<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q30213qq.txt
<TEXT>
                              FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

      [X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

      For the quarterly period ended    DECEMBER 31, 2002
                                      ----------------------------

      [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to
                                     ------------     -------------
      Commission file number  0-10248
                            ------------

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

             DELAWARE                          11-2464137
--------------------------------    ------------------------------------
(State or other jurisdiction of     (I.R.S. Employer Identification No.)
incorporation or organization)

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


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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).   YES X    NO
                                                 ---     ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the close of the period covered by this report.

            Class                     Outstanding at February 10, 2003
--------------------------------    ---------------------------------------
Common Stock, par value $.0001                      76,680,706
Class B Common Stock, par value $.0001                   4,153
Class C Common Stock, par value $.0001               9,562,824
Class A Preferred Stock, par value $.0001            7,836,287





<PAGE>

FONAR CORPORATION AND SUBSIDIARIES
INDEX

PART I - FINANCIAL INFORMATION                                  PAGE


Item 1.  Financial Statements

   Condensed Consolidated Balance Sheets - December 31, 2002
     (Unaudited) and June 30, 2002                                     3

   Condensed Consolidated Statements of Operations for
     the Three Months Ended December 31, 2002 and
     December 31, 2001 (Unaudited)                                     5

   Condensed Consolidated Statements of Operations for
     the Six Months Ended December 31, 2002 and
     December 31, 2001 (Unaudited)                                     6

   Condensed Consolidated Statements of Comprehensive
     Income (Loss) for the Three Months Ended
     December 31, 2002 and December 31, 2001 (Unaudited)               7

   Condensed Consolidated Statements of Comprehensive
     Income (Loss) for the Six Months Ended
     December 31, 2002 and December 31, 2001 (Unaudited)               7

   Condensed Consolidated Statements of Cash Flows for
     the Six Months Ended December 31, 2002 and
     December 31, 2001 (Unaudited)                                     8


   Notes to Condensed Consolidated Financial Statements (Unaudited)   10

Item 2. Management's Discussion and Analysis of Financial             19
        Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About                25
        Market Risk

Item 4. Controls and Procedures                                       25

PART II - OTHER INFORMATION                                           26

Item 1. Legal Proceedings                                             26

Item 2. Changes in Securities                                         26

Item 3. Defaults Upon Senior Securities                               26

Item 4. Submission of Matters to a Vote of Security Holders           26

Item 5. Other Information                                             26

Item 6. Exhibits and Reports on Form 8-K                              26


                                     Page 2
<PAGE>

FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED)

ASSETS                                                  December 31,   June 30,
                                                           2002         2002
                                                        (UNAUDITED)
Current Assets:                                            ---------   ---------
  Cash and cash equivalents                                $  4,890    $  7,494

  Marketable securities                                       5,743       5,573

  Restricted cash                                             5,500       5,500

  Accounts receivable - net                                   1,501         781

  Accounts receivable - related medical practices - net      12,936      13,311

  Costs and estimated earnings in excess
    of billings on uncompleted contracts                      1,308       1,153

  Inventories                                                 3,955       4,664

  Investment in sales-type leases with related parties          119       1,797

  Investment in sales-type lease                                127         120

  Prepaid expenses and other current assets                   1,986       1,102
                                                           ---------   ---------
        Total current assets                                 38,065      41,495
                                                           ---------   ---------

Property and equipment - net                                  9,325      10,596

Advances and notes to related parties - net                   1,274       1,497

Investment in sales-type leases - related parties               777         815

Investment in sales-type lease                                  676         741

Notes receivable                                                 89         175

Management agreements - net                                  14,028      14,520

Other intangible assets - net                                 3,059       2,649

Other assets                                                    348         342
                                                           ---------   ---------
                                                           $ 67,641    $ 72,830
                                                           =========   =========


See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).



                                     Page 3
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED)
                                                        December 31,    June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                        2002          2002
                                                         (UNAUDITED)
Current Liabilities:                                       ---------   ---------
  Current portion of long-term debt and capital leases     $  8,642    $  9,776
  Accounts payable                                            6,396       4,077
  Other current liabilities                                   7,980       7,556
  Customer advances                                           3,149       4,308
  Customer advances - related parties                           991       3,400
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                         1,414       1,115
  Income taxes payable                                          758         758
                                                           ---------   ---------
      Total Current Liabilities                              29,330      30,990

Long-term debt and capital leases
   less current portion                                         333         833
Unearned revenue - license fee                                3,510       4,680
Other non-current liabilities                                   335         360
                                                           ---------   ---------
      Total Liabilities                                      33,508      36,863
                                                           ---------   ---------
Minority interest                                               199        272
                                                           ---------    --------
STOCKHOLDERS' EQUITY

Class A  non-voting  Preferred  Stock  $.0001  par
value; 8,000,000 authorized,  7,836,287 issued and
outstanding at December 31 and at June 30, 2002                   1           1

Common Stock $.0001 par value;  85,000,000  shares
authorized;  74,657,193  issued and outstanding at
December 31, 2002 and  71,582,243 at June 30, 2002                7           7

Class B Common Stock $ .0001 par value;  4,000,000
shares  authorized,  (10 votes per  share),  4,211
issued and outstanding at December 31 and June 30,
2002                                                              -           -

Class C Common Stock $.0001 par value;  10,000,000
shares authorized, (25 votes per share), 9,562,824
issued and  outstanding at December 31 and at June
30, 2002                                                          1           1

Paid-in capital in excess of par value                      123,720     120,156
Accumulated other comprehensive income                           61          85
Accumulated deficit                                         (88,510)    (82,883)
Notes receivable from stockholders                          (   671)    (   997)

Treasury stock, at cost - 291,064 shares of common
  stock at December 31 and at June 30, 2002                 (   675)    (   675)
                                                           ---------   ---------
      Total Stockholders' Equity                             33,934      35,695
                                                           ---------   ---------
      Total Liabilities and Stockholders' Equity           $ 67,641    $ 72,830
                                                           =========   =========
See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).
                                     Page 4
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(000's OMITTED, except per share data)
                                                      FOR THE THREE MONTHS ENDED
                                                                DECEMBER 31,
                                                           ---------------------
                                                              2002        2001
REVENUES                                                   ---------   ---------
  Product sales - net                                      $  5,933    $    480
  Product sales - related parties - net                       2,822       1,585
  Service and repair fees - net                                 594         472
  Service and repair fees - related parties - net               101          67
  Management and other fees - related medical
    practices - net                                           6,166       6,514
  License fees and royalties                                    732         648
                                                           ---------   ---------
     Total Revenues - Net                                    16,348       9,766
                                                           ---------   ---------
COSTS AND EXPENSES
  Costs related to product sales                              4,105         348
  Costs related to product sales - related parties            1,697       1,175
  Costs related to service and repair fees                      700         542
  Costs related to service and repair
    fees - related parties                                      122          77
  Costs related to management and other
    fees - related parties                                    3,696       4,349
  Research and development                                    1,358       1,254
  Selling, general and administrative                         6,120       5,078
  Compensatory element of stock issuances for
    selling, general and administrative expenses              1,059         627
  Provision for bad debts                                       114          42
  Amortization of management agreements                         246         305
                                                           ---------   ---------
     Total Costs and Expenses                                19,217      13,797
                                                           ---------   ---------
Loss From Operations                                        ( 2,869)    ( 4,031)

Financing Costs Paid in Stock and Warrants                        -     (   721)

Interest Expense                                           (    121)    (   207)

Interest Income                                                 191         244

Other Income (Expense)                                     (      2)    (     4)

Minority Interest in Income of Partnerships                (    117)         19
                                                           ---------   ---------
Loss Before Provision for Income Taxes                     (  2,918)    ( 4,700)

Provision for Income Taxes                                        3          10
                                                           ---------   ---------
NET LOSS                                                   $( 2,921)   $( 4,710)
                                                           =========   =========
Basic and Diluted Net Loss per share                        $(.04)       $(.08)
                                                           =========   =========

Weighted average number of shares outstanding               73,926      60,667
                                                           =========   =========
See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).
                                     Page 5
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(000's OMITTED, except per share data)
                                                        FOR THE SIX MONTHS ENDED
                                                                DECEMBER 31,
                                                           ---------------------
                                                              2002        2001
REVENUES                                                   ---------   ---------
  Product sales - net                                       $ 8,733    $ 1,516
  Product sales - related parties - net                       5,981      2,433
  Service and repair fees - net                               1,050        972
  Service and repair fees - related parties - net               164        109
  Management and other fees - related medical
    practices - net                                          12,698     13,657
  License fees and royalties                                  1,380      1,233
                                                           ---------   ---------
     Total Revenues - Net                                    30,006     19,920
                                                           ---------   ---------
COSTS AND EXPENSES
  Costs related to product sales                              5,985      1,067
  Costs related to product sales - related parties            3,583      1,920
  Costs related to service and repair fees                    1,380      1,095
  Costs related to service and repair
    fees - related parties                                      216        123
  Costs related to management and other
    fees - related parties                                    7,543      8,318
  Research and development                                    2,604      2,460
  Selling, general and administrative                        11,660      9,820
  Compensatory element of stock issuances for
    selling, general and administrative expenses              1,806      1,735
  Provision for bad debts                                       168        185
  Amortization of management agreements                         492        609
                                                           ---------   ---------
     Total Costs and Expenses                                35,437      27,332
                                                           ---------   ---------
Loss From Operations                                        ( 5,431)    ( 7,412)

Financing Costs Paid in Stock and Warrants                        -     ( 1,015)

Interest Expense                                            (   367)    (   562)

Interest Income                                                 447         533

Other Income (Expense)                                      (     3)         16

Minority Interest in Income of Partnerships                 (   269)    (   100)
                                                           ---------   ---------
Loss Before Provision for Income Taxes                      ( 5,623)    ( 8,540)

Provision for Income Taxes                                        4          17
                                                           ---------   ---------
NET LOSS                                                   $( 5,627)   $( 8,557)
                                                           =========   =========
Basic and Diluted Net Loss per share                         $(.08)      $(.14)
                                                           =========   =========

Weighted average number of shares outstanding                73,088     60,053
                                                           =========   =========

See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).
                                     Page 6
<PAGE>

FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(000'S OMITTED)


                                                      FOR THE THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                           ---------------------
                                                              2002        2001
                                                           ---------   ---------
Net loss                                                   $ (2,921)   $ (4,710)

Other comprehensive loss, net of tax:
    Unrealized losses on securities,
      net of tax                                             (   17)     (   35)
                                                           ---------   ---------
Total comprehensive loss                                   $ (2,938)   $ (4,745)
                                                           =========   =========

See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).


FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(000'S OMITTED)

                                                        FOR THE SIX MONTHS ENDED
                                                               DECEMBER 31,
                                                           ---------------------
                                                              2002        2001
                                                           ---------   ---------
Net loss                                                    $(5,627)   $ (8,557)

Other comprehensive income, net of tax:
    Unrealized gains on securities,
      net of tax                                                 61          66
                                                           ---------   ---------
Total comprehensive loss                                   $ (5,566)   $ (8,491)
                                                           =========   =========



See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).

                                     Page 7
<PAGE>

FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(000'S OMITTED)

                                                        FOR THE SIX MONTHS ENDED
                                                                DECEMBER 31,
                                                           ---------------------
                                                              2002       2001
                                                           ---------   ---------
Cash Flows from Operating Activities
 Net loss                                                  $( 5,627)   $( 8,557)
 Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
    Minority interest in net income of partnerships             269         100
    Depreciation and amortization                             2,299       2,567
    Provision for bad debts                                     168         185
    Compensatory element of stock issuances                   1,806       1,735
    Stock issued for professional services                      701         339
    Interest expense paid in stock                               10           -
    Financing costs paid in stock and warrants                    -       1,015
    Amortization of unearned license fee                    ( 1,170)    ( 1,170)
    (Increase) decrease in operating assets, net:
       Accounts and notes receivable                        (   340)        883
       Costs and estimated earnings in excess of
         billings on uncompleted contracts                  (   155)        466
       Inventories                                              709     (   978)
       Principal payments on sales type lease-related
         parties                                              1,716          30
       Principal payments on sales type lease                    58          66
       Prepaid expenses and other current assets            (   884)    (   468)
       Other assets                                         (     6)          1
       Receivables and advances to related parties              203     ( 1,265)
    Increase (decrease) in operating liabilities, net:
       Accounts payable                                       2,319     (   453)
       Other current liabilities                                591     (   135)
       Customer advances                                    ( 3,538)      1,327
       Billings in excess of costs and estimated
         earnings on uncompleted contracts                      299         223
       Other liabilities                                    (    25)         21
       Income taxes payable                                       -          12
                                                           ---------   ---------
Net cash used in operating activities                       (   597)    ( 4,056)
                                                           ---------   ---------











See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).
                                     Page 8
<PAGE>

FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(000'S OMITTED)

                                                        FOR THE SIX MONTHS ENDED
                                                                DECEMBER 31,
                                                           ---------------------
                                                              2002       2001
                                                           ---------   ---------
Cash Flows from Investing Activities:
  Sales (purchases) of marketable securities                (   194)         14
  Purchases of property and equipment                       (   439)    (   801)
  Costs of capitalized software development                 (   436)    (   354)
  Cost of patents and copyrights                            (   168)          -
                                                           ---------   ---------
Net cash used in investing activities                       ( 1,237)    ( 1,141)
                                                           ---------   ---------

Cash Flows from Financing Activities:
  Distributions to holders of minority interests            (   262)    (   167)
  Repayment of long-term debt and capital
    leases                                                  ( 1,612)    ( 2,917)
  Proceeds from exercise of stock options
     and warrants                                             1,104           -
                                                           ---------   ---------
Net cash used in financing activities                       (   770)    ( 3,084)
                                                           ---------   ---------

Decrease in Cash and Cash Equivalents                       ( 2,604)    ( 8,281)

Cash and Cash Equivalents Beginning of Period                 7,494      14,040
                                                           ---------   ---------
Cash and Cash Equivalents End of Period                     $ 4,890     $ 5,759
                                                           =========   =========

See  accompanying   notes  to  condensed   consolidated   financial   statements
(unaudited).
                                     Page 9
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2002
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by accounting  principles  generally  accepted in the United
States for complete  financial  statements.  In the opinion of  management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended December 31, 2002 are not  necessarily  indicative of the results that may
be expected for the fiscal year ending June 30, 2003.  For further  information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K filed on October 7, 2002 for the fiscal
year ended June 30, 2002.

NOTE 2 - DESCRIPTION OF BUSINESS

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

Health  Management  Corporation of America ("HMCA") was organized by the Company
in March 1997, as a wholly-owned  subsidiary,  in order to enable the Company to
expand  into the  business of  providing  comprehensive  management  services to
physicians' practices and other medical providers,  including diagnostic imaging
centers and ancillary  services.  The services  provided by the Company  include
development,  administration,  leasing of office space,  facilities  and medical
equipment,  provision  of  supplies,  staffing and  supervision  of  non-medical
personnel,   legal  services,   accounting,   billing  and  collection  and  the
development and implementation of practice growth and marketing strategies.

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


NOTE 3 - 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.


                                     Page 10
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Principles of Consolidation (Continued)

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

Use of Estimates

The  preparation of the  consolidated  financial  statements in conformity  with
accounting  principles  generally  accepted  in The  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities in the consolidated financial statements and accompanying notes. The
most significant  estimates relate to contractual and other  allowances,  income
taxes, contingencies and the useful lives of equipment. 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.

Inventories

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

Management Agreements

Management  agreements are being amortized using the  straight-line  method over
20-year term of the agreements.

Long-Lived Assets

The Company  periodically  assesses the  recoverability  of  long-lived  assets,
including  property and equipment,  intangibles and management  contracts,  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.

Earnings (Loss) Per Share

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

                                     Page 11
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings (Loss) Per Share (Continued)

earnings per share since they are  antidilutive.  In accordance  with EITF Topic
D-95, prior period's  earnings per share were restated.  Diluted earnings (loss)
per share reflects the potential dilution from the exercise or conversion of all
dilutive  securities  into common  stock based on the  average  market  price of
common shares outstanding during the period.

Options and warrants to purchase approximately 5,921,000 and 4,036,000 shares of
common stock were outstanding at December 31, 2002, and 2001, respectively,  but
were not included in the computation of diluted earnings per share due to losses
for all periods, as a result of the options and warrants being antidilutive.

Recent Accounting Pronouncements

In June 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141,  "Accounting for Business  Combinations" and SFAS No. 142,  "Accounting for
Goodwill and Other Intangible  Assets".  SFAS No. 141 requires that all business
combinations  be  accounted  for using the  purchase  method of  accounting  and
prohibits   the   pooling-of-interests   method  of   accounting   for  business
combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill,
which  arises  from  business  combinations  after  June  30,  2001,  cannot  be
amortized.  In addition,  SFAS No. 142 requires the  discontinuation of goodwill
amortization and the amortization of intangible assets with indeterminate  lives
effective the date the Company  adopts the statement.  The Company  adopted SFAS
No. 141 and SFAS No. 142 on July 1, 2001.

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

In April 2002,  the FASB issued SFAS No. 145 ("SFAS 145"),  "Rescission  of FASB
Statement  No. 4, 44 and 64,  Amendment of FASB  Statement No. 13, and Technical
Corrections."  The  rescission of SFAS No. 4,  "Reporting  Gains and Losses from
Extinguishments",  and SFAS No.  64,  "Extinguishments  of Debt Made to  Satisfy
Sinking Fund  Requirements",  which amended SFAS No. 4, affects income statement
classification  of gains and losses  from  extinguishment  of debt.  The Company

                                    Page 12
<PAGE>

                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

adopted SFAS 145 on January 1, 2002 on a prospective  basis and the adoption did
not have a significant impact to the consolidated financial statements.

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

On December 31, 2002,  the FASB issued SFAS No.148 ("SFAS 148"),  Accounting for
stock-Based Compensation-Transition and Disclosure. SFAS 148 amends SFAS No. 123
("SFAS  123"),   Accounting  for  Stock  -Based  Compensation,   to  provide  an
alternative  method of  transition to SFAS 123's fair value method of accounting
for  stock-based  employee  compensation.  SFAS 148 also  amends the  disclosure
provisions of SFAS 123 and APB opinion No. 28, Interim Financial  Reporting,  to
require  disclosure  in the  summary of  significant  accounting  polices of the
effects of an entity's  accounting  policy with respect to stock-based  employee
compensation on reported net income and earnings per share in annual and interim
financial  statements.  While the  statement  does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure  provisions  of  SFAS  148  are  applicable  to  all  companies  with
stock-based employee  compensation,  regardless of whether they account for that
compensation  using the fair value  method of SFAS 123, or the  intrinsic  value
method of APB  opinion  No.  25.  The  Company  will  continue  to  account  for
stock-based  compensation according to APB opinion No. 25, while its adoption of
SFAS 148 will  require the Company to provide  prominent  disclosures  about the
effect of SFAS 123 on reported  income and will  require the Company to disclose
these  effects in the interim  financial  statements  as well  starting with the
quarter  ending March 31, 2003. The Company does not expect the adoption of SFAS
148 will have a significant  impact to the  consolidated  financial  position or
results of operations.

In  November  2002,  The FASB  issued FASB  Interpretation  No.45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  including  Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a company,  at
the time it issues a guarantee,  to recognize an initial  liability for the fair
value of  obligations  assumed under the  guarantee  and  elaborates on existing
disclosure  requirements  related to  guarantees  and  warranties.  The  initial

                                     Page 13
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

recognition  requirements  of FIN 45 are  effective  for  guarantees  issued  or
modified after December 31, 2002 and adoption of the disclosure  requirement are
effective for the Company  during the Company's  third quarter  ending March 31,
2003. The Company does not expect the adoption of FIN 45 will have a significant
impact on its consolidated financial position or results of operations.

In January 2003, the FASB issued FASB  Interpretation  No. 46 " Consolidation of
Variable Interest Entities,  an Interpretation of ARB No. 51" ("FIN 46"). FIN 46
requires  certain variable  interest  entities to be consolidated by the primary
beneficiary of the entity if the equity  investors in the entity do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial support from other parties.  FIN 46 is effective for all
new variable  interest  entities created or acquired after January 31, 2003. The
provisions  of FIN 46 must be applied  for the first  interim  or annual  period
beginning  after June 15, 2003.  The Company is currently  evaluating the effect
that the adoption of FIN 46 will have on its results of operations and financial
condition.

Reclassifications

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

NOTE 4 - MARKETABLE SECURITIES

The following is a summary of marketable securities at December 31, 2002:

                                 (000's omitted)


                                   Unrealized       Fair
                                    Holdings        Market
                      Cost            Gains         Value
                      ------       ----------       -------
U.S. Government       $3,883        $    14         $3,897
 Obligations
Corporate bonds        1,799             47          1,846
                      ------         -------        ------
                      $5,682        $    61         $5,743
                      ======         =======        ======








                                     Page 14
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 5 - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net is comprised of the following at December 31, 2002:
                                           (000's omitted)
                                            Allowance for
                                              Doubtful
                                            accounts  and
                                Gross        contractual
                              Receivable     allowances         Net
                              ----------    -------------     -------
Receivable from equipment
  sales and service contracts  $ 2,578         $ 1,077        $ 1,501
                               =======         =======        =======
Receivables from related PC's  $15,065         $ 2,129        $12,936
                               =======         =======        =======

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

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

Collection  by the  Company of its  accounts  receivable  may be impaired by the
uncollectibility of medical fees from third party payors, particularly insurance
carriers covering  automobile  no-fault and workers  compensation  claims due to
longer payment cycles and rigorous informational requirements. Approximately 58%
and 56% of the PC's net revenues for the six months ended  December 31, 2002 and
2001,  respectively,  were derived from no-fault and personal injury  protection
claims.  The  Company  considers  the  aging  of  its  accounts   receivable  in
determining  the amount of  allowance  for  doubtful  accounts  and  contractual
allowances.  The Company takes all legally  available steps,  including  legally
prescribed  arbitrations,  to collect its receivables.  Credit losses associated
with the receivables are provided for in the consolidated  financial  statements
and have historically been within management's expectations.

Net revenues  from the related  PC's,  including  product  sales,  accounted for
approximately  63% and 81% of the  consolidated  net revenues for the six months
ended December 31, 2002 and 2001, respectively.

Unaudited Financial Information of Unconsolidated Managed Medical Practices

Summarized  income  statement  data for the six months  ended  December 31, 2002
related to the 21 unconsolidated  medical practices managed by the Company is as
follows:
                                           (000's omitted)
Patient Revenue - Net                          $17,279
                                               =======
Income from Operations                         $   495
                                               =======
Net Income                                     $    17
                                               =======
                                    Page 15
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 6 - INVENTORIES

Inventories included in the accompanying consolidated balance sheet consist of:

                                 (000's omitted)
                                  Dec 31, 2002
                                 --------------
Purchased parts, components
   and supplies                      $2,821
Work-in-process                       1,134
                                     -------
                                     $3,955
                                     =======

NOTE 7 - COSTS AND  ESTIMATED  EARNINGS ON  UNCOMPLETED  CONTRACTS  AND CUSTOMER
ADVANCES

                                 (000's omitted)
1) Information  relating to uncompleted  contracts as of December 31, 2002 is as
follows:


Costs incurred on uncompleted Contracts         $7,567
Estimated earnings                               4,475
                                                -------
                                                12,042

Less:     Billings to date                      12,148
                                                -------
                                                $ (106)
                                                =======
Included in the  accompanying  consolidated  balance  sheet under the  following
captions:

     Costs and estimated earnings in excess of
       Billings on uncompleted contracts             $1,308
     Billings in excess of  costs and estimated
       Earnings on uncompleted contracts             (1,414)
                                                     -------
                                                     $ (106)
                                                     =======
2)                                      Customer   advances  consist  of  the
                                        following: As of December 31, 2002
                                        ----------------------------------
                                                    Related
                                         Total      Parties    Other
                                        --------    --------  -------
Total advances from customers           $16,288     $ 6,690   $ 9,598
Less:  Advances from customers
       on contracts under construction   12,148       5,699     6,449
                                        -------     -------    ------
                                        $ 4,140     $   991   $ 3,149
                                        =======     =======    ======
                                     Page 16
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 8 - STOCKHOLDERS' EQUITY

Common Stock

During the six months ended December 31, 2002:

a) The  Company  issued  1,043,240  shares  of  common  stock  to  employees  as
compensation of $1,293,657 under stock bonus plans.

b) The  Company  issued  336,380  shares of common  stock  valued at $375,051 to
consultants and others

c) The Company issued 580,259 shares of common stock for  professional  services
of $700,909.

d) The Company  issued  27,571  shares of common stock and received  proceeds of
$31,203 upon the exercise of stock options.

e) The Company issued 1,000,000 shares of common stock and received  proceeds of
$1,125,000 upon the exercise of warrants.

Subsequent  to December 31, 2002,  the Company  issued  approximately  1,000,000
shares of common stock to employees,  consultants and for professional services,
and 1,000,000  shares of 1,300,000 shares issued in exchange for options held by
a related party to acquire  approximately  20% of the stock of HMCA at a nominal
exercise price.

During the six months ended December 31, 2001:

a) The Company issued 234,083 shares of common stock for  professional  services
of $338,563.

b)  The  Company   issued  579,015  shares  of  common  stock  to  employees  as
compensation of $910,094 under stock bonus plans.

c) The Company issued 231,295 shares of common stock for consulting  services of
$343,038.

Warrants

During the first quarter of fiscal 2003 in accordance  with our agreements  with
The Tail Wind Fund, Ltd., the Company issued  replacement  callable  warrants to
purchase  2,000,000  shares,  on the same terms as the  original  warrants.  The
exercise price of these replacement callable warrants will vary depending on the
market price of the stock,  subject to a minimum  exercise price of $2 per share
and maximum of $6 per share.










                                     Page 17
<PAGE>
                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
                                   (UNAUDITED)

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

During the six  months  ended  December  31,  2002 and 2001,  the  Company  paid
approximately  $353,000 and $428,000 for  interest,  respectively.  In addition,
during the six  months  ended  December  31,  2002 and 2001,  the  Company  paid
approximately $3,000 and $0 for income taxes, respectively.

During the six months ended  December 31, 2002, the Company issued 87,500 shares
of the common  stock,  valued at  $90,125,  as  compensation  to the holder of a
minority interest in certain limited partnerships involving MRI facilities.

NOTE 10 - SEGMENT AND RELATED INFORMATION

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

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting  policies as disclosed in the Company 10-K as
of June  30,  2002.  All  inter-segment  sales  are  market-based.  The  Company
evaluates performance based on income or loss from operations.

Summarized financial information concerning the Company's reportable segments is
shown in the following table:
                                 (000's omitted)
                                                          Physician
                                               Medical    Management
                                              Equipment    Services     Total
                                              ---------   ----------   --------
For the six months ended December 31, 2002:

Net revenue from external customers            $17,308     $12,698     $30,006
Inter-segment net revenues                     $   719        ---      $   719
Operating loss                                 $(4,712)    $  (719)    $(5,431)
Depreciation and amortization                  $ 1,267     $ 1,032     $ 2,299
Compensatory element of stock issuances        $   486     $ 1,320     $ 1,806
Total identifiable assets                      $36,002     $31,639     $67,641
Capital expenditures                           $   190     $   249     $   439

For the six months ended December 31, 2001:

Net revenue from external customers            $ 6,263     $13,657     $19,920
Inter-segment net revenues                     $   578       ---       $   578
Operating (loss) income                        $(7,971)    $   559     $(7,412)
Depreciation and amortization                  $ 1,279     $ 1,288     $ 2,567
Compensatory element of stock issuances        $   854     $   881     $ 1,735
Total identifiable assets                      $40,434     $36,090     $76,524
Capital expenditures                           $   516     $   285     $   801

NOTE 11 - FOREIGN SALES

During the six months ended  December 31, 2002 and 2001, the Company had foreign
revenues of approximately $388,000 and $449,000, respectively.

                                     Page 18
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     For the fiscal  quarter ended  December 31, 2002 (second  quarter of fiscal
2003),  the  Company  reported a net loss of $2.9  million on  revenues of $16.3
million as  compared to a net loss of $4.7  million on revenues of $9.8  million
for the second quarter of fiscal 2002.

     For the six month period ended  December 31, 2002,  the Company  reported a
net loss of $5.6 million on revenues of $30  million,  as compared to a net loss
of $8.6  million on revenues of $19.9  million  for the six month  period  ended
December 31, 2001.

     The  Company's  revenues  increased by 19% from $13.7 million for the first
quarter  of  fiscal  2003 (on which the  Company  recognized  a net loss of $2.7
million) to $16.3  million  for the second  quarter of fiscal 2003 (on which the
Company recognized a net loss of $2.9 million).

     The  Company  operates  in  two  industry  segments:  the  manufacture  and
servicing of medical (MRI) equipment,  the Company's  traditional business which
is conducted directly by Fonar and physician and diagnostic management services,
which is conducted through Fonar's  wholly-owned  subsidiary,  Health Management
Corporation of America ("HMCA").

     MRI equipment sales  increased  dramatically by 277%, from $3.9 million for
the first six months of fiscal 2002 to $14.7 million for the first six months of
fiscal 2003,  reflecting  increased sales of the Stand-Up MRI scanners.  Service
and repair revenues  increased by 9%, from $1.1 million for the first six months
of  fiscal  2002 to $1.2  million  for the first  six  months  of  fiscal  2003.
Consequently,  overall  revenues  recognized  by  the  Company's  MRI  equipment
manufacturing  and service  business  increased by 174% from $6.3 million in the
first six  months of fiscal  2002 to $17.3  million  in the first six  months of
fiscal 2003. There were significant increases in scanner sales to both unrelated
parties,  from  $1.5  million  in the first  six  months of fiscal  2002 to $8.7
million in the first six months of fiscal  2003  (480%) and to related  parties,
from $2.4  million in the first six months of fiscal 2002 to $6.0 million in the
first six months of fiscal 2003 (150%). As a result, the operating loss from the
Company's MRI equipment manufacturing and service business improved to a loss of
$4.7  million for the six months of fiscal 2003 from a loss of $8.0  million for
the first six months of fiscal 2002.

     The dramatic  increase in product sales reflected market  acceptance of the
Company's Stand-Up(TM) MRI scanners. During the first six months of fiscal 2003,
revenues  of   approximately   $14.2  million  were  recognized  from  sales  of
Stand-Up(TM)  MRI scanners and $100,000 from the sale of a refurbished  Beta MRI
scanner.  During the first six months of fiscal  2002,  the  Company  recognized
revenues  of  approximately  $3.9  million  from  the sale of  Stand-Up(TM)  MRI
scanners and $48,000 from the sales of QUAD(TM) scanners.

     There were  approximately  $388,000 in foreign sales revenues for the first
six months of fiscal 2003 as compared to approximately $449,000 in foreign sales
revenues for the first six months in fiscal 2002.




                                     Page 19
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

     HMCA,  which  provides  physician  and  diagnostic   management   services,
experienced  an  operating  loss of $719,000  for the first six months of fiscal
2003 compared to operating income of $559,000 for the first six months of fiscal
2002. The decline in HMCA income was attributable to lower revenues reflecting a
decline in  management  fees  ($12.7  million for the first six months of fiscal
2003 compared to $13.7 million for the first six months of fiscal 2002) from the
facilities and medical  practices  managed by HMCA. The principal  cause for the
decline in HMCA revenues was the closing of eight facilities (six in fiscal 2002
and two in fiscal 2003) and the continuing  decline in management  fees from the
primary care medical practices managed by HMCA.

     Accordingly, the Company's consolidated operating loss was $5.4 million for
the first six months of fiscal 2003 as compared to a consolidated operating loss
of $7.4  million  for the first  six  months of  fiscal  2002,  representing  an
improvement of 27%.

     Although the Company's  scanner sales increased  significantly  from fiscal
2002,  increased  costs and expenses,  together with a decline in management fee
revenues  recognized  by  HMCA,  are the  principal  reasons  for the  Company's
improved but continuing operating losses. Product sales revenues attributable to
the Company's medical (MRI) equipment  business were $14.7 million for the first
six months of fiscal 2003 as  compared to $3.9  million for the first six months
of fiscal 2002.  Costs of revenues  attributable to the Company's  product sales
were $9.6  million  for the first six months of fiscal  2003 as compared to $3.0
million for the first six months of fiscal 2002.

     As a result,  the Company  recognized a gross profit from product  sales of
$5.1 million and a gross profit margin of 35% for the first six months of fiscal
2003 as compared to a gross profit of $962,000 and a gross profit  margin of 24%
for the first six  months of fiscal  2002.  Our gross  profit  margin on product
sales increased as a result of greater efficiencies  realized as a result of our
increased sales volume and production levels.

     The Company's  efforts to improve  equipment  sales volume have  emphasized
increased  marketing and sales efforts and research and  development  to improve
the competitiveness of its products.

     As a result, we incurred expenses of approximately  $1.7 million in our new
advertising program, which includes television and radio advertising, during the
first six months of fiscal 2003. This was the principal reason selling,  general
and administrative  expenses increased from $9.8 million in the first six months
of fiscal 2002 to $11.7 million in the first six months of fiscal 2003. Research
and development  expenditures  increased  slightly by 4% to $2.6 million for the
first six months of fiscal 2003 as compared to $2.5 million the first six months
of fiscal 2002.

     Compensatory  element of stock  issuance  increased by 6% to  approximately
$1.8  million  for the first six months of fiscal 2002 from  approximately  $1.7
million  for the first six months of fiscal  2003,  reflecting  a greater use of
Fonar's stock bonus plan.

     Interest  expense  of  $367,000  in the  first six  months  of fiscal  2003
decreased by 35% as compared to $562,000 for the first six months of fiscal 2002
due to the repayment of  indebtedness.  In addition,  we had financing  costs of
$1.0  million  paid in stock and  warrants  in the  first six  months of 2002 as
compared to no such costs in the first six months of 2003.
                                     Page 20
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

     Inventories  declined  by 15% to  $4.0  million  at  December  31,  2002 as
compared  to $4.7  million  at June 30,  2002 as the  Company's  utilization  of
existing  inventory  exceeded  new  purchases of parts in the  manufacturing  of
scanners to fill orders.

     Accounts receivable increased to $14.4 million as at December 31, 2002 from
$14.1 million as at June 30, 2002,  primarily due to increased  receivables from
service contracts on MRI scanners.

     In July,  2000 General  Electric and the Company  entered into an agreement
under which General  Electric  agreed to act as a sales  representative  for the
Company's  Stand-Up(TM)  MRI  scanners.  Fonar has been working  closely with GE
Medical  Systems to assist  them in  marketing  the  Stand-Up(TM)  MRI.  General
Electric  has  purchased a total of four  Stand-Up MRI scanners to resell to its
customers, two of them in September 2002.

     The  Company's  Stand-Up(TM),  QUAD(TM)  and  Fonar-360(TM)  MRI  scanners,
together with the Company's  works-in-progress  (QUAD-S(TM) MRI) and other works
in progress,  are intended to  significantly  improve the Company's  competitive
position. In addition,  the Company offers a low cost open scanner, the Echo(TM)
MRI, operating at .3 Tesla field strength for its cost conscious customers.

     The Company's Stand-Up(TM) scanner, which operates at 6000 gauss (.6 Tesla)
field strength,  allows patients to be scanned while standing or reclining. As a
result,  for the first time,  MRI is able to be used to show  abnormalities  and
injuries  under  full  weight-bearing  conditions,  particularly  the  spine and
joints. A floor-recessed  elevator brings the patient to the height  appropriate
for the targeted image region. A custom-built adjustable bed will allow patients
to  sit  or  lie  on   their   backs,   sides   or   stomachs   at  any   angle.
Full-range-of-motion  studies of the joints in virtually any  direction  will be
possible, an especially promising feature for sports injuries.

     The  Stand-Up(TM)  will  also be  useful  for MRI  directed  neuro-surgical
procedures  as the surgeon would have  unhindered  access to the patient with no
restrictions  in the vertical  direction.  This  easy-entry,  mid-field-strength
scanner  should be ideal for trauma centers where a quick  MRI-screening  within
the first critical hour of treatment will greatly improve  patients' changes for
survival and optimize the extent of recovery.

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

     The Fonar  360(TM) is  presently  marketed as a  diagnostic  scanner and is
sometimes referred to as the Open Sky(TM) MRI. In its Open Sky(TM) version,  the
Fonar 360(TM) serves as an open patient friendly scanner which allows 360 access
to the patient on the scanner bed. To optimize the patient-friendly character of
the Open Sky(TM) MRI, the walls,  floor,  ceiling and magnet poles are decorated
with landscape  murals.  The patient gap is twenty inches and the magnetic field
strength,  like that of FONAR's  Stand-Up(TM)  and QUAD(TM) MRI scanner,  is 0.6
Tesla.
                                     Page 21
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

     In the  future,  we may also  develop  the Fonar  360(TM) to function as an
operating  room. We sometimes  refer to this  contemplated  version of the Fonar
360(TM) as the OR-360(TM).  In its OR-360(TM) version,  which is in the planning
stages, the enlarged room sized magnet and 360 access to the patient afforded by
the Fonar  360(TM)  would permit  full-fledged  surgical  teams to walk into the
magnet and perform  surgery on the patient inside the magnet.  Most  importantly
the  exceptional  quality of the MRI image and its  capacity  to exhibit  tissue
detail on the image,  can then be obtained real time during surgery to guide the
surgeon  in  the  surgery.  Thus  surgical  instruments,   needles,   catheters,
endoscopes  and the like could be  introduced  directly  into the human body and
guided  to the  malignant  lesion  by  means of the MRI  image.  The  number  of
inoperable  lesions should be greatly  reduced by the  availability  of this new
capability.  Most  importantly  treatment can be carried  directly to the target
tissue. The  interventional  OR-360(TM) version of the Fonar 360(TM) is still in
the planning  stages.  There is not a prototype.  A full range of MRI compatible
surgical instruments using ceramic cutting tools and beryllium-copper  materials
are commercial available.

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

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

     The Company expects marked demand for its most commanding MRI products, the
Stand-Up(TM)  and the Fonar  360(TM),  first for their  exceptional  features in
patient diagnosis and treatment.  These scanners  additionally  provide improved
image quality and higher imaging speed because of their higher field strength of
.6 Tesla.

Liquidity and Capital Resources

     Cash,  cash  equivalents  and marketable  securities  decreased by 19% from
$13.1 million at June 30, 2002 to $10.6 million at December 31, 2002.  Principal
uses of cash  during  the first  six  months of  fiscal  2003  included  capital
expenditures  of  $439,000,   repayment  of   indebtedness   and  capital  lease
obligations  in the amount of $1.6  million,  capitalized  software  development
costs of $436,000 and capitalized patent and trademark costs of $168,000.

     Marketable securities approximated $5.7 million as at December 31, 2002, as
compared to $5.6 million at June 30, 2002. At December 31, 2002, our investments
in  U.S.  Government   obligations  were  approximately  $3.9  million  and  our
investments in corporate and  government  agency bonds were  approximately  $1.8
million.  This has had the  intended  effect of reducing the  volatility  of the
Company's investment portfolio.

     Cash used by operating  activities  for the first six months of fiscal 2003
approximated  $597,000.  Cash  used by  operating  activities  was  attributable
substantially to our net loss for the period reduced by prepayments from related
parties on certain sales-type leases.



                                     Page 22
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

     Cash used in investing  activities  for the first six months of fiscal 2003
approximated $1.2 million.  The principal uses of cash from investing activities
during  the  first six  months of fiscal  2003  consisted  of  expenditures  for
property  and   equipment   and   capitalized   software  and  patent  costs  of
approximately $1.0 million and additional  investments in marketable  securities
of $194,000.

     Cash  used by  financing  activities  for the six  months  of  fiscal  2003
approximated $770,000. The principal uses of cash in financing activities during
the first six months of fiscal 2003  consisted  of  repayment  of  principal  on
long-term debt of approximately  $1.6 million and the principal sources were net
proceeds from exercises of stock options and warrants of $1.1 million.

     Total  liabilities  decreased by 9.2% during the first six months of fiscal
2003, from approximately  $36.9 million at June 30, 2002 to approximately  $33.5
million at December  31,  2002.  The decrease in  liabilities  was  attributable
principally to a decrease in the  non-current  long term debt and capital leases
($833,000  to  $333,000),  a decrease in the  current  portion of long term debt
($9.8  million to $8.6  million)  and a decrease  in  customer  advances of $3.6
million from $7.7 million at June 30, 2002 to $4.1 million at December 31, 2002.
The decrease in total  liabilities was offset by an increase in accounts payable
from $4.1 million at June 30, 2002 to $6.4 million at December 31, 2002.

     As at December  31,  2002,  our  obligations  included  approximately  $8.0
million in other current  liabilities  including  deferred  revenue from license
fees of $2.3  million,  unearned  revenue on service  contracts of $1.4 million,
accrued salaries and payroll taxes of $2.2 million and excise and sales taxes of
$1.8 million.

     As of December 31, 2002, we had a bank credit facility of $5,500,000  which
was  utilized in full.  The  interest on loans made under the facility is either
the bank's  prime  rate,  as in effect from time to time or 0.5% plus the bank's
cost of funds rate, as selected by Fonar when the loan is made.

     Our working capital  approximated  $8.7 million as of December 31, 2002, as
compared to working  capital of $10.5 million as of June 30, 2002,  declining by
17%. This reflects,  with respect to current  assets,  principally a decrease in
cash of $2.6 million  ($7.5 million at June 30, 2002 as compared to $4.9 million
at December 31, 2002) and a decrease in the current  portion of  investments  in
sales-type  leases  ($1.9  million at June 30,  2002 as  compared to $246,000 at
December  31,  2002  resulting  from  prepayments  of the  leases)  offset by an
increase of $100,000  ($1.2  million at June 30, 002 as compared to $1.3 million
at December 31, 2002) in costs and  estimated  earnings in excess of billings on
uncompleted  contracts  (this item  represents  the extent to which the revenues
earned on a contract  exceed the  advances we received  from the  customer)  and
increases in accounts  receivable ($14.1 million at June 30, 2002 as compared to
$14.4  million at December  31,  2002) and prepaid  expenses  and other  current
assets  ($1.1  million at June 30, 2002 as compared to $2.0  million at December
31, 2002), as a result of advances made to suppliers.







                                     Page 23
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

     With respect to current liabilities,  the current portion of long-term debt
decreased  by $1.2 million from $9.8 million at June 30, 2002 to $8.6 million at
December  31,  2002 as a result of  repayment  of debt,  and  customer  advances
decreased  by $3.6 million from $7.7 million at June 30, 2002 to $4.1 million at
December  31, 2002 as a result of  existing  orders  being put into  production.
Accounts payable,  however,  increased by $2.3 million from $4.1 million at June
30,  2002  to  $6.4  million  at  December  31,  2002  as the  Company  incurred
obligations  in  connection   with  increased   manufacturing   and  advertising
activities.

     In order to conserve  our capital  resources,  we have issued  common stock
under  our stock  bonus  and stock  option  plans to  compensate  employees  and
non-employees  for  services  rendered.  In  first  half  of  fiscal  2003,  the
compensatory  element of stock  issuances  was $1.8  million as compared to $1.7
million for the first six months of fiscal 2002.  Utilization  of equity in lieu
of cash  compensation  has  improved  our  liquidity  since  it  increases  cash
available for other expenditures.

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

     Fonar has not committed to making  additional  capital  expenditures in the
2003 fiscal year other than its intention to continue  research and  development
expenditures  at  current  levels  HMCA also  expects to incur  expenditures  of
approximately $676,000 to refurbish and improve two MRI facilities.

     Our  business   plan   currently   includes  an   aggressive   program  for
manufacturing and selling our new line of Open MRI scanners. In addition, we are
enhancing  our  revenue  by  participating  into the  physician  and  diagnostic
management services business through our subsidiary, HMCA.

     HMCA is in the process of upgrading  the MRI  facilities  which it manages,
most  significantly  by the  replacement  of  existing  MRI  scanners  with  new
Stand-Up(TM)  MRI  scanners.  To  date,  Stand-Up(TM)  MRI  scanners  have  been
installed at two MRI facilities  managed by HMCA and are in the process of being
installed at two other MRI facilities managed by HMCA.

     Our  business  plan  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.

     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.









                                     Page 24
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     Our  investments  are in fixed  rate  instruments.  None of the fixed  rate
instruments  in which we invest  extend  beyond  December 31,  2007.  Below is a
tabular  presentation of the maturity profile of the fixed rate instruments held
by us at December 31, 2002.

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

                                           Investments
                                           in Fixed Rate    Weighted Average
                         Date              Instruments      Interest Rate

                         12/31/03          $3,821,603                1.70%
                         12/31/04               962,416              5.38%
                         12/31/05               300,000               4.97%
                         12/31/06               200,000               5.25%
                         12/31/07               397,771               5.29%
                                           -------------

                         Total:            $5,681,790
                                           ========

                         Fair Value
                           at 12/31/02     $5,742,705
                                           ========

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

     See Note 11 to the consolidated Financial Statements in our Form 10-K as of
and for the year ended June 30, 2002 for information on long term debt.

Item 4.  Controls and Procedures

(a)  Evaluation of disclosure  controls and  procedures.  The Company  maintains
     controls and procedures designed to ensure that information  required to be
     disclosed  in the  reports  that it files or submits  under the  Securities
     Exchange Act of 1934 is recorded, processed, summarized and reported within
     the time  periods  specified in the rules and forms of the  Securities  and
     Exchange  Commission.  Based upon their  evaluation  of those  controls and
     procedures  performed within 90 days of the filing date of this report, the
     principal  executive and acting principal  financial officer of the Company
     concluded that disclosure controls and procedures were adequate.

(b)  Change in internal controls. The Company made no significant changes in its
     internal controls or in other factors that could significantly affect these
     controls  subsequent to the date of the evaluation of those controls by the
     principal executive and acting principal officer.





                                     Page 25
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings:

     There were no material  changes in  litigation  for the first six months of
fiscal 2003.

Item 2 - Changes in Securities: None

Item 3 - Defaults Upon Senior Securities: None

Item 4 - Submission of Matters to a Vote of Security Holders: None

Item 5 - Other Information: None

Item 6 - Exhibits and Reports on Form 8-K: None.


SIGNATURES

Pursuant  to the  requirements  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
                                  (Registrant)

                                                    By:  /s/ Raymond V. Damadian
                                                           Raymond V. Damadian
                                                           President & Chairman
Dated:   February 13, 2003



                                     Page 26
<PAGE>
FONAR CORPORATION AND SUBSIDIARIES

                                  CERTIFICATION

I, Raymond V. Damadian, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Fonar Corporation;

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

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

4.   I am responsible for establishing and maintaining  disclosure  controls and
     procedures  (as  defined in Exchange  Act Rules  13a-14 and 15d-14) for the
     registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  as of a date  within 90 days prior the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   I have disclosed,  based on our most recent evaluation, to the registrant's
     auditors and the audit  committee of  registrant's  board of directors  (or
     person performing the equivalent function);

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   I have  indicated  in this  quarterly  report  whether  or not  there  were
     significant  changes in internal  controls or in other  factors  that could
     significantly  affect internal controls  subsequent to the date of our most
     recent  evaluation,   including  any  corrective  actions  with  regard  to
     significant deficiencies and material weaknesses.

Date: February 13, 2003

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

</TEXT>
</DOCUMENT>
