NOTE 15 - COMMITMENTS AND CONTINGENCIES

12 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

NOTE 15 - COMMITMENTS AND CONTINGENCIES

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Leases

The Company rents its operating facilities and certain equipment, pursuant to operating lease agreements expiring at various dates through May 2018. The leases for certain facilities contain escalation clauses relating to increases in real property taxes as well as certain maintenance costs.

Future minimum operating lease commitments consisted of the following at June 30, 2012:

Year Ending June 30,		Facilities And Equipment (Operating Lease)
	2013	$	2,200,953
	2014		1,689,231
	2015		1,611,230
	2016		1,144,736
	2017		136,766
	Thereafter		129,745
	Total minimum obligations	$	6,912,661

Rent expense for operating leases approximated $2,253,000 and $2,436,000 for the years ended June 30, 2012 and 2011, respectively.

Employee Benefit Plans

The Company has a non-contributory 401(k) Plan (the “401(k) Plan”). The 401(k) Plan covers all non-union employees who are at least 21 years of age with no minimum service requirements. There were no employer contributions to the Plan for the years ended June 30, 2012 and 2011. (see Other Matters below)

The stockholders of the Company approved the 2000 Employee Stock Purchase Plan (“ESPP”) at the Company’s annual stockholders’ meeting in April 2000. The ESPP provides for eligible employees to acquire common stock of the Company at a discount, not to exceed 15%. This plan has not been put into effect as of June 30, 2012.

Litigation

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

On or about June 30, 2010, one of Fonar’s customers, Golden Triangle Company, commenced an action against Fonar and certain individual defendants employed or formerly employed by Fonar, in the United States District Court for the Eastern District of New York based on the alleged wrongful failure of Fonar to deliver a scanner in Kuwait. The claim alleges various causes of action including breach of contract, fraud, conspiracy to defraud and conversion. Golden Triangle Company v. Fonar Corporation et al, CV10-2933. The Plaintiff contracted with Fonar to purchase a scanner, and paid $1,455,500 in advance. The scanner was never delivered, but Plaintiff never designed a site for delivery either. Alleging other damages, fraud and deceptive trade practices, Plaintiff seeks as much as $5,000,000. Fonar made a motion to dismiss the complaint, the outcome of which left Plaintiff with only a cause of action for breach of contract. The claims against the individual officers and employees of Fonar were dismissed. Fonar now has filed its answer, together with a counterclaim alleging that the Plaintiff, by attempting to overcharge the end-customer, has damaged Fonar’s reputation and ability to sell in Kuwait. Golden Triangle has replied to Fonar’s counterclaim and the case is now in discovery. The deadline for completing discovery is December 31, 2012.

In addition, we are or were party to additional less significant actions in which the customers are seeking to obtain a return of their deposits for MRI scanners on the grounds that various contingencies failed to materialize. Upright MRI of Chicago, LLC v. Fonar, Circuit Court of Cook County, Illinois ($310,000), Matt Malek Madison v. Fonar, U.S. District Court, Northern District of California ($300,000), and Jack Shapiro v. Fonar Corporation, Supreme Court, Nassau County, New York ($500,000 although the actual deposit was $323,000). In the Upright MRI of Chicago case, the case was settled by an arrangement whereby a third party took over the sales agreement and agreed to pay the original purchaser the down payment it made. In the Madison case, the Court granted summary judgment to Madison for the deposit and prejudgment interest. We appealed the judgment but lost. The Plaintiff has not taken any action to enforce the judgment. As of June 30, 2012, the Company recorded a liability of $372,000 in connection with this judgement. In the Shapiro case, Shapiro, who was also a sales representative for Fonar, and Fonar were attempting to negotiate a settlement, but the Plaintiff has served Fonar with discovery demands.

On December 2, 2011, Bonutti Research filed an action filed in U.S. District Court for the Eastern District Court of New York. The complaint alleges that Fonar’s Upright® MRI scanners infringe plaintiff’s patent. Fonar believes plaintiff’s claims are without merit. The plaintiff served the complaint on the last possible day permitted after filing. The defendants obtained an extension of time to answer to May 18, 2012. Subsequently, on or about July 3, 2012, Bonutti hired new substitute counsel and requested a 60 day extension to answer Fonar’s counterclaims and to postpone the initial conference. Bonutti has answered our counterclaims and an initial conference with the magistrate judge has been scheduled. The conference with the court is now scheduled for September 28, 2012. At this point we are unable to assess the amount in controversy as no damages were specified. We cannot at this time determine the impact of an adverse determination of this case.

Stipulation Agreements

The Company has entered into stipulation agreements with a number of its creditors that in the aggregate totals $253,167 as of June 30, 2012. The monthly payments total $26,452.

The amounts to be paid over the next two years are as follows:

Year Ending June 30,
	2013	$	205,567
	2014		47,600
		$	253,167

Other Matters

The Company is also delinquent in filing sales tax returns for certain states, for which the Company has transacted business. The Company has recorded tax obligations of $2,442,000 plus interest and penalties of approximately $2,116,000. The Company is in the process of determining its regulatory requirements in order to become compliant.

The Company has determined they may not be in compliance with the Department of Labor and Internal Revenue Service regulations concerning the requirements to file Form 5500 to report activity of its 401K Employee Benefit Plan. The filings do not require the Company to pay tax, however they may be subject to penalty for non-compliance. The Company has recorded provisions for any potential penalties totaling $250,000. The amount was the Company’s best estimate of potential penalties. Management is unable to determine the outcome of this uncertainty. The Company has engaged outside counsel to handle such matters to determine the necessary requirements to ensure compliance. On August 31, 2011, the Company submitted with the Internal Revenue Service a request for a compliance statement and a determination letter for our 401K plan. On December 9, 2011, the Internal Revenue Service issued a favorable determination letter on our 401K plan. The Company is still working with outside counsel to complete and file forms with the US Department of Labor.