NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Dec. 31, 2011

Notes to Financial Statements

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited condensed 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 Per Share

Basic earnings per share (“EPS”) is computed based on weighted average shares outstanding and excludes any potential dilution. In accordance with ASC topic 260-10, “Participating Securities and the Two-Class method”, the Company used the Two-Class method for calculating basic earnings per share and applied the if converted method in calculating diluted earnings per share for the three and six months ended December 31, 2011 and December 31, 2010.

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. For the three and six months ended December 31, 2011 and December 31, 2010, the number of common shares potentially issuable upon the exercise of certain options of 16,205 and 68,000; respectively, have not been included in the computation of diluted EPS since the effect would be antidilutive.

	Three months ended December 31, 2011						Three months ended December 31, 2010
	(000's omitted, except per share data)
Basic		Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income Available to common stockholders	$	1,536	$	1,432	$	26	$	1,363	$	1,262	$	26
Denominator:
Weighted average shares   outstanding		5,729		5,729		383		5,149		5,149		383
Basic income per common   share	$	0.27	$	0.25	$	0.07	$	0.26	$	0.25	$	0.07
Diluted
Denominator:
Weighted average shares   outstanding				5,729		383				5,149		383
Stock options				—		—				—		—
Convertible Class C Stock				128		—				128		—
Total Denominator for diluted   earnings per share				5,857		383				5,277		383
Diluted income per   common share			$	0.24	$	0.07			$	0.24	$	0.07

	Six months ended December 31, 2011						Six months ended December 31, 2010
	(000's omitted, except per share data)
Basic		Total		Common Stock		Class C Common Stock		Total		Common Stock		Class C Common Stock
Numerator:
Net income available to   common stockholders	$	3,050	$	2,842	$	53	$	1,748	$	1,618	$	33
Denominator:
Weighted average shares   outstanding		5,699		5,699		383		5,081		5,081		383
Basic income per common   share	$	0.54	$	0.50	$	0.14	$	0.34	$	0.32	$	0.09
Diluted
Denominator:
Weighted average shares   outstanding				5,699		383				5,081		383
Stock options				—		—				—		—
Convertible Class C   Stock				128		—				128		—
Total Denominator for   diluted earnings per   share				5,857		383				5,209		383
Diluted income per   common share			$	0.49	$	0.14			$	0.31	$	0.09

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other (Topic 350):Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. ASU 2011-12 defers the requirement that companies present reclassification adjustments for each component of Accumulated Other Comprehensive Income in both net income and Other Comprehensive Income on the face of the financial statements. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The guidance provided by this update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated position and results of operations.

FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards, updates, and regulations as of June 30, 2011 that will become effective in subsequent periods; however, management does not believe that any of those updates would have significantly affected our financial accounting measures or disclosures had they been in effect during 2011 or 2010, and it does not believe that any of those pronouncements will have a significant impact on our condensed consolidated financial statements at the time they become effective.

Reclassifications

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