to Exhibit 4.1 of the Registrant's current report on Form 8-K filed on
June 11, 2001. Commission File No. 0-10248.

     4.4 Form of Purchase  Warrants  incorporated by reference to Exhibit 4.2 of
the Registrant's  current report on Form 8-K filed on June 11, 2001.  Commission
File No. 0-10248.

     4.5 Form of Callable  Warrants  incorporated by reference to Exhibit 4.3 of
the Registrant's  current report on Form 8-K filed on June 11, 2001.  Commission
File No. 0-10248.

     4.6 Form of  Replacement  Callable  Warrants  incorporated  by reference to
Exhibit 4.7 of the Registrant's  registration statement on Form S- 3, Commission
File No. 333-10677.

     4.7 Form of Amended and Restated  Purchase  Warrant for The Tail Wind Fund,
Ltd.  incorporated by reference to Exhibit 4.7 of the  Registrants  registration
statement on Form S-3, Commission File No. 333-116908.

     4.8 Form of Amended and Restated  Purchase  Warrant for Placement Agent and
Designees   incorporated  by  reference  to  Exhibit  4.8  of  the  Registrant's
registration statement on Form S-3, Commission File No. 333- 116908.

     10.1  License  Agreement  between the  Registrant  and Raymond V.  Damadian
incorporated  by  reference  to Exhibit 10 (e) to Form 10-K for the fiscal  year
ended June 30, 1983, Commission File No. 0-10248.

     10.2 1983  Nonstatutory  Stock  Option Plan  incorporated  by  reference to
Exhibit 10 (a) to Form 10-K for the fiscal year ended June 30, 1983,  Commission
File No.  0-10248,  and  amendments  thereto dated as of March 7, 1984 and dated
August 22, 1984,  incorporated  by referenced to Exhibit 28 (a) to Form 10-K for
the year ended June 30, 1984, Commission File No. 0-10248.

     10.3 1984 Incentive Stock Option Plan  incorporated by reference to Exhibit
28 (c) to Form 10-K for the year ended  June 30,  1984,  Commission  File No. 0-
10248.

     10.4 1986  Nonstatutory  Stock  Option Plan  incorporated  by  reference to
Exhibit  10.7 to Form 10-K for the fiscal year ended June 30,  1986,  Commission
File No. 0-10248.

     10.5 1986 Stock Bonus Plan  incorporated  by  reference  to Exhibit 10.8 to
Form 10-K for the fiscal year ended June 30, 1986, Commission File No. 0-10248.

     10.6 1986 Incentive Stock Option Plan  incorporated by reference to Exhibit
10.9 to Form 10-K for the fiscal year ended June 30, 1986,  Commission  File No.
0-10248.

     10.7 Lease Agreement,  dated as of August 18, 1987,  between the Registrant
and Reckson  Associates  incorporated by reference to Exhibit 10.26 to Form 10-K
for the fiscal year ended June 30, 1987, Commission File No. 0-10248.

     10.8 1993 Incentive Stock Option Plan  incorporated by reference to Exhibit
28.1 to the Registrant's registration statement on Form S-8, Commission File No.
33-60154.

     10.9 1993  Non-Statutory  Stock  Option Plan  incorporated  by reference to
Exhibit 28.2 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-60154.

     10.10 1993 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.3 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
60154.

     10.11 1994  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-81638.

     10.12 1994 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
81638.

     10.13 1995  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No. 33-62099.

     10.14 1995 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the  Registrant's  registration  statement on Form S-8,  Commission File No. 33-
62099.

     10.15 1997  Non-Statutory  Stock Option Plan  incorporated  by reference to
Exhibit 28.1 to the Registrant's  registration statement on Form S-8, Commission
File No.: 333-27411.

     10.16 1997 Stock Bonus Plan  incorporated  by  reference to Exhibit 28.2 to
the Registrant's  registration  statement on Form S-8,  Commission File No: 333-
27411.

     10.17 Stock  Purchase  Agreement,  dated July 31, 1997, by and between U.S.
Health  Management  Corporation,  Raymond V. Damadian,  M.D. MR Scanning Centers
Management Company and Raymond V. Damadian, incorporated by reference to Exhibit
2.1 to the Registrant's Form 8-K, July 31, 1997, commission File No: 0-10248.

     10.18 Merger Agreement and  Supplemental  Agreement dated June 17, 1997 and
Letter of  Amendment  dated June 27,  1997 by and among U.S.  Health  Management
Corporation and Affordable Diagnostics Inc. et al., incorporated by reference to
Exhibit 2.1 to the  Registrant's  8-K,  June 30,  1997,  Commission  File No: 0-
10248.

     10.19 Stock  Purchase  Agreement  dated March 20, 1998 by and among  Health
Management Corporation of America, Fonar Corporation,  Giovanni Marciano,  Glenn
Muraca et al.,  incorporated by reference to Exhibit 2.1 to the  Registrant's 8-
K, March 20, 1998, Commission File No: 0-10248.

     10.20 Stock  Purchase  Agreement  dated August 20, 1998 by and among Health
Management Corporation of America, Fonar Corporation, Stuart Blumberg and Steven
Jonas, incorporated by reference to Exhibit 2 to the Registrant's 8-K, September
3, 1998, Commission File No. 0-10248.

     10.21 2000 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  Statement on Form S-8, Commission File No.: 333-
66760.

     10.22 2002 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8, Commission File No.: 333-
89578.

     10.23 2002 Incentive Stock Option Plan incorporated by reference to Exhibit
99.1 to the  Registrant's  registration  statement on Form S-8,  Commission File
No.: 333-96557.

     10.24 2003 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8,  Commission File No: 333-
106626.

     10.25 2003  Supplemental  Stock Bonus Plan  incorporated  by  reference  to
Exhibit 99.1 to the Registrant's  registration statement on Form S-8, Commission
File No: 333-106626.

     10.26 2004 Stock Bonus Plan  incorporated  by  reference to Exhibit 99.1 to
the Registrant's  registration  statement on Form S-8,  Commission File No. 333-
112577.

     10.27 2005 Stock Bonus plan  incorporated  by  reference to Exhibit 99.1 to
the  Registrant's  registration  statement  on Form  S-8,  Commission  File  No.
333-122859.

     10.28 2005  Supplemental  Stock Bonus plan  incorporated  by  reference  to
Exhibit 99.1 to the Registrant's registration statement on Form S- 8, Commission
File No. 333-126658.

     10.29 Purchase  Agreement  dated May 24, 2001 by and between the Registrant
and The Tail Wind Fund Ltd.  incorporated  by  reference  to Exhibit 10.1 to the
Registrant's current report on Form 8-K filed June 11, 2001. Commission File No.
0-10248.

     10.30  Registration  Rights  Agreement  dated May 24, 2001 by and among the
Registrant, The Tail Wind Fund Ltd. and Roan Meyers, Inc. incorporated herein by
reference to Exhibit 10.2 to the  Registrant's  current report on Form 8-K filed
June 11, 2001. Commission File No. 0-10248.

     10.31 Amendment to Callable Warrant dated April 28, 2004 by and between The
Tail Wind Fund,  Ltd. and the  Registrant  incorporated  by reference to Exhibit
10.17 to the Registrant's  registration  statement on Form S-3,  Commission File
No. 333-116908.

     10.32  First  Amendment  to  Purchase  Warrant  dated April 28, 2004 by and
between The Tail Wind Fund, Ltd. and the Registrant incorporated by reference to
Exhibit 10.18 to the Registrant's registration statement on Form S-3, Commission
File No. 333-116908.

     10.33 Form of First Amendment to Purchase Warrant dated June 1, 2004 by and
between  each  of  Roan/Meyers  Associates,  L.P.  and  its  designees  and  the
Registrant,  incorporated  by  reference  to Exhibit  10.19 to the  Registrant's
registration statement on Form S-3, Commission File No. 333- 116908.

     10.34  Asset  Purchase  Agreement  dated July 28,  2005 among  Health  Plus
Management Services,  L.L.C., Health Management Corporation of America,  Dynamic
Healthcare Management, Inc. and Fonar Corporation,  incorporated by reference to
Exhibit 2 to the Registrant's  Form 8-K, August 2, 2005,  Commission File No. 0-
10248.

     10.35 Partnership  Interest Purchase  Agreement dated September 29, 2008 by
and between Diagnostic Management, LLC and Raymond V. Damadian, M.D. MR Scanning
Centers Management Company. See Exhibits.

     14.1  Code  of  Ethics,  incorporated  by  reference  to  Exhibit  14.1  of
registrant's Form 10-K for the fiscal year ended June 30, 2004,  Commission File
No.: 0-10248.

     21.1 Subsidiaries of the Registrant. See Exhibits.

     23.1 Independent Registered Public Accounting Firm's Report See Exhibits.

     31.1 Section 302 Certification. See Exhibits.

     32.1 Section 906 Certification. See Exhibits.

     99.1  Press  Release  on  Sale  to  Largest  Orthopedic   Hospital  in  the
Netherlands, incorporated by reference to Exhibit 99.1 of registrant's Form 10-K
for the fiscal year ended June 30, 2006, Commission File No.: 0-10248.


SIGNATURES

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

                               FONAR CORPORATION

Dated:  October 6, 2008

                               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 6, 2008
Raymond V. Damadian      Board of Directors,
                         President, Director
                         Principal Executive
                         Officer and Acting
                         Principal Financial
                         Officer)

/s/ Claudette J.V. Chan  Director and           October 6, 2008
Claudette J.V. Chan      Secretary


/s/ Robert J. Janoff     Director               October 6, 2008
Robert J. Janoff

/s/ Charles N. O'Data    Director               October 6, 2008
Charles N. O'Data

/s/ Robert Djerejian     Director               October 6, 2008
Robert Djerejian



                              CORPORATE INFORMATION

Corporate Headquarters

110 Marcus Drive
Melville, NY  11747
(631) 694-2929

Investor Relations

FONAR Corporation
110 Marcus Drive
Melville, NY  11747
(631) 694-2929

Stock Transfer Agency

Computershare Trust Company, Inc.
350 Indiana Street, Suite 800
Golden, Colorado  80401

Auditors

Marcum & 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

Claudette J.V. Chan
Secretary