COMMITMENTS AND CONTINGENCIES

Leases - The Company leases office and warehouse space and certain equipment using operating leases for various periods through 2013. Rental expense under non-cancelable operating leases totaled $217,000, $230,000 and $241,000 in 2012, 2011 and 2009, respectively. Future minimum payments under non-cancelable operating leases are as follows:



Year ended December 31,
2013	$	168,913
2014	102,878
2015	73,111
2016	72,802
2017	59,382
	$	477,086

Employee Arrangements - The Company has entered into employment agreements with certain of its key executives. In July, 2010, the Company entered into an employment agreement with the Company's Chief Executive Officer, expiring December 31, 2012, which agreement automatically renews for an additional one-year term unless either party provides notice to the other 60 days prior to the last day of the then current term. Accordingly, the agreement was automatically renewed for an additional one-year period upon expiration in 2012, resulting in a continuation of the terms and conditions under this agreement until December 31, 2013. Among other things, the agreement provides that if employment is terminated for certain reasons set forth in the agreement, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary. Upon termination of the agreement, the Chief Executive Officer will receive a specified portion of his salary for an additional three-year period for consulting services.

In August, 2012, the Company entered into an employment agreement with the Company's President, expiring December 31, 2015, which agreement automatically renews for an additional one-year term unless either party provides notice to the other 30 days prior to the last day of the then current term. Among other things, the agreement provides that if employment is terminated for certain reasons set forth in the agreement, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary. In the event that the Company chooses not to renew the agreement, the President will be entitled to one-half of the annual base salary as severance.

In August, 2012, the Company entered into an employment agreement with the Company's Chief Financial Officer, expiring December 31, 2013, which agreement automatically renews for an additional one-year term unless either party provides notice to the other 30 days prior to the last day of the then current term. Among other things, the agreement provides that if employment is terminated for certain reasons set forth in the agreement, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary. In the event that the Company chooses not to renew the agreement, the Chief Financial Officer will be entitled to one-half of the annual base salary as severance.

In December, 2012, the Company entered into employment agreements with four other officers or members of the executive team, expiring December 31, 2013. The agreements generally replaced agreements which had an expiration date of December 31, 2012. Among other things, the agreements provide that if employment is terminated for certain reasons set forth in the agreements, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary.

The Company’s employees can participate in an employee benefit plan under Section 401(k) of the Internal Revenue Code offered through its Professional Employer Organization. This plan covers employees in the U.S. who are at least 18 years of age and have been employed by the Company longer than three months. The Company makes discretionary matching contributions equal to 10% of the employees’ contributions. Total matching contributions made by the Company during 2012, 2011 and 2009 were approximately $12,000, $14,000 and $18,000, respectively.

Litigation - The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters.

One medical/surgical dealer accounts for a significant portion of Medical Products sales. This dealer distributes our Medical Products and provides services primarily to nursing homes, and obtains reimbursement for the price of our products from Medicare. This dealer accounted for 53%, 59% and 61% of Medical Products net sales in 2012, 2011 and 2010, respectively.

On February 27, 2012, we were notified that this dealer filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California in Santa Ana, California on February 24, 2012. According to its bankruptcy petition, this dealer filed its petition as the most effective means of stabilizing its finances as it resolves a recent reimbursement guidelines dispute with Medicare, which the dealer believes is improperly withholding payments. The petition states that this dealer relies on Medicare payments for more than 90% of its revenue and that Medicare has currently suspended all of its payments to the dealer. In a press release issued by the dealer at the time of the filing, the dealer stated that the Chapter 11 filing will allow it to continue operating without interruption while it resolves its payment dispute with Medicare as expeditiously as possible. As of February 15, 2013, we had approximately $240,000 in pre-petition accounts receivable that are owed by this dealer. Since the bankruptcy filing, we have continued to fill this dealer's post-petition orders, with payments received in accordance with our normal terms. While we believe the amounts due to us from this dealer will be collected in full, we will continue to monitor these proceedings as they progress in order to appropriately assess and enforce our rights in this matter.