COMMITMENTS AND CONTINGENCIES

Financial Covenants

Effective

March 16, 2020,

the Company and CBR Systems, Inc. (“CBR”) entered into a Manufacturing and Supply Amending Agreement

(the “Amendment”). The Amendment amends the Manufacturing and Supply Agreement entered into on

May 15, 2017

by the Company and CBR (the “Original Agreement”). The Amendment, among other things, amends the Original Agreement by reducing from

$2.0

million to

$1.0

million the required amount of cash and short-term investments, net of debt or borrowed funds due in

one

year or less, that the Company must have on hand at the end of any month to avoid being in default under the Original Agreement.

July 13, 2020,

the Company, entered into a Manufacturing and Supply Amending Agreement

with CBR with an effective date of

July 13, 2020 (

the “Amendment”). The Amendment, among other things, revised the amount of certain products to be purchased, pricing of those products and removal of the safety stock requirement. In addition, the Amendment updated the financial requirement to exclude convertible debt from the definition of short-term debt under events or conditions that constitute a default. The Amendment states that the Company's cash balance and short-term investments net of non-convertible debt and borrowed funds that are payable within

one

year must be greater than

$1,000,000

at any month end.

The Company was in compliance with this financial covenant as of

September 30, 2020.

Warranty

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

one

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

nine

months ended

September 30, 2020

is summarized in the following table:

Balance at December 31, 2019	$	277,000
Warranties issued during the period		62,000
Settlements made during the period		(171,000	)
Changes in liability for pre-existing warranties during the period		(20,000	)
Balance at September 30, 2020	$	148,000

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 in California Superior Court against the Company and its Chief Executive Officer by the consulting firm, which argued that it was owed a transaction fee of

$1,000,000

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

August 2016.

October 2017,

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

$1,000,000

with the Court, which was recorded as restricted cash. The trial completed in

February 2020

with an adverse jury verdict in favor of Mavericks in the total amount of

$1,000,000.

As a result, the Company recorded in other current liabilities a

$1,400,000

loss in general and administrative expenses for the year ended

December 31, 2019.

The loss includes the

$1,000,000

transaction fee and an estimated

$400,000

in interest due. The

$1,000,000

deposited with the court will be used to settle the transaction fee. At the conclusion of the trial,

judgment had been entered as the parties were disputing whether the defense of equitable estoppel should bar entry of judgment and the proper pre-judgment interest start date. In

April 2020,

the Company received notice that equitable estoppel defense was denied by the Court. After that ruling, Mavericks and the Company reached agreement for the interest start date and the total amount of Mavericks' trial-related expenses that must be reimbursed by the Company as result of the verdict. On

May 1, 2020

the parties agreed that the Company would pay Mavericks

$480,000,

representing

$369,000

for interest and

$111,000

for trial-related expenses. Additionally, the Company agreed

not

to contest the jury verdict and allowing the Court to release the

$1,000,000

cash bond deposited by the Company early in the litigation to Mavericks, effectively ending the case.

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

September 30, 2020,

except as disclosed, 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.