NOTE 12 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

NOTE 12 - COMMITMENTS AND CONTINGENCIES

NOTE 12 – COMMITMENTS AND CONTINGENCIES

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.

There were no material changes in litigation from that reported in our Form 10-K for the fiscal year ended June 30, 2013 and our form 10-Q for the first and second quarters of fiscal 2014, except with respect to the following matters.

Bonutti Research v. Fonar Corporation, Health Management Corporation of America, Health Diagnostics, LLC et al, was commenced on December 2, 2011.  Bonutti Research filed a patent infringement action in the U.S. District Court for the Eastern District Court of New York, alleging that Fonar’s UPRIGHTt® MRI scanners infringe plaintiff’s patent which relates to the moving of a patient into the scanner.  Fonar believes plaintiff’s claims are without merit and further, that the patent is invalid.  The parties have settled the case for $150 payable by Fonar in twelve installments and certain licenses and covenants not to sue. The $150 has been accrued as of March 31, 2014 in the Company’s condensed consolidated financial statements.

Bolt MRI Technologies v. Fonar Corporation, Health Management Corporation of America & Health Diagnostics, LLC, was commenced on July 22, 2013, when Bolt MRI Technologies filed an action against Fonar Corporation, Health Management Corporation of America and Health Diagnostics, LLC alleging infringement of the same patent which is the subject of the Bonutti case.  Bolt alleged that the patent was assigned to Bolt.  The settlement of the Bonutti case covers this case as well.

Other Matters

The Company is also delinquent in filing sales tax returns for certain states, for which the Company has transacted business. As of March 31, 2014, the Company has recorded tax obligations of approximately $2,717 plus interest and penalties of approximately $2,483. The Company is in the process of determining the regulatory requirements in order to become compliant.

On August 31, 2011 the Company submitted an application to the Internal Revenue Service to voluntarily correct required reporting and disclosure requirements regarding its 401(k) Employee Benefit Plan.  On December 9, 2011, the Internal Revenue Service issued a favorable determination letter on the tax-qualified status of the 401K plan document and a favorable compliance statement.  During December 2013, the Company submitted an application to the U.S. Department of Labor to voluntarily correct the late filing of prior Form 5500s (annual returns).  The voluntary correction application is still pending. The Company, however, does not anticipate any additional penalties will be assessed by the U.S. Department of Labor.  The Company has recorded provisions for any potential penalties totaling $250, which was the Company’s best estimate of its possible exposure for penalties at that time. Management still is unable to determine the outcome of this uncertainty, but is optimistic that the total penalties will be significantly less than the $250 reserve. The Company has engaged outside counsel to assist with the correction process and to obtain compliance with all reporting and disclosure requirements.