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    SEPTEMBER 30, 2006
                                      ----------------------------

      [ ]  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 latest practicable date.


            Class                           Outstanding at October 31, 2006
--------------------------------        ---------------------------------------
Common Stock, par value $.0001                      121,339,327
Class B Common Stock, par value $.0001                    3,953
Class C Common Stock, par value $.0001               9,562,824
Class A Preferred Stock, par value $.0001            7,836,287







FONAR CORPORATION AND SUBSIDIARIES
INDEX




PART I - FINANCIAL INFORMATION                                         PAGE


Item 1.  Financial Statements


   Condensed Consolidated Balance Sheets - September 30, 2006
(Unaudited) and June 30, 2006

   Condensed Consolidated Statements of Operations for
     the Three Months Ended September 30, 2006 and
     September 30, 2005 (Unaudited)

   Condensed Consolidated Statements of Comprehensive
     Loss for the Three Months Ended
     September 30, 2006 and September 30, 2005 (Unaudited)

   Condensed Consolidated Statements of Cash Flows for
     the Three Months Ended September 30, 2006 and
     September 30, 2005 (Unaudited)


   Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Item 3. Quantitative and Qualitative Disclosures About
        Market Risk

Item 4. Controls and Procedures

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

Signatures

Exhibit - 31.1

Exhibit - 32.1


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

ASSETS                                                 September 30,   June 30
                                                               2006       2006
                                                          (UNAUDITED)
Current Assets:                                           -----------   --------
  Cash and cash equivalents                                  $ 4,108    $ 4,557

  Marketable securities                                        4,625      4,938

  Accounts receivable - net                                    3,709      3,359

  Accounts receivable - related parties -net                     452        499

  Medical receivables                                          5,248      6,053

  Management fee receivable - related
    medical practices - net                                    7,415      7,323

  Costs and estimated earnings in excess
    of billings on uncompleted contracts                          56      2,958

  Inventories                                                  6,239      7,077

  Investment in sales-type lease                                 232        279

  Current portion of advances and notes to
    related medical practices                                     98         90

  Current portion of note receivable less discount
    for below market interest                                    549       459

  Prepaid expenses and other current assets                    1,987      1,280
                                                          -----------   --------
        Total Current Assets                                  34,718     38,872
                                                              ------     ------

Property and equipment - net                                   6,310      6,667

Advances and notes to related medical practices - net            663        676

Notes receivable less discount for below market interest       5,558      5,719

Other intangible assets - net                                  5,097      4,930

Other assets                                                   1,630        366
                                                          -----------   --------
        Total Assets                                        $ 53,976    $57,230
                                                          ===========   ========


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





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

                                                       September 30,   June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                        2006         2006
                                                         (UNAUDITED)
Current Liabilities:                                     -----------   --------
  Current portion of long-term debt and
    capital leases                                           $   239    $   234
  Accounts payable                                             3,919      4,886
  Other current liabilities                                    6,192      6,102
  Unearned revenue on service contracts                        4,070      4,238
  Unearned revenue on service
    contracts - related parties                                  472        544
  Customer advances                                            6,796      5,464
  Customer advance - related party                                42         42
  Income taxes payable                                             -          8
  Billings in excess of costs and estimated
    earnings on uncompleted contracts                          2,102      2,979
  Billings in excess of costs and estimated
    earnings on uncompleted contracts-related party                -        137
                                                         -----------   --------
      Total Current Liabilities                               23,832     24,634

Long-Term Liabilities:
  Due to related medical practices                                93         93
  Long-term debt and capital leases,
   less current portion                                        1,122      1,172
  Other liabilities                                              201        215
                                                         -----------   --------
      Total Long-Term Liabilities                              1,416      1,480
                                                         -----------   --------
      Total Liabilities                                       25,248     26,114
                                                         -----------   --------
Minority interest                                                686        697
                                                         -----------   --------



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


FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's OMITTED, except share data)

                                                       September 30,   June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY                        2006         2006
     (continued)                                         (UNAUDITED)
                                                         -----------   --------
STOCKHOLDERS' EQUITY:

Class A non-voting preferred stock $.0001 par value;
8,000,000 authorized, 7,836,287 issued and outstanding
at September 30, 2006 and June 30, 2006                           1          1

Common Stock $.0001 par value; 150,000,000 shares
authorized at September 30, 2006 and June 30, 2006,
121,630,391 issued at September 30, 2006
and 114,995,094 at June 30, 2006; 121,339,327 outstanding
at September 30, 2006 and 114,704,030 at June 30, 2006           12         11

Class B Common Stock $ .0001 par value; 4,000,000
shares authorized, (10 votes per share), 3,953 issued
and outstanding at September 30, 2006 and June 30, 2006        -          -

Class C Common Stock $.0001 par value; 10,000,000 shares
authorized, (25 votes per share), 9,562,824 issued
and outstanding at September 30, 2006 and June 30, 2006           1          1

Paid-in capital in excess of par value                      172,016    168,412
Accumulated other comprehensive loss                       (    160)  (    246)
Accumulated deficit                                        (142,438)  (136,333)
Notes receivable from employee stockholders                (    715)  (    752)
Treasury stock, at cost - 291,064 shares of common stock
  at September 30, 2006 and June 30, 2006                  (    675)  (    675)
                                                         -----------   --------
      Total Stockholders' Equity                             28,042     30,419
                                                         -----------   --------
      Total Liabilities and Stockholders' Equity           $ 53,976    $57,230
                                                         ===========   ========


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


FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(000's OMITTED, except per share data)
                                                     FOR THE THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                     ---------------------------
                                                             2006         2005
REVENUES                                                 -----------   --------
  Product sales - net                                        $ 2,317    $ 4,011
  Product sales - related parties - net                          139        179
  Service and repair fees - net                                2,281      1,684
  Service and repair fees - related parties - net                242        241
  Management and other fees - net                               -           648
  Management and other fees - related medical
    practices - net                                            2,804      3,390
                                                         -----------   --------
     Total Revenues - Net                                      7,783     10,153
                                                         -----------   --------
COSTS AND EXPENSES
  Costs related to product sales                               2,442      3,886
  Costs related to product sales - related parties               144        163
  Costs related to service and repair fees                     1,243      1,122
  Costs related to service and repair
     fees - related parties                                      132        285
  Costs related to management and other fees                    -           528
  Costs related to management and other
    fees - related medical practices                           2,004      2,286
  Research and development                                     1,432      1,840
  Selling, general and administrative,
    inclusive of compensatory element of stock
    issuances of $ 98 and $ 524 for the three months
    ended September 30, 2006 and 2005, respectively            6,427      6,416
  Provision for bad debts                                         50         25
  Amortization of management agreements                         -            37
  Termination costs paid with common stock                      -         1,600
                                                         -----------   --------
     Total Costs and Expenses                                 13,874     18,188
                                                         -----------   --------
Loss From Operations                                         ( 6,091)   ( 8,035)

Interest Expense                                             (    71)   (    74)
Investment Income                                                199        173
Interest Income - Related Parties                                 11          4
Other Income (Expense)                                            39    (   104)
Minority Interest in Income of Partnerships                  (   192)   (   281)
                                                         -----------   --------
Loss Before Provision for Income Taxes                       ( 6,105)   ( 8,317)
Provision for Income Taxes                                      -          -
                                                         -----------   --------
NET LOSS                                                    $( 6,105)  $( 8,317)
                                                         ===========   ========
Net Loss Available to Common Stockholders                   $( 6,105)  $( 8,317)
                                                         -----------   --------
Basic Loss Per Common Share                                    $(.05)    $ (.08)
                                                         ===========   ========
Diluted Loss Per Common Share                                  $(.05)    $ (.08)
                                                         ===========   ========
Basic and Diluted Earnings Per Share-Common C                    N/A        N/A
                                                         ===========   --======
See accompanying notes to condensed consolidated financial statements
(unaudited).

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

                                                     FOR THE THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                     ---------------------------
                                                             2006         2005
                                                         -----------   --------
Net loss                                                    $(6,105)    $(8,317)

Other comprehensive income (loss) net of tax:
    Unrealized gains (losses) on securities, net of tax          86      (   20)
                                                         -----------   --------
Total comprehensive loss                                    $(6,019)    $(8,337)
                                                         ===========   ========


                                                     FOR THE THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                     ---------------------------
                                                             2006         2005
                                                         -----------   --------
Cash Flows from Operating Activities
 Net loss                                                  $( 6,105)   $( 8,317)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
    Minority interest in income of partnerships                 192         281
    Depreciation and amortization                               656         844
    Gain on sale of equipment                                     -     (     3)
    Provision for bad debts                                      50          25
    Compensatory element of stock issuances                      98         524
    Stock issued for costs and expenses                       1,851       1,391
    Termination costs paid with common stock                      -       1,600
    Amortization of unearned compensation                         -          73
    Loss from sale of physical medicine management business       -         144
    (Increase) decrease in operating assets, net:
       Accounts, management fee and medical receivable(s)       359     (   341)
       Notes receivable                                          71     (    33)
       Costs and estimated earnings in excess of
         billings on uncompleted contracts                    2,902       1,258
       Inventories                                              839       1,130
       Principal payments received on sales type lease           47          41
       Prepaid expenses and other current assets            (   707)        486
       Other assets                                         (    30)    (    19)
       Advances and notes to related medical practices            5          61
    Increase (decrease) in operating liabilities, net:
       Accounts payable                                     (   967)    ( 1,760)
       Other current liabilities                            (   149)    (   378)
       Customer advances                                      1,332     (   177)
       Billings in excess of costs and estimated
         earnings on uncompleted contracts                  ( 1,015)        241
       Other liabilities                                    (    14)    (    11)
       Due to related medical practices                           -           8
       Income taxes payable                                 (     8)    (    11)
                                                             ------      ------
Net cash used in operating activities                       (   593)    ( 2,943)
                                                             ------      ------
See accompanying notes to condensed consolidated financial statements
(unaudited).


FONAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)


                                                     FOR THE THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                     ---------------------------
                                                             2006         2005
                                                         -----------   --------
Cash Flows from Investing Activities:
  Sales of marketable securities                                398       2,388
  Purchases of property and equipment                       (   117)    (   426)
  Costs of capitalized software development                 (   184)    (   169)
  Cost of patents and copyrights                            (   165)    (    61)
  Proceeds from sale of equipment                                 -          97
                                                         -----------   --------
Net cash (used in) provided by investing activities         (    68)      1,829
                                                         -----------   --------

Cash Flows from Financing Activities:
  Distributions to holders of minority interest             (   203)    (   180)
  Repayment of borrowings and capital
    lease obligations                                       (    45)    (    91)
  Net proceeds from exercise of stock options
     and warrants                                                50         400
  Net proceeds from sale of stock                               373        -
  Repayment of notes receivable from employee
     stockholders                                                37           2
                                                         -----------   --------
Net cash provided by financing activities                       212         131
                                                         -----------   --------

Net Decrease in Cash and Cash Equivalents                   (   449)    (   983)

Cash and Cash Equivalents - Beginning of Period               4,557       5,517
                                                         -----------   --------
Cash and Cash Equivalents - End of Period                   $ 4,108     $ 4,534
                                                         ===========   ========



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


                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION & LIQUIDITY & CAPITAL RESOURCES

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  of  America  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
three months ended  September  30, 2006 are not  necessarily  indicative  of the
results  that may be expected  for the fiscal year  ending  June 30,  2007.  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
September 20, 2006 for the fiscal year ended June 30, 2006.

Liquidity and Capital Resources

The  Company's  principal  source of liquidity  has been cash flows  provided by
operations.  The Company's  management  currently  expects this to continue.  At
September 30, 2006, the Company had working  capital of $10.9  million.  For the
three months ended  September 30, 2006, the Company  incurred a net loss of $6.1
million which included non-cash charges of $2.7 million.

In order to conserve our capital  resources the Company has and will continue to
issue, from time to time, common stock and stock options to compensate employees
and non-employees  for goods and services.  The Company is focusing on increased
advertising and marketing  campaigns and  distribution  programs to increase the
demand  for  Fonar's  products.  Management  anticipates  that  Fonar's  capital
resources  will  improve as  Fonar's  MRI  scanner  products  gain wider  market
recognition and acceptance  resulting in increased product sales. If the Company
is not successful with its current marketing efforts to increase sales, then the
Company could experience a shortfall in cash necessary to sustain  operations at
their current levels.

Given our  September  30, 2006 cash and  marketable  securities  balance of $8.7
million and the Company's  forecasted cash requirements,  we anticipate that our
existing capital  resources,  funds generated from operations and funds expected
to be received from note repayments, will be sufficient to satisfy our cash flow
requirements  through at least  September 30, 2007.  Based on current results of
operations,  the Company believes it will either need to increase sales,  reduce
expenses or seek other  sources of funds  through the issuance of equity or debt
financing in order to maintain  sufficient funds available to operate subsequent
to September 30, 2007.



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


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  (collectively  the
"Company").  All significant  intercompany  accounts and transactions  have been
eliminated in consolidation.

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 EITF
03-6,  "Participating  Securities and the Two-Class  method under FASB Statement
No. 128" ("EITF  03-6"),  the Company's  participating  convertible  securities,
which include Class B common stock and Class C common stock, are not included in
the computation of basic EPS for three months ended September 30, 2006 and 2005,
because the  participating  securities do 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 certain  options  and  warrants or
conversion of the participating

Earnings (Loss) Per Share (Continued)

convertible securities that were excluded from  the diluted EPS calculation was
approximately 7,014,000 and 7,028,000 because they are antidilutive as a result
of  a  net  loss  for  the  three months ended September  30,  2006  and  2005,
respectively.

Stock Options and Warrants and Similar Equity Instruments

In December  2004,  the FASB issued 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Options and Warrants and Similar Equity Instruments (Continued)

Accordingly,  the  adoption  of SFAS  123R's  fair  value  method did not have a
significant impact on our result of operations.  SFAS 123R 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 no tax
impact related to the prior periods since the Company has a net loss.

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. We believe
that the  adoption  of this  standard  on July 1, 2007 will not have a  material
effect on our 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  and  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. We believe that the adoption of
this  standard  on  July  1,  2007  will  not  have  a  material  effect  on our
consolidated financial statements.

In June, 2006, the FASB issued Interpretation No. 48, "Accounting of
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109".  This
Interpretation 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 tax return, and provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition.  This Interpretation is effective for fiscal years
beginning after December 31, 2006.

The Company is assessing the impact of this  Interpretation  on its consolidated
financial statements, but does not expect it to have a material effect.


                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

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 us in 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 our consolidated financial statements.

In September,  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting for
Defined Benefit Pension and Other  Postretirement  Plans",  which requires us to
recognize  the funded status of our defined  benefit  plans in the  consolidated
balance sheets and changes in the funded status in  comprehensive  income.  This
standard  also  requires us to recognize  the  gains/losses,  prior year service
costs and transition  assets/obligations  as a component of other  comprehensive
income upon adoption,  and provide  additional annual  disclosure.  SFAS No. 158
does  not  affect  the  computation  of  benefit   expense   recognized  in  our
consolidated statements of operations. The recognition and disclosure provisions
are  effective in 2007.  In  addition,  SFAS No. 158 requires us to measure plan
assets and benefit  obligations as of the year-end  balance sheet date effective
in 2009. We are required to apply the provisions of this standard prospectively.
We are  currently  assessing  the  impact  of SFAS No.  158 on our  consolidated
financial statements.

In September,  2006, the SEC staff issued Staff Accounting  Bulletin ("SAB") No.
108,  "Considering  the  Effects of Prior Year  Misstatements  when  Quantifying
Misstatements  in Current Year Financial  Statements".  This guidance  indicates
that the materiality of a misstatement must be evaluated using both the rollover
and iron curtain approaches. The iron curtain approach quantifies a misstatement
based  on the  amount  of the  error  originating  in the  current  year  income
statement.  SAB No. 108 is effective for our 2007 annual consolidated  financial
statements. We are currently assessing the impact of SAB No. 108; however, we do
not believe the  adoption of this  standard  will have a material  effect on our
consolidated financial statements.

Reclassifications

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



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 3 - MEDICAL RECEIVABLES, ACCOUNTS RECEIVABLE AND MANAGEMENT FEE RECEIVABLE

Medical Receivables

The  Company  was  assigned  medical  receivables  valued  at  $11,775,000,   in
connection with the  satisfaction  of the management  fees and termination  fees
related to a  Termination  and  Replacement  Agreement  dated May 23, 2005.  The
balance of the medical receivables as of September 30, 2006 was $5,248,000.

Accounts Receivable and Management Fee Receivable

Receivables,  net is comprised of the  following at September  30, 2006:  ]

                                (000's Omitted)
                                                Allowance
                              Gross            for doubtful
                              Receivable         accounts             Net
                              ----------       ------------       -----------
Receivables from equipment
sales and service contracts     $ 4,353         $      644         $  3,709
                              ==========       ============       ===========

Receivables from equipment
sales and service contracts-
related parties                 $ 1,098         $      646         $    452
                              ==========       ============       ===========

Management fee receivables
from related medical
practices ("PC's")             $10,518          $    3,103         $   7,415
                              ==========       ============       ===========

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

The Company's  receivables  from the related PC's consist  substantially of fees
outstanding under management agreements, service contracts and lease agreements.
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 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 42% and 47% of the PC's net revenues for
both the three  months ended  September  30, 2006 and 2005,  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
generally takes all legally  available steps to collect its receivables.  Credit
losses  associated  with  the  receivables  are  provided  for in the  condensed
consolidated financial statements and have historically been within management's
expectations.

                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 3 - MEDICAL RECEIVABLES,  ACCOUNTS RECEIVABLE AND MANAGEMENT FEE RECEIVABLE
     (Continued)

Accounts Receivable and Management Fee Receivable (Continued)

Certain no-fault  insurers have raised issues  concerning  whether the Company's
clients the "P.C.'s" are in  compliance  with certain laws,  including,  but not
limited to, laws governing their corporate  structure  and/or  licensing,  their
entitlement  or standing to seek and/or obtain  no-fault  benefits,  and/or laws
prohibiting the corporate practice of medicine,  fee-splitting  and/or physician
self referrals.  To the extent any claims are asserted  against the P.C.'s,  the
settlement  of such claims  could result in the P.C.'s  waiving  their rights to
collect certain of their insurance claims.  Management believes that the company
and the P.C.'s are not in violation of any of the above  mentioned  laws.  Since
the resolution or settlement of these claims with the insurance  companies could
have a material  impact on the collection of management fees by the Company from
its P.C.'s,  the Company has provided reserves for uncollectable fees related to
this matter.

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 is to apply to services
furnished by the P.C.'s on or after January 1, 2007.  Although the  professional
corporations  managed by HCMA 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. The  implementation of this
reimbursement   reduction  contained  in  the  DRA  may  have  an  indirect  but
significant  effect  on  HMCA's  results  of  operations  and,  ultimately,  its
financial  condition,  but they are  presently  pending  before  both  houses of
Congress bills known as the "Access to Medicare Imaging Act of 2006" which would
delay reductions for two years. If the DRA reductions are implemented,  however,
then we believe  that the  Upright  MRI(TM) is uniquely  designed to  facilitate
increased  volumes to compensate for the  reductions.  The Upright  MRI(TM) with
multiple  positions  is dynamic  MRI as  compared  with the static  conventional
recumbent-only single position MRI.

Net  revenues  from  management  and other  fees  charged to the  related  P.C's
accounted for approximately 36.0% and 33.4% of the consolidated net revenues for
the three months ended September 30, 2006 and 2005, respectively.  Product sales
and service repair fees from related parties amounted to approximately  4.9% and
4.1% of consolidated  net revenues for the three months ended September 30, 2006
and 2005, respectively.



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 3 - MEDICAL RECEIVABLES,  ACCOUNTS RECEIVABLE AND MANAGEMENT FEE RECEIVABLE
     (Continued)

Unaudited Financial Information of Unconsolidated Managed Medical Practices

Summarized income statement data related to the unconsolidated medical practices
managed by the Company is as follows:

                    (000's omitted) (Income Tax-Cash Basis)

                                For the three months ended September 30,

                                        2006              2005
                                       -------          -------

Patient Revenue - Net                  $ 4,762          $ 4,326
                                       =======          =======
Income from Operations                 $   183          $     2
                                       =======          =======
Net Loss                               $   (59)         $  (211)
                                       =======          =======


NOTE 4 - INVENTORIES

Inventories included in the accompanying condensed consolidated balance sheet
at September 30, 2006 consist of:

                               (000's omitted)
Purchased parts, components and supplies        $ 4,175
Work-in-process                                   2,064
                                                -------
                                                $ 6,239
                                                =======

NOTE 5 - COSTS AND  ESTIMATED  EARNINGS ON  UNCOMPLETED  CONTRACTS  AND CUSTOMER
     ADVANCES

     1)  Information relating to uncompleted contracts as of September 30, 2006
     is as
         follows:
                                   (000's omitted)

     Costs incurred on uncompleted
          Contracts                $ 7,075
     Estimated earnings              4,319
                                   --------
                                    11,394
     Less: Billings to date         13,440
                                   --------
                                   $(2,046)
                                   ========

                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

NOTE 5 - COSTS AND  ESTIMATED  EARNINGS ON  UNCOMPLETED  CONTRACTS  AND CUSTOMER
     ADVANCES (Continued)

Included in the accompanying condensed consolidated balance sheet at September
30, 2006 under the following captions:

           Costs and estimated earnings in excess of

      billings on uncompleted contracts                $    56
Less: billings in excess of costs and estimated
      earnings on uncompleted contracts                  2,102
                                                       --------
                                                       $(2,046)
                                                       ========

2) Customer advances consist of the following as of September 30, 2006:

                                                   Related
                                        Total      Party       Other
                                       --------    --------  -------

Total Advances                         $ 20,278    $     42  $ 20,236
Less: Advances
       on contracts under construction   13,440        --      13,440
                                       ---------    -------- --------
                                       $  6,838    $     42  $  6,796
                                       ========     ======== ========

NOTE 6 -STOCKHOLDERS' EQUITY

Common Stock

During the three months ended September 30, 2006:

a)   The  Company   issued  50,749  shares  of  common  stock  to  employees  as
     compensation valued at $19,199 under stock bonus plans.

b)   The Company issued 175,000 shares of common stock to consultants and others
     valued at $78,200.

c)   The Company issued  5,227,548 shares of common stock for costs and expenses
     of $1,850,969.

d)   The Company issued 92,000 shares of common stock upon the exercise of stock
     options resulting in proceeds of $49,680.

e)   The Company issued  1,090,000  shares of common stock resulting in proceeds
     of $372,760.

The Company pays premiums for life insurance on its Chief Executive Officer. The
insurance  policies were 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 quarter of 2007 pursuant to a split
dollar agreement.

                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 7 - OTHER CURRENT LIABILITIES

Other current  liabilities in the accompanying  condensed  consolidated  balance
sheet consist of the following:

                                 (000's omitted)

                                        September 30,              June 30,
                                            2006                     2006
                                        -------------           -------------
     Royalties                           $       661             $      716
     Accrued salaries, commissions
          and payroll taxes                    1,415                  1,146
     Accrued interest                            535                    535
     Litigation judgements                       193                    193
     Sales tax payable                         2,243                  2,181
     Other                                     1,145                  1,331
                                        -------------           -------------
                                         $     6,192             $    6,102
                                        =============           =============


NOTE 8 -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 purchase price under the Asset Purchase Agreement was $6.6 million,  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.



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 8 -SALE OF PHYSICAL MEDICINE MANAGEMENT BUSINESS (Continued)

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. During the year ended
June 30, 2006 the Company  issued  1,871,490  shares  totaling  $1,995,675.  The
remaining  balance  under this  obligation at September 30, 2006 is $4,325 which
was included in other current liabilities. The Company capitalized $400,000 with
respect to collection  services.  During the year ended June 30, 2006,  $400,000
was charged to compensatory element of stock.

For  accounting  purposes in accordance  with  accounting  principles  generally
accepted  in the United  States of  America,  the  Company  determined  that the
classification  of  the  disposed  business   described  above  as  discontinued
operations would not be appropriate.  Accordingly,  the operating results of the
disposed   business  have  been   included  in  continuing   operations  in  the
accompanying consolidated financial statements.


NOTE 9 - 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 diminimus amount since the
liabilities  exceed the  assets.  No gain or loss was  recognized  on this sale.
Revenue  recognized from this entity totaled $265,017 for the three months ended
September 30, 2005.


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's 10-K as
of June  30,  2006.  All  inter-segment  sales  are  market-based.  The  Company
evaluates performance based on income or loss from operations.



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 10 - SEGMENT AND RELATED INFORMATION (Continued)

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

                                 (000's omitted)
                                                        Physician
                                                        Management and
                                                        Diagnostic
                                           Medical      Imaging
                                           Equipment    Services     Totals
                                           -----------  -----------  -----------
For the three months ended Sept. 30, 2006:

Net revenues from external customers       $    4,979   $    2,804   $    7,783
Inter-segment net revenues                 $      183   $     -      $      183
Loss from operations                       $   (5,577)  $     (514)  $   (6,091)
Depreciation and amortization              $      383   $      273   $      656
Compensatory element of stock issuances    $       93   $        5   $       98
Capital expenditures                       $      434   $       32   $      466
Identifiable assets                        $   28,917   $   25,059   $   53,976

For the three months ended Sept. 30, 2005:

Net revenues from external customers       $    6,115   $    4,038    $  10,153
Inter-segment net revenues                 $      136   $     -       $     136
Loss from operations                       $   (5,801)  $   (2,234)   $  (8,035)
Depreciation and amortization              $      494   $      350    $     844
Compensatory element of stock issuances    $      211   $      313    $     524
Termination Costs paid with Common Stock   $     -      $    1,600    $   1,600
Capital expenditures                       $      241   $      415    $     656
Identifiable Assets - June 30, 2006        $   31,264   $   25,965    $  57,229


NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION

During the three months ended  September 30, 2006 and  September  30, 2005,  the
Company paid $71,000 and $74,000 for interest, respectively.

Non-Cash Transaction.

During the three months ended September 30, 2006:

a)   The Company  recorded  the cash  surrender  value of the split  dollar life
     insurance policies of $1,234,000 to additional paid in capital.



                       FONAR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


NOTE 12 - POTENTIAL DELISTING OF THE COMPANY'S COMMON STOCK

The  Company  received  written  notification  from The Nasdaq  Stock  Market on
December  22,  2005  that the bid  price  of its  common  stock  for the last 30
consecutive  trading days had closed below the minimum $1.00 per share  required
for continued  listing under Nasdaq  Marketplace  Rule  4310(c)(4) (the "Rule").
Pursuant to Nasdaq Marketplace Rule 4310(c)(8)(D), the Company has been provided
an  initial  period of 180  calendar  days,  or until June 20,  2006,  to regain
compliance.  The notice states that the Company has achieved compliance with the
Rule if at any time before June 20, 2006 the bid price of the  Company's  common
stock closes at $1.00 per share or more for a minimum of 10 consecutive business
days.  The Company has been  granted an extension  to achieve  compliance  until
December 18, 2006

If the Company cannot demonstrate compliance with the bid price rule by December
18,  2006,  than the  Staff  will  provide  written  notice  that the  Company's
securities  will be delisted.  At that time,  the Company may appeal the Staff's
determination to delist its securities to a Listing Qualification Panel.



FONAR CORPORATION AND SUBSIDIARIES

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

     For the three month period ended September 30, 2006, we reported a net loss
of $6.1  million on  revenues  of $7.8  million as  compared to net loss of $8.3
million on revenues of $10.2 million for the first three months of fiscal 2006.

     Sales of our Upright MRI(TM) scanners were negatively affected primarily by
marketing and advertising  pressure from our competitors  attempting to minimize
the unique medical  benefits of Upright  MRI(TM).  These  companies may not make
Upright MRI(TM) scanners because of Fonar's patents. Our losses were also due to
a brief interruption in Fonar's advertising campaigns, and prospective customers
continue  to  have  concerns  relating  to  increased  difficulty  in  obtaining
insurance  reimbursements.  We have  resumed  and are  continuing  our  national
advertising  campaign  to bring the  benefits  of  weight-bearing  MRI,  and its
necessity  in the  proper  evaluation  of back  pain,  to the  attention  of the
consumer and ultimately,  referring  physicians,  hospitals,  insurers and other
third party payors. The national  advertising campaign has had a positive effect
on Fonar's  overall sales  activity and should  result in increasing  numbers of
sales of Fonar Upright MRI's.

     In addition,  sales of our scanners may have been adversely affected by the
Deficit  Reduction  Act of 2005 (DRA) which would result in caps on Medicare and
Medicaid payment rates for most imaging  services,  including MRI,  furnished in
physicians'  offices  and  other  non-hospital  based  settings.  Under the cap,
payments  for the  "technical"  (non-professional  services)  component of these
scans could not exceed the  hospital  outpatient  amount  under a Physician  Fee
Schedule.  We believe,  however,  the  Upright  MRI(TM)  scanners  should not be
adversely  affected  but  benefit  from  increased  volumes  because the Upright
MRI(TM)  with  multiple  positions  is dynamic MRI as  compared  with the static
conventional  recumbent-only  single position MRI. The principal  reason for the
decline  in  revenues  of  our  wholly  owned   subsidiary,   Health  Management
Corporation of America,  was the sale of its physical therapy and rehabilitation
management   business  in  July,  2005.  We  also  refer  to  Health  Management
Corporation of America as "HMCA".

     In addition,  we are  planning to expand our sales force,  both in terms of
hiring more sales personnel and establishing a network of domestic  distributors
(we already use  distributors  for foreign  sales)  under the  direction  of our
internal sales force.

     We also are  monitoring  the  performance of our existing users and plan to
establish teams to assist  underperforming  customers improve their scan volume.
In  addition,  we have held  seminars  to assist  customers  in their  marketing
efforts.

      Notwithstanding the disappointing MRI scanner sales revenues, the number
of units sold increased from one during the first quarter of fiscal 2006 to
three units during the first quarter of fiscal 2007.

     Importantly,  we believe that our efforts to penetrate the hospital  market
are  beginning to show  greater  results.  For the 2006 fiscal  year,  two Fonar
Upright MRI(TM)  scanners were sold to hospitals,  one of which is a member of a
chain of  hospitals.  In the first  quarter  of fiscal  2007,  we sold one Fonar
Upright(TM) MRI scanner to a hospital.  The Fonar Upright MRI(TM) scanner is the
only scanner which enables  weight-bearing scans of the spine, which is critical
in  making a  correct  diagnosis  of spine  diseases  such as low back  pain and
therefore  the key to  performing  the correct  surgery of the spine.  There are
approximately  916,000 surgical  procedures  performed on the spine each year as
compared  to  approximately  950,000  cardiac  surgeries  annually in the United
States (including, stents, bypasses,  angioplasties,  valve replacements,  heart
transplants and the like).

Forward Looking Statements

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

Results of Operations

     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 diagnostic  facilities  management services,
which is conducted through Fonar's  wholly-owned  subsidiary,  HMCA. During July
2005 HMCA sold the portion of its business engaged in the management of physical
therapy and rehabilitation facilities.

     Trends in the first  quarter of fiscal  2007  include a decrease in product
sales revenues.  Sales orders for Upright(TM) MRI scanners,  however,  increased
from one in the first fiscal quarter of fiscal 2006 to three in the first fiscal
quarter of 2007. The Company will continue to focus on increased advertising and
marketing efforts, including adding additional sales personnel and distributors,
to improve sales performance in fiscal 2007.

     For the three month period  ended  September  30, 2006,  as compared to the
three month period ended September 30, 2005,  overall  revenues from MRI product
sales decreased 41.4% ($2.5 million  compared to $4.2 million).  Unrelated party
scanner  sales ($2.3 million  compared to $4.0  million)  decreased at a rate of
42.2% and related party scanner sales ($139,000 compared to $179,000)  decreased
22.3%.  Service  revenues,  however,  increased by 31% ($2.5 million compared to
$1.9 million) because of customers  entering into service  agreements with Fonar
for their  scanners  following the  expiration  of the warranty  period on their
equipment.  Overall,  for the first  quarter of fiscal  2007,  revenues  for the
medical  equipment  segment decreased by 18.6% to $5.0 million from $6.1 million
for the first  quarter  of fiscal  2006.  The  revenues  generated  by HMCA also
decreased,  by 30.6% to $2.8  million  for the first  quarter of fiscal  2007 as
compared to $4.0 million for the first  quarter of fiscal 2006.  The decrease in
revenues  recognized by HMCA resulted primarily from the sale of HMCA's business
of managing physical therapy and rehabilitation centers during July 2005.

     There were  approximately  $259,000 in foreign revenues for the first three
months of fiscal 2007 as compared to approximately  $553,000 in foreign revenues
for the first three  months of fiscal 2006,  representing  a decrease in foreign
revenues of 53.2%.

     We recognize MRI scanner sales  revenues on the  "percentage of completion"
basis,  which means the revenues are recognized as the scanner is  manufactured.
Revenues  recognized  in a  particular  quarter do not  necessarily  reflect new
orders or progress  payments  made by  customers in that  quarter.  We build the
scanner as the customer  meets  certain  benchmarks in its site  preparation  in
order to minimize the time lag between  incurring costs of manufacturing and our
receipt  of the cash  progress  payments  from the  customer  which are due upon
delivery. Consequently, there can be a disparity between the revenues recognized
in a fiscal period and the number of product  sales.  Generally,  the recognized
revenue  results from revenues from a scanner sale being  recognized in a fiscal
quarter  or  quarters  following  the  quarter  in  which  the  sale  was  made.
Illustrating  this point,  the revenue  from  product  sales for the first three
months of fiscal 2007 decreased 41.4% from the first three months of fiscal 2006
($2.5 million compared to $4.2 million). We received,  however, orders for three
Upright(TM)  MRI  scanners  during  the first  three  months  of fiscal  2007 as
compared  to an order for one  Upright(TM)  MRI  scanner  during the first three
months of fiscal 2006, reflecting an increase of 200% in scanner orders.

     We  believe  the  decrease  in product  sales  revenues  reflect  the large
variation in sales revenue that is typical of the sale of high unit cost capital
equipment,  which  variation  is  characteristic  of Fonar's 28 year  experience
selling MRI scanning systems.

     Service and repair revenues  increased by 31.0%,  from $1.9 million for the
first  quarter of fiscal 2006 to $2.5  million  for the first  quarter of fiscal
2007.

     The increases in service and repair  revenues are  occurring  because after
the warranty on the MRI scanner expires,  the owner will ordinarily enter into a
service  contract with us to assure continued  coverage.  We anticipate that for
this  reason  there  will  continue  to be  increases  in  service  revenues  as
warranties on installed scanners expire over time.

     Costs related to product sales  decreased by 36.1% from $4.0 million in the
first  quarter  of fiscal  2006 to $2.6  million  in the first  quarter of 2007,
reflecting the corresponding  decrease in product sales revenues.  Costs related
to providing  service remained  constant at $1.4 million in the first quarter of
fiscal 2006 and in the first  quarter of 2007,  notwithstanding  the increase in
service revenues.

     In brief, costs are incurred  concurrently with revenues in accordance with
the percentage of completion method.

     Service and repair revenues  increased at a materially higher rate than the
costs  related to providing  service and repairs.  Service  contract  prices are
fixed for the term of the contract, which are usually for a term of one year. We
believe that an important factor in keeping service costs down is our ability to
monitor the  performance of customers'  scanners from our facilities in Melville
on a daily basis and to detect and repair any irregularities before more serious
problems result.  We also believe the low cost of providing service reflects the
high quality of our products.

     Overall,  our  operating  loss for our medical  equipment  segment was $5.5
million for the first three months of fiscal 2007 as compared to operating  loss
of $5.8 million for the first three months of fiscal 2006.

     HMCA  revenues  decreased in the first  quarter of fiscal 2007, by 30.6% to
$2.8  million from $4.0  million for the first  quarter of fiscal 2006.  HMCA is
seeking to increase  revenues from the MRI  facilities by continuing its program
of  replacing  older  scanners  at the  sites we  manage  with  Upright(TM)  MRI
scanners.  We now manage ten sites,  as compared to eight sites at September 30,
2005, equipped with Upright(TM) MRI scanners. HMCA experienced an operating loss
of $513,000 for the first three months of fiscal 2007 compared to operating loss
of $2.2 million for the first three  months of fiscal 2006.  The greater loss in
the first quarter of fiscal 2006 was principally the result of a payment of $1.6
million for the termination of two employment  agreements in connection with the
sale by HMCA of its  physical  therapy and  rehabilitation  facility  management
business  and the loss of  revenues  resulting  from  the sale of that  business
during the first quarter of fiscal 2006.

     HMCA cost of revenues  for the first  quarter of fiscal 2007  decreased  to
$2.0 million as compared to $2.8  million for the first  quarter of fiscal 2006,
which is also  principally the result of HMCA's sale of its physical therapy and
rehabilitation facility management business during fiscal 2006.

     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 would apply to services
furnished by the professional  corporations  managed by HMCA on or after January
1, 2007. Although the professional  corporations  managed by HCMA 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.
The implementation of this reimbursement reduction contained in the DRA may have
an  indirect  but  significant  effect  on HMCA's  results  of  operations  and,
ultimately, its financial condition, but there are presently pending before both
houses of Congress  bills known as the "Access to Medicare  Imaging Act of 2006"
which  would  delay  reductions  for  two  years.  If  the  DRA  reductions  are
implemented,  however,  then we believe  that the  Upright  MRI(TM) is  uniquely
designed to facilitate  increased volumes to compensate for the reductions.  The
Upright  MRI(TM) with  multiple  positions  is dynamic MRI as compared  with the
static conventional recumbent-only single position MRI.

Sale of Physical Therapy and Rehabilitation Facility Management Business

     Notwithstanding  our  continuing  efforts  to  increase  revenues  from the
management of MRI scanning  facilities,  HMCA's revenues declined because of the
sale of its business of managing physical therapy and rehabilitation  practices.
The sale was  completed in fiscal 2006 on July 28,  2005.  This sale was made in
connection with HMCA's decision to focus on the management of diagnostic imaging
facilities.

     The sale was made  pursuant to an asset  purchase  agreement 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 to each of these  individuals  was  payable at our option 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. A loss
from the sale of $143,598 has been recorded  during the quarter ended  September
30, 2005. The note provides for interest at 5% per annum.  The $6.6 million note
was valued at $6,078,068 as a result of a discount for the below market interest
rate.

     As our  consolidated  revenues  decreased  by 23.3% to $7.8 million for the
first  quarter of fiscal 2007 from $10.2 million for the first quarter of fiscal
2006,  the total costs and expenses  decreased by 23.7% to $13.9 million for the
first  quarter of fiscal 2007 from $18.2 million for the first quarter of fiscal
2006.

     Selling,  general and  administrative  expenses  remained  constant at $6.4
million in the first three  months of fiscal 2006 and in the first three  months
of fiscal 2007. The compensatory  element of stock issuances  decreased by 81.3%
from  $524,000 in the first three  months of fiscal 2006 to $98,000 in the first
three  months of fiscal  2007  which is now  included  in  selling  general  and
administrative  expenses. This primarily reflected a lesser use of Fonar's stock
in lieu of cash to pay employees, consultants and professionals for services.

     Research and development  expenses  decreased by 22.2 % to $1.4 million for
the first three  months of fiscal 2007 as compared to $1.8 million for the first
three months of fiscal 2006.

     Interest expense in the first three months of fiscal 2007 decreased by 4.0%
to $71,000 from $74,000 for the first three months of fiscal 2006.

     Inventories  decreased by 11.8% to $6.2  million at  September  30, 2006 as
compared  to $7.1  million  at June  30,  2006 as the  Company's  product  sales
revenues   decreased  and  we  decreased  our  purchase  of  raw  materials  and
components.

     Costs and estimated earnings in excess of billings on uncompleted contracts
decreased  by 98.1% to $56,000 at  September  30, 2006 from $3.0 million at June
30, 2006. This decrease  resulted from our receipt of installment  payments upon
delivery to customers whose sites were prepared to receive deliveries.

     Management fee and medical receivables and accounts receivable decreased by
2.4% to $16.8 million at September 30, 2006 from $17.2 million at June 30, 2006,
primarily due to collections on the Company's medical  receivables  offset by an
increase in accounts receivable from the medical segment.

     Our  operating  loss and net loss were  $6.1  million  for the first  three
months of fiscal 2007 as compared to  operating  and net losses of $8.0  million
and $8.3 million, respectively, for the first three months of fiscal 2006.

     The overall  trends  reflected in the results of  operations  for the first
three months of fiscal 2007 are a decrease in revenues  from product  sales,  as
compared  to the first three  months of fiscal 2006 ($2.5  million for the first
three  months of fiscal  2007 as  compared  to $4.2  million for the first three
months of  fiscal  2006),  and a  decrease  in MRI  equipment  segment  revenues
relative to HMCA revenues ($5.0 million or 64% from the MRI equipment segment as
compared to $2.8 million or 36% from HMCA,  for the first three months of fiscal
2007, as compared to $6.1 million or 60% from the MRI equipment segment and $4.0
million or 40%,  from  HMCA,  for the first  three  months of fiscal  2006).  In
addition, we experienced a decrease in unrelated party sales relative to related
party  sales in our medical  equipment  product  sales  ($4.6  million or 92% to
unrelated  parties  and  $381,000  or 8% to related  parties for the first three
months of fiscal 2007 as compared to $5.7 million,  or 93% to unrelated  parties
and  $420,000  or 7% to related  parties  for the first  three  months of fiscal
2006).

     We are committed to reversing the trends we have  experienced  in the first
three months in fiscal 2007.  Nevertheless,  factors beyond our control, such as
the timing and rate of market growth which depend on economic conditions,  payor
reimbursement rates and policies,  and unexpected  expenditures or the timing of
such expenditures,  make it impossible to forecast future operating results.  We
believe we are pursuing the correct  policies  which should prove  successful in
improving the Company's operating results.

     The Company's Upright MRI(TM),  and  Fonar-360(TM)  MRI scanners,  together
with the Company's works-in-progress,  are intended to significantly improve the
Company's competitive position.

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

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

     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 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, like that of FONAR's Upright MRI(TM), is 0.6 Tesla.

     In the future, we expect the Fonar 360(TM) to function as an interventional
MRI.  The enlarged  room sized magnet and 360 access to the patient  afforded by
the Fonar  360(TM)  would  permit  surgeons  to walk into the magnet and perform
interventions 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  the   procedure   to  guide  the
interventionalist. 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  features of the Fonar 360(TM) are expected to be  implemented by
Oxford  Nuffield  Orthopedic  Center in Oxford U.K. in the near  future.  A full
range of MRI compatible  surgical  instruments  using ceramic  cutting tools and
beryllium-copper materials are available commercially.

     The Company expects marked demand for its most commanding MRI products, the
Upright MRI(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.  The geometry of the Upright  MRI(TM) as compared to a single coil, or
multiple  coils on only one axis and its  transverse  magnetic field enables the
use of two detector rf coils operating in quadrature which increases the Upright
MRI(TM) signal to noise ratio by 40%, providing a signal to noise ratio equal to
a .84T recumbent only MRI scanner.

Liquidity and Capital Resources

     Cash,  cash  equivalents  and  marketable  securities  decreased  from $9.5
million at June 30, 2006 to $8.7 million at September 30, 2006.  Principal  uses
of  cash  during  the  first  three  months  of  fiscal  2007  included  capital
expenditures for property and equipment of $117,000, repayment of long-term debt
and capital lease  obligations  in the amount of $45,000,  capitalized  software
development  costs of $184,000 and  capitalized  patent and  copyright  costs of
$165,000, and a decrease in accounts payable of $967,000.

     Marketable  securities  approximated $4.6 million as at September 30, 2006,
as compared to $4.9  million at June 30, 2006.  This  reduction  represents  the
maturation  of  marketable  securities  which have not been  reinvested  and the
proceeds of which are available to fund  operations if needed.  At September 30,
2006, our  investments in U.S.  Government  obligations  were $2.4 million,  our
investments in corporate and  government  agency bonds were $1.9 million and our
investments  in  certificates  of deposit and deposit notes were  $400,000.  The
investments made have had the intended effect of maintaining a stable investment
portfolio.

     Cash used in operating activities for the first three months of fiscal 2007
approximated  $593,000.  Cash  used in  operating  activities  was  attributable
primarily to the net loss of $6.1  million and the decrease in accounts  payable
of $967,000,  which were offset by a decrease in costs and estimated earnings in
excess of billings  on  uncompleted  contracts  of $2.9  million,  a decrease in
inventories  of $839,000 and the issuance of stock for  compensation,  costs and
expenses in lieu of cash in the amount of $1.9 million.

     Cash used in investing activities for the first three months of fiscal 2007
approximated  $68,000.  The principal  source of cash from investing  activities
during the first three months of fiscal 2007 consisted of the sale of marketable
securities  of $398,000,  offset by  expenditures  for property and equipment of
approximately   $117,000   and   capitalized   software   and  patent  costs  of
approximately $349,000.

     Cash provided by financing  activities for the first three months of fiscal
2007 approximated  $212,000.  The sources of cash from financing activities were
net proceeds from exercises of stock options and warrants of $50,000,  repayment
of notes receivable from employee stockholders of $37,000, and net proceeds from
the  sale of  stock  of  $373,000.  The  principal  uses  of  cash in  financing
activities  during the first three months of fiscal 2007  consisted of repayment
of principal on long-term debt and capital lease  obligations  of  approximately
$45,000 and distributions to holders of minority interests of $203,000.

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

(000's OMITTED)
                                 Due in
                                  Less         Due          Due          Due
                                  than 1      in 1-3       in 4-5       after 5
Obligation          Total         year         years        years        years
--------------   -----------   ----------   ----------   ----------   ----------

Long-term debt   $    555      $     --      $     --    $    --       $   555

Capital lease
Obligation            806            239           388       179           --

Operating
  Leases            8,760          2,399         3,742      1,143        1,476
                 -----------   ----------   ----------   ----------   ----------
Total cash
Obligations      $ 10,121      $   2,638     $   4,130   $  1,322      $ 2,031
                 ===========   ==========   ==========   ==========   ==========

     Total liabilities  decreased by 3.3% to $25.2 million at September 30, 2006
from $26.1 million at June 30, 2006.

     We  experienced a decrease in long-term  debt from $1.2 million at June 30,
2006 to $1.1  million at September  30, 2006, a decrease in unearned  revenue on
service  contracts  from  $4.8  million  to $4.5  million  at June  30,  2006 to
September  30,  2006,  a decrease in  billings in excess of costs and  estimated
earnings on  uncompleted  contracts  from $3.1  million at June 30, 2006 to $2.1
million at September 30, 2006, a decrease in accounts  payable from $4.9 million
at June 30, 2006 to $3.9 million at September  30, 2006, an increase in customer
advances from $5.5 million at June 30, 2006 to $6.8 at September 30, 2006.

     As of  September  30,  2006,  the total of $6.2  million  in other  current
liabilities  included  primarily  accrued  salaries  and  payroll  taxes of $1.4
million,  accrued  royalties  of  $661,000  and excise  and sales  taxes of $2.2
million.

     Our working capital approximated $10.9 million as of September 30, 2006, as
compared to working capital of $14.2 million as of June 30, 2006,  decreasing by
23.5%.  This  resulted  principally  from a decrease in accounts  receivable  of
$410,000  ($17.2  million  at June 30,  2006 as  compared  to $16.8  million  at
September  30,  2006),  a decrease of cost and  estimated  earnings in excess of
billings on uncompleted contracts of $2.9 million ($3.0 million at June 30, 2006
as  compared  to $56,000  at  September  30,  2006)  along  with a  decrease  in
inventories  of  $838,000  ($7.1  million at June 30,  2006 as  compared to $6.2
million at September 30, 2006).

     With respect to current liabilities,  the current portion of long-term debt
increased  from $234,000 at June 30, 2006 to $239,000 at September 30, 2006, and
billings  in excess of costs and  estimated  earnings on  uncompleted  contracts
decreased  from $3.1 million at June 30, 2006 to $2.1  million at September  30,
2006.  Customer  advances  increased  from $5.5 million at June 30, 2006 to $6.8
million at September 30, 2006 and accounts  payable  decreased from $4.9 million
at June 30, 2006 to $3.9 million at September 30, 2006.

     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 the first three months of fiscal 2007, the
compensatory  element of stock issuances was $98,000 as compared to $524,000 for
the first three  months of fiscal  2006.  Utilization  of equity in lieu of cash
compensation  has improved our liquidity  since it increases  cash available for
other  expenditures.  In  addition,  we used stock to pay $ 1.6  million for the
termination of two employment  agreements terminated in connection with the sale
of HMCA's physical therapy and rehabilitation  facility  management  business in
the first three months of fiscal 2006.

     Fonar's  capital  resources  are expected to improve as Fonar's MRI scanner
products gain wider market  recognition  and  acceptance  and produce  increased
product sales. The Company is focusing on increased advertising and marketing to
increase demand for its products.

     Inventories  decreased  by  $900,000  ($7.1  million  at June  30,  2006 as
compared to $6.2 million at September 30, 2006) resulting from a decrease in the
purchasing of raw materials and components and in filling our backlog of orders.

     Fonar has not committed to making  additional  capital  expenditures in the
2007 fiscal year other than its intention to continue  research and  development
expenditures at current levels.

     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.

     Our  principal  source  of  liquidity  has  been  cash  flows  provided  by
operations.  We currently expect this to continue. At September 30, 2006, we had
working capital of $10.9 million. For the three months ended September 30, 2006,
we incurred a net loss of $6.1 million which included  non-cash  charges of $2.7
million.

     In order to conserve  our capital  resources  we have and will  continue to
issue, from time to time, common stock and stock options to compensate employees
and  non-employees for services  rendered.  The Company is focusing on increased
advertising and marketing  campaigns and  distribution  programs to increase the
demand  for  Fonar's  products.  Management  anticipates  that  Fonar's  capital
resources  will  improve as  Fonar's  MRI  scanner  products  gain wider  market
recognition and acceptance  resulting in increased  product sales. If we are not
successful with our current  marketing  efforts to increase sales, then we could
experience a shortfall  in the cash  necessary  to sustain  operations  at their
current levels.

     Given our September 30, 2006 cash and marketable securities balance of $8.7
million and our forecasted  cash  requirements,  we anticipate that our existing
capital  resources,  funds  generated  from  operations and funds expected to be
received  from note  repayments,  will be  sufficient  to satisfy  our cash flow
requirements  through at least September 30, 2007. Based upon current results of
operations, we believe we will either need to increase sales, reduce expenses or
seek other sources of funds through the issuance of equity or debt  financing in
order to maintain  sufficient funds available to operate subsequent to September
30, 2007.

     The Company received written  notification  from The Nasdaq Stock Market on
December  22,  2005  that the bid  price  of its  common  stock  for the last 30
consecutive  trading days had closed below the minimum $1.00 per share  required
for continued  listing under Nasdaq  Marketplace  Rule  4310(c)(4) (the "Rule").
Pursuant to Nasdaq Marketplace Rule 4310(c)(8)(D), the Company had been provided
an  initial  period of 180  calendar  days,  or until June 20,  2006,  to regain
compliance  but since Fonar was then in compliance  with NASDAQ's  other listing
requirements, an extension to December 18, 2006 was granted.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Our  investments  are  in  fixed  rate  instruments.  Below  is  a  tabular
presentation of the maturity profile of the fixed rate instruments held by us at
September 30, 2006.

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

                             Investments
                 Year of     in Fixed Rate   Weighted Average
                 Maturity     Instruments    Interest Rate
                 --------    ------------    ----------------
                 9/30/07      $   100,000         4.25%
                 9/30/08        1,650,000         3.93%
                 9/30/09        1,945,687         4.07%
                 9/30/10          998,812         2.98%
                 9/30/11          100,000         4.54%
                             ------------
                  Total:      $ 4,794,499
                             ============
                              Fair Value
                              at 9/30/06$    4,539,857
                             ============

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

     See Note 13 to the consolidated Financial Statements in our Form 10-K as of
and for the year ended June 30, 2006 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 as of the end of the period  covered by this
report,  the principal  executive and acting principal  financial officer of the
Company concluded that disclosure controls and procedures were effective.

(b)  Change in internal controls.

     The Company continues to enhance its controls and procedures related to the
financial  reporting  process,  improvements  that were  established  during the
latter part of fiscal 2005. This included hiring an outside consultant to assist
with technical  accounting and reporting  issues,  developing more  standardized
closing  procedures and  implementing a more formal process for  documenting the
weekly management meetings to review operating performance and results.

     There have been no changes in our internal control over financial reporting
that  occurred  during  the most  recent  fiscal  quarter  that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.


PART II - OTHER INFORMATION

Item 1 - Legal Proceedings: There were no material changes in litigation for the
     first three months of fiscal 2007.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds: 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:  Exhibit  31.1  Certification  See
     Exhibits  Exhibit  32.1  Certification  See Exhibits  8-K  (earnings  press
     release) filed on September 15, 2006



FONAR CORPORATION AND SUBSIDIARIES


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:  November 9, 2006