Note 6 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

6 . Commitments and Contingencies

Financial Covenants

Effective

May 15, 2017,

the Company entered into a Sixth Amended and Restated Technology License and Escrow Agreement with CBR Systems, Inc. which modified the financial covenant that the Company must meet in order to avoid an event of default. The Company must maintain a cash balance and short-term investments net of debt or borrowed funds that are payable within

one

year of

not

less than

$2,000,000.

The Company was in compliance with this financial covenant as of

June 30, 2019.

Warranty

The Company offers a warranty on all of its non-disposable products of

one

to

two

years. The Company warrants disposable products through their expiration date. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

The warranty liability is included in other current liabilities in the unaudited condensed consolidated balance sheets. The change in the warranty liability for the

six

months ended

June 30, 2019

is summarized in the following table:

Balance at December 31, 2018	$	186,000
Warranties issued during the period		88,000
Settlements made during the period		(125,000	)
Changes in liability for pre-existing warranties during the period		(17,000	)
Balance at June 30, 2019	$	132,000

Contingen

cies and Restricted Cash

In fiscal

2016,

the Company signed an engagement letter with a strategic consulting firm (“Mavericks”).  Included in the engagement letter was a success fee due upon the successful conclusion of certain transactions. On

May 4, 2017,

a lawsuit was filed against the Company and its CEO by the consulting firm as the consulting firm argues that it is owed a transaction fee of

$1,000,000

(and interest of approximately

$300,000

as of

June 30, 2019)

under the terms of the engagement letter due to the conversion of the Boyalife debentures in

August 2016. 

In

October 2017,

to streamline the case by providing for the dismissal of claims against the Company’s CEO based on alter ego theories and without acknowledging any liability, the Company deposited

$1,000,000

with the Court and has recorded this deposit as restricted cash on its condensed consolidated balance sheet. The Company filed a Motion for Summary Judgment, which was denied by the Court on

June 26, 2018.

On

September 24, 2018,

Mavericks filed an amended complaint, adding back the Company’s CEO as a named defendant, as well as Boyalife Investment, Inc. (a dissolved company) and Boyalife (Hong Kong) Limited under new theories of liability, namely intentional interference with contract and inducement of breach of contract. On

July 22, 2019,

Mavericks filed a Request for Dismissal requesting the Court to the dismiss the served Boyalife entities and the Company CEO as well as the intentional interference with performance of contract and inducing breach of contract causes of action from the lawsuit.  As such, the only remaining claim at present is the original breach of contract claim against the Company. On

August 6, 2019,

a trial starting date was set for

November 4, 2019.

A mandatory settlement conference was also set for

October 30, 2019

with the Court. The Company denies liability and intends to defend the lawsuit vigorously. 

No

accrual has been recorded for this contingent liability as of

June 30, 2019.

In the normal course of operations, the Company

may

have disagreements or disputes with customers, employees or vendors. Such potential disputes are seen by management as a normal part of business. As of

June 30, 2019,

management believes any liability that

may

ultimately result from the resolution of these matters will

not

have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.