Commitments and Contingencies

Financial Covenants

July 13, 2020,

the Company, entered into a Manufacturing and Supply Amending Agreement

with CBR Systems, Inc. (“CBR”) with an effective date of

July 13, 2020 (

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

May 15, 2017

and Amendment

dated

March 16, 2020

by the Company and CBR. 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 agreement as of

December 31, 2020.

Potential Severance Payments

We have entered into an employment agreement with the Company Chief Executive Officer under which payment and benefits would become payable in the event of termination by us for any reason other than cause, or upon a change in control of our Company, or by the employee for good reason.

Contingencies 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 included the

$1,000,000

transaction fee and an estimated

$400,000

in interest due. The

$1,000,000

deposited with the court was used to settle the transaction fee. After that jury verdict, 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 allowed 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

December 31, 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.

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, which is

three

years for most products. The Company periodically assesses the adequacy of the warranty reserves and adjusts as necessary.

The warranty liability is included in other current liabilities in the consolidated balance sheets. Changes in the Company's warranty reserve, which is included in other current liabilities in the accompanying consolidated balance sheet is as follows:

	Year Ended December 31,
	2020			2019
Beginning balance	$	277,000		$	186,000
Warranties originated during the year		71,000			254,000
Claims settled made during the year		(212,000	)		(154,000	)
Changes in reserve estimate		18,000			(9,000	)
Ending balance	$	154,000		$	277,000