NOTE I – 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. Effective December 31, 2014, the Company closed down 2 of the 3 units we were leasing, and moved certain manufacturing operations up to the Company’s (owned) facility in Kinderhook, New York. In December 2014, the Company extended the lease for the 1 remaining unit through December 31, 2015.

The future minimum rent due in 2015 under the lease extension is $34,000. The Company also leased office support equipment through October 2014. The future minimum rental payment due in 2015 under the support equipment-operating lease is $0. At December 31, 2014, the future minimum rental payments under these operating leases are as follows:

2015	$	34,000


	$	34,000

Rent expense was $122,000 in both Fiscal 2014 and Fiscal 2013.

[2] Employment agreements: On October 30, 2013, Melissa A. Waterhouse, our (former) Executive Vice President, Regulatory Affairs, Chief Compliance Officer and Corporate Secretary was appointed as our interim Chief Executive Officer/Chief Financial Officer when we became aware that our (then current) Chief Executive Officer/Chief Financial Officer Stan Cipkowski was unable to continue due for medical reasons (Mr. Cipkowski subsequently passed away on October 31, 2013). Ms. Waterhouse was appointed as our Chief Executive Officer/Principal Financial Officer on June 20, 2014. We have an employment agreement in place with Ms. Waterhouse that provides for a $160,000 annual salary and is for a term of one year. It automatically renews unless either party gives advance notice of 60 days. The employment agreement contains severance provisions; in the event the Company terminates Waterhouse’s employment for any reason other than cause (which is defined under the employment agreement), Waterhouse would receive severance pay equal to 12 months of her 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, Waterhouse may tender her resignation and elect to exercise the severance provision if she 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 her position, or if she is asked to commit or conceal an illegal act by an officer or member of the board of directors of the Company. In the case of a change in control of the Company, Waterhouse would be entitled to severance pay equal to two times her base salary under certain circumstances.

Until November 1, 2013, there was an employment agreement in place between the Company and Mr. Cipkowski. The agreement provided for a $206,000 annual salary. And also had the same severance provisions as the Waterhouse employment agreement.

[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 alleged 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. On August 8, 2013, court-ordered mediation was held resulting in settlement between all parties. All parties agreed that the matter was resolved in order to avoid the costs and uncertainties of litigation, with no admissions of guilt from any of the parties involved. All parties were released from any and all claims, injuries, rights, liabilities and causes of action of every nature and description whatsoever, both statutory and common law, known or unknown, that spring from the facts alleged or that could have been alleged either as claims, cross claims, third party claims, or affirmative defenses in the litigation. Under the terms of the settlement, each party has agreed not to disclose to any third parties the terms and conditions of the settlement agreement.

Prior to the receipt of a warning letter from FDA in July 2009, it was our belief, and the belief of our industry, that 510(k) marketing clearance was not required to sell in non-clinical markets, so we did not seek 510(k) marketing clearance from FDA. After protracted discussions with FDA, we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA, and on September 3, 2013, we filed our application for 510(k) marketing clearance. In November 2013, we were informed that the FDA determined that our OralStat was not substantially equivalent to the predicate market device (even though OralStat had an overall accuracy rate of 92%). In accordance with our Consent Decree, we ceased marketing and selling OralStat to the workplace (non-forensic) market but we continue to market and sell OralStat to the forensic market and for export outside the United States.

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.

[4] Financial Advisory Agreement: The Company has entered into a Financial Advisory Agreement with Landmark Pegasus, Inc. (‘Landmark”). Under the Financial Advisory Agreement Landmark will provide certain financial advisory services to the Company for a minimum period of 6 months (which period originally commenced on January 17, 2014 and was extended in August 2014 and again on January 10, 2015). As consideration for these services, the Company paid Landmark retainer fees consisting of restricted shares of common stock and the Company will pay Landmark a “success fee” for the consummation of each and any transaction closing during the term of the Financial Advisory Agreement and for 24 months thereafter, inclusive of a sale or merger, between the Company and any party first introduced to the Company by Landmark, or for any other transaction not originated by Landmark but for which Landmark provides substantial support in completing during the term of the Agreement. For certain transactions, the success fee will be paid part upon consummation of a transaction and part paid over a term of not more than five years; all other transactions would be paid upon consummation of the transaction. There is no material relationship between the Company and Landmark, other than with respect to the Agreement.