10. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

10. COMMITMENTS AND CONTINGENCIES

Vuksich Litigation

In May of 2012, John M. Vuksich (“Vuksich”), a shareholder who alleges to hold shares or proxies totaling more than 30,000,000 shares in the Company (approximately 5.95 % of the outstanding stock in the Company at the time of the filing prior to the Company’s bankruptcy filing), filed a shareholder derivative action in the Los Angeles County Superior Court against the Company or (the “Vuksich Litigation”). In that litigation, Vuksich challenged certain corporate actions taken by the Company beginning in 2010, including the Company’s amendments to its articles of incorporation authorizing the Company to increase the authorized number of shares of common stock and to authorize the issuance of preferred stock. Among other things, Vuksich sought an order voiding certain other financing agreements and sought an order compelling the Company to fill vacancies on its Board of Directors. The Vuksich Litigation, which sought to alter the equity structure and management of the Company, required the Company to expend its already-limited resources both in terms of management time and attorney’s fees. Although the Company believed that the Vuksich Litigation could and would be defeated, it decided that the resources of the Company were better directed towards its business objectives in an effort to create value for the Company’s stakeholders.

There were four appeals pending in the “Vuksich Litigation.” The following appeals were heard by the Ninth Circuit Court of Appeals on December 9, 2015:

· Order Denying Motion to Dismiss Chapter 11 Case, Case No.: 13-56695 (9th Cir.), appeal filed September 30, 2013, appealing the District Court’s dismissal of the initial appeal of the order.

· Order Disallowing Claims Nos. 23 and 24, Case No.: 14-55499 (9th Cir.), appeal filed March 31, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

· Order Denying Motion for Abandonment of Potential Claims Against Officers and Directors, Case No.: 14-55521 (9th Cir.), appeal filed April 2, 2014, appealing the District Court’s order affirming the order of the Bankruptcy Court.

· Order Confirming Debtor’s First Amended Plan, Case No.: 14-55466 (9th Cir.), appeal filed March 24, 2014, appealing the District Court’s order affirming in part and reversing in part the order of the Bankruptcy Court.

The court ruled in favor of the Company on December 18, 2015.

On December 17, 2015 the United States Court of Appeals for the Ninth Circuit affirmed the rulings of the United States Bankruptcy Court and the United States District Court related to four appeals that John M. Vuksich had filed, asserting that: 

1. That the Bankruptcy Court and the District Court should not have confirmed Imaging3’s Chapter 11 plan of reorganization;

2. That the claim that Vuksich filed in the Imaging3 bankruptcy case was improperly disallowed by the Bankruptcy Court and the District Court;

3. That the Bankruptcy Court and the District Court should have abandoned the Vuksich litigation;

4. That the Bankruptcy Court and the District Court should have dismissed the Imaging3 Chapter 11 bankruptcy case because the court had no jurisdiction over the case.

On February 2, 2016, the Ninth District Judges Tashima, Callahan, and Hurwitz have voted to deny the petition for panel rehearing. Judges Callahan and Hurwitz have voted to deny the petition for rehearing en banc, and Judge Tashima so recommends. The full court has been advised of the petition, and no judge of the court has requested a vote on the petition for rehearing en banc. Fed. R. App. P. 35.The petitions for rehearing and rehearing en banc are denied.

During April 2016 John M. Vuksich appealed to Supreme Court on the most recent rulings dismissing his charges.  The Company will await the Supreme Courts response regarding this appeal.

Litigation

The Company was involved in the following additional litigation: Securities and Exchange Commission v. Imaging3 & Dean Janes, Civil Action No. CV13-04616 GAF (AJWx) (U.S. Dist. Ct., C.D. Ca.), for which Fulbright & Jaworski LLP is counsel of record.  The Company settled this action by entering into a Deferred Prosecution Agreement with the SEC in which the Company covenanted to comply with federal and state securities laws through December 31, 2017, among other covenants.

On September 13, 2012, the Company filed In re Imaging3, Inc., Case No.  2:12-bk-41206-NB (Bankr. C.D. Ca.) (the “Bankruptcy Case”), a voluntary petition under Chapter 11 of Title 11 of the United States Code.  The Company’s plan of reorganization thereunder (the “Plan”) was confirmed on July 9, 2013 pursuant to the court’s Order Confirming Debtor's First Amended Chapter 11 Plan of Reorganization Dated March 5, 2013, as Modified (the “Order”).  Pursuant to the Order, the Plan became effective on July 30, 2013 (“Effective Date”).  The Plan requires that the Company pay certain obligations on the Effective Date of the Plan. Of the Company’s obligations under the Plan, the Company is delinquent with regard to the obligations described in the chart below:

Class of Claim(s)	Payment Recipient	Amount of Each Periodic Payment & Amount of Total Claim	Payment Due Date	Status of Payment
Administrative Expense Claim	Greenberg Glusker Fields Claman & Machtinger LLP	$50,000.00 (monthly) Total Claim: Approximately $1,101,213	*Greenberg Glusker agreed to be paid as follows: $50,000.00 on September 1, 2013 and thereafter no less than $50,000.00 per month on or before the 15th of each month, commencing on October 2013. Interest will be charged on the outstanding balance at the rate of 10% per annum from July 30, 2013	Not paid
Administrative Expense Claim	Mentor Group	Approx. $18,000	Effective Date	Not paid
Priority Tax Claims	IRS	$2,078(monthly) Total Claim: $49,001	Monthly payment of $2,078 until 4/16/2018	Current
Priority Tax Claims	State Board of Equalization	$341.00 (monthly) Total Claim: $14,917.94	Monthly payment of $341 until 9/12/2017 Modified by Stipulation Dated June 23, 2015 as follows: 1.   Pay the balance of the Administrative Claim in the amount of $196.01 2.   Pay all of the arrearages for Priority Tax Claims by payment of $6,240.70 3.   Cure post-Stipulation Effective Date taxes in the aggregate amount of $31,367.12 together with monthly interest accruing after July 1, 2015 (“Post Stipulation Effective Date Taxes”), by payment of four installments, as follows: a. $8,000 on the Stipulation Effective Date; b. $8,000 sixty days from the Stipulation Effective Date; c. $8,000 ninety days from the Stipulation Effective Date; d. the balance of the Post Stipulation Effective Date Taxes one hundred twenty days from the Stipulation Effective Date.	Paid in accordance with the terms of the Stipulation with the State Board of Equalization
Class 1	North Surgery Center, L.P.	$1,673.00 (monthly) Total Claim: $53,792.83	Pay monthly with first payment due on first business day of the first calendar month following the Effective Date	Paid as scheduled until December 2013; Not Paid in and after January 2014.
Class 2	Precision Forging Dies	Total Claim: $45,278.06	Pay in full by the first business day of the thirteenth calendar month following the Effective Date (September 1, 2014)	Not Paid

Section IV, F of the Plan provides “A creditor or party in interest may bring a motion to convert or dismiss the case under § 1112(b), after the Plan is confirmed, if there is a default in performing the Plan. If the Court orders the case converted to Chapter 7 after the Plan is confirmed, then all property that had been property of the Chapter 11 estate, and that has not been disbursed pursuant to the Plan, will revest in the Chapter 7 estate, and the automatic stay will be reimposed upon the revested property only to the extent that relief from stay was not previously granted by the Court during this case.”