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Subsequent Events
6 Months Ended
Jun. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

Note F – Subsequent Events

 

On July 10, 2012, we announced in a press release that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with the U.S. Food and Drug Administration (“FDA”). The Consent Decree stems from a Warning Letter we received in July 2009 related to the sale of our oral fluid drug test in the workplace testing market. As previously disclosed in our periodic and current reports filed with the SEC, the Warning Letter indicated that we were marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

 

Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA.

 

On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agreement, Cantone will act as our exclusive placement agent in connection with a proposed amendment of the Company’s existing Series A Debentures (see “Debenture Financing” under Part I; Item I; Note D – Line of Credit and Debt). Under the proposed amendment, the Series A Debentures would be amended to reflect an extended due date of August 1, 2013 and the interest rate during the extension period would be increased from 10% to 15% per annum, due quarterly in arrears.

 

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the current warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) have been amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs associated with the amendment of the Series A Debentures over the term of the extension (12 months).

 

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan will be in the amount of $150,000 and will used to cover any amounts due to Holders of the Series A Debentures that do not wish to amend the Series A Debentures with any remaining amount to be used for working capital purposes (such working capital purposes will include but not necessarily be limited to, paying the placement agent fees and expenses previously indicated under the Agent Agreement).

 

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

 

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Debenture Amendment extends the due date of the Series A Debenture to August 31, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we will use proceeds from the Bridge Loan to pay principal amounts due to these non-extending Debenture Holders.