COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE J – COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1]          Operating leases: The Company leases office and R&D/production facilities in New Jersey under long-term, non-cancellable operating leases. In December 2011, the Company extended the lease for the New Jersey facility for an additional 12 months, or through December 31, 2012. The future minimum rent due in 2012 under the lease extension is $90,000. The Company also leases office support equipment through September 2014. The future minimum rental payment due in 2012, 2013 and 2014 under the support equipment operating lease is $6,000 each year. At December 31, 2011, the future minimum rental payments under these operating leases are as follows:

2012	$	100,000
2013		6,000
2014		6,000
	$	112,000

Rent expense was $126,000 in Fiscal 2011 and $118,000 in Fiscal 2010.

[2]          Employment agreements: The Company has entered into employment agreements with its Chief Executive Officer Stan Cipkowski (“Cipkowski”). The agreement provides for a $206,000 annual salary and was originally for a term of one year and automatically renewed unless either party gave advance notice of 60 days, however, on July 1, 2009, as a condition to the Rosenthal Line of Credit closing, the Company entered into a new employment contract with the CEO that is coterminous with the Rosenthal Line of Credit; all other terms and provisions of the CEO’s former employment contract remain unchanged. Cipkowski’s employment agreement contains severance provisions; in the event the Company terminates Cipkowski’s employment for any reason other than cause (which is defined under the employment agreement), Cipkowski would receive severance pay equal to 12 months of his base salary at the time of termination, with continuation of all medical benefits during the twelve-month period at the Company’s expense. In addition, Cipkowski may tender his resignation and elect to exercise the severance provision if he is required to relocate more than 50 miles from the Company’s New York facility as a continued condition of employment, if there is a substantial change in the responsibilities normally assumed by his position, or if they are asked to commit or conceal an illegal act by any officer or member of the board of directors of the Company. In the case of a change in control of the Company, Cipkowski would be entitled to severance pay equal to two times his base salary under certain circumstances.

On March 25, 2011 the Company received letters of resignation from its EVP, Douglas Casterlin (“Casterlin”) and CFO, Stefan Parker (“Parker”). The Company’s CEO, Stan Cipkowski has assumed the position of CFO and Casterlin’s responsibilities have been absorbed by other employees where appropriate. Prior to their resignations, Casterlin and Parker both had employment agreements in place with the Company. The agreement with Parker originally provided for a $120,000 annual salary but was amended in August 2010 to provide for an annual salary of $135,000; the contract term remained one year and would automatically renew unless either party gives advance notice of 60 days. The agreement with Casterlin provided for a $149,000 annual salary, was for a term of one year and would automatically renew unless either party gives advance notice of 60 days. Casterlin’s and Parker’s employment agreements contained the same severance provisions as Cipkowski’s employment agreement.

The Company has also entered into a change in control and severance agreement with its Vice President and Chief Compliance Officer Melissa A. Waterhouse, which contains the same severance provisions.

[3]          Legal:

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial; together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint.

On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery are expected to be completed by April 30, 2012.

As previously disclosed, we received a warning letter from the FDA in July 2009 that alleges we are marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. (see Current Report on Form 8-K filed with the SEC on August 5, 2009 and the Risk Factor titled, “Any adverse changes in our regulatory framework could negatively impact our business” on page 13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011). A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. However, the Company has not received a “close-out” letter from FDA, therefore the Company’s July 2009 warning letter remains unresolved. We continue to move forward with our efforts to resolve this issue with FDA. Unresolved warning letters can lead to further FDA action, including but not limited to seizure, injunction and/or civil money penalties.

In addition, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.