10.  Commitments and Contingencies

Commercial Lease

On April 21, 2015, AC entered into a commercial lease (the “New Lease”) with Ja-Cole, L.P. (“Ja-Cole”)for property located in Burleson, Texas. The New Lease supersedes and replaces a current lease with Ja-Cole. Under the terms of the New Lease, AC leased an additional 2,100 square feet of warehouse space that will be combined with its current 5,400 square feet of warehouse/office space in Burleson, Texas.   The New Lease is for a three year term expiring April 21, 2018, renewable thereafter by agreement of the parties, at an annual cost of $60,000 per year.  The expanded Burleson facility will house raw material storage and product distribution and allow expansion space as required for AC operations.

Processing Agreement

Under an Amended and Restated Nerve Tissue Processing Agreement (the “LifeNet Agreement”) with LifeNet Health (“LifeNet”),  the Company processes and packages Avance® Nerve Graft using its employees and equipment located at LifeNet, Virginia Beach, Virginia.  As a result of business requirements of LifeNet and their need for additional space,  on April 16, 2015 LifeNet notified the Company that it will need to transition out of the Virginia Beach facility on or before February 27, 2016 and therefore is terminating the LifeNet Agreement effective February 27, 2016.  

As a result of the termination of the LifeNet Agreement, on August 6, 2015 the Company entered into a License and Services Agreement (the “CTS Agreement”) with Community Blood Center (d/b/a Community Tissue Services) (“CTS”) whose headquarters are located in Dayton, Ohio.  The CTS facility and CTS Agreement will provide the Company a cost effective, quality controlled and licensed facility to process and package its Avance® Nerve Graft using its employees and processing equipment.  It is anticipated that processing currently being performed at LifeNet will be transferred completely to the CTS facility by the end of first quarter of 2016  It is anticipated that the Company will have approximately $400,000 of capital expenditures for the placement of equipment and build-out at this facility.       

The CTS Agreement is for a five year term, subject to earlier termination by either party for cause, or after the two year anniversary of the CTS Agreement without cause, upon 180 days’ notice. Under the CTS Agreement, the Company pays CTS a facility fee for clean room/processing, storage and office space.  Under the CTS Agreement, CTS also provides services in support of the Company’s processing such as routine sterilization of daily supplies, providing disposable supplies, microbial services and office support.  The service fee is based on a per donor batch rate.