Convertible Debentures

February 2016

Financing Transaction

February 2016

in exchange for aggregate proceeds of

$15,000,

000

the Company sold and issued to Boyalife Investment Inc. and Boyalife (Hong Kong) Limited (i)

735,294

shares of common stock at a purchase price of

$3.40

per share (the “Stock Price”) for gross proceeds of

$2,500,

000

(ii) Secured Convertible Debentures for

$12,500

,000

(the “Debentures”) which are convertible into

3,676,471

shares of common stock, and (iii) warrants to purchase

3,529,412

additional shares of common stock at an exercise price of

$8.00

per share for a period of

five

years. The amount of warrants was based on

80%

coverage of the shares issued or to be issued for the equity transaction in (i) and the debt transaction in (ii) above. The warrants were exercisable on

August 13, 2016

and are outstanding at

December 31, 2017.

August 22, 2016,

the Company notified Boyalife Investment Inc., that the Company elected to convert all outstanding principal and interest accrued and otherwise payable under the Debentures, which included the conversion of

$12,500

,000

of principal and

$8,250,000

of interest up to and including the maturity date of the Debentures. Upon conversion,

6,102,941

shares of common stock were issued and the Debentures and all related security interest and liens were terminated. The

2,426,470

common shares that were issued for payment of the interest, had a fair market value of

$11,403,000

August 22, 2016.

Accordingly, an additional

$3,153,000

of interest expense was recorded on the date of conversion.

At the time of the conversion, the remaining debt discount of

$9,538

,000

and debt issue costs of

$155,000

were fully amortized.

Thirty-Year Debenture Restructuring Transaction

August 31, 2015,

the Company sold senior secured convertible debentures in a financi

ng to raise up to

$15,000,000

(Thirty-Year Debentures), Series A warrants to purchase up to

1,102,942

shares of the Company’s common stock at an exercise price equal to

$13.60

per share for a period of

five

and

one

-half years (Series A warrants) and Series B warrants to purchase up to

606,618

shares of the Company’s common stock at an exercise price equal to

$13.60

per share for a period of

eighteen

months (Series B warrants). At the initial closing on

August 31, 2015,

the Company received gross proceeds of

$5,500,000

and

404,412

Series A warrants vested and

222,427

Series B warrants vested. The

second

closing for up to an additional

$9,500,000

was dependent on a number of items including receipt by the Company of approval from the California Institute for Regenerative Medicine (CIRM) for a grant in the amount of

$10,000,000

to support the Company’s pivotal trial for CLIRST III. The Company applied for the CIRM grant in

August 2015.

The Company withdrew its application for the CIRM grant.

For financial reporting purposes, the net proceeds of

$4,720,000

was allocated

first

to the residual fair value of the Series A warrants, amounting to

$3,385,000

then to the residual fair value of the obligation to issue the Series B warrants of

$897,000

the remaining value to the intrinsic value of the beneficial conversion feature on the Thirty-Year Debentures of

$438,000

resulting in an initial carrying value of the Thirty-Year Debentures of

$0.

The initial debt discount on the Thirty-Year Debentures totaled

$4,720,000

and was amortized over the

year life of the convertible debentures.

The Company entered into a registration rights agreement pursuant to which the Company agreed to register all of the shares of common stock then issued and issuable upon conversion in full of the Thirty-Year Debentures and all warrant shares issuable upon exercise of the Series A warrants and Series B warrants.

The holders were entitled to receive liquidated damages upon the occurrence of a number of events relating to filing, getting an effective and maintaining an effective registration statement, including the failure of the Company to have such registration statement declared effective by

October 26, 2015.

As the Company did

not

file an effective registration statement until

November 24, 2015

and the Company was precluded by the SEC from registering all of the registrable securities on a single registration statement, management considered it probable that

five

months of liquidated damages would be due and accrued

$1,100,000

during the year ended

June 30, 2016.

Management made

one

liquidated damages payment of

$220,000

during the

three

months ended

December 31, 2015.

In connection with the

February 2016

financing transaction described above, the Company concurrently entered into a Consent, Repayment and Release Agreement, pursuant to which the Company repaid the Thirty-Year Debentures and all related interest and liquidated damages.

Upon the Company’s payment of

$7.5

million, the Thirty-Year Debentures were deemed repaid in full and cancelled, all liquidated damages due and payable were deemed paid and satisfied in full, the registration rights agreement was terminated and the exercise price of the Series A warrants was changed from

$13.60

$8.00.

The Company recomputed the fair value of the Series A warrants before and after the modification using the Binomial option pricing model with the following assumptions: expected volatility of

91%,

discount rate of

1.2%,

contractual term of

years and dividend rate of

0%.

The loss on modification of

$149,000

was recorded in the accompanying consolidated statements of operations and comprehensive loss for the year ended

June 30, 2016.

Pursuant to the terms of the Consent Repayment and Release Agreement, the holders of the Series B warrants made a single,

one

-time cashless exercise of Series B warrants for

125,000

shares of common stock.

The Company recomputed the fair value of the Series B warrants using the Binomial option pricing model. All remaining Series B warrants valued at

$159,000

were cancelled.

This restructuring transaction occurred on

February 16, 2016

and the Company recorded a loss on extinguishment of debt of

$795

,000

during the year ended

June 30, 2016.

The loss on extinguishment was calculated as follows:

Payment	$	7,500,000
Repayment of Thirty-Year debentures		(5,500,000	)
Payment of accrued liquidated damages and interest		(897,000	)
Loss on modification of Series A warrants		(149,000	)
Cancellation of Series B derivative obligation		(159,000	)
Loss on extinguishment of debt	$	795,000

At the time of the repayment, the remaining debt discount of

$4,648

,000

and debt issue costs of

$765,000

were fully amortized. For the year ended

June 30, 2016,

the Company amortized

$4,720,000

of debt discount and

$777,000

of debt issue costs.