Item 3. Legal Proceedings
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may be subject to various legal proceedings, claims and administrative proceedings that arise in the ordinary course
of our business activities. Although the results of the litigation and claims cannot be predicted with certainty, as of the date of this
Annual Report, with the exception of the Patent License Matter discussed below in which BayMedica, our wholly-owned subsidiary, is involved,
we do not believe we are party to any claim, proceeding or litigation the outcome of which, if determined adversely to us, would individually
or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcomes, however, litigation
can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On
February 15, 2021, BayMedica entered into an exclusive technology license agreement (the “Agreement”) with a third party
(the “Licensor”) pursuant to which it agreed to license a proprietary process in the United States where it has a pending
U.S. patent application in exchange for certain annual royalty payments contingent on the net sales of products made using the licensed
process. The royalty payments were to be made for the period beginning on the first commercial sale of the licensed product and ending
on the later of the expiration of the Licensor’s patent rights or ten years after the first commercial sale of such licensed product.
On April 29, 2025, BayMedica received a letter from the Licensor stating its intention to commence arbitration proceedings pursuant the
Agreement, together with a Notice of Arbitration (the “Patent License Matter”). Such arbitration proceedings will be subject
to final, binding and non-appealable arbitration under the Arbitration Act, 1991 (Ontario) and determined pursuant to Ontario law. In
its Notice of Arbitration, the Licensor takes the position that the annual royalty payments are meant to function as guaranteed annual
minimum payments required to be made for the duration of the Agreement regardless of net sales. The Licensor seeks relief against BayMedica
including (a) approximately US $3.4M in annual payments for the years 2022 through 2024 and (b) a declaration that BayMedica is liable
to pay certain guaranteed annual minimum payments of approximately $2.3M for the remainder of the term of the Agreement. BayMedica disputes
the amount owing and to be paid over the duration of the agreement. BayMedica vehemently contests the Licensor’s interpretation
of the Agreement and its position in the Patent License Matter, and intends to take all necessary steps to vigorously defend the Patent
License Matter. While we are not able to predict the outcome of the Patent License Matter with any certainty, an unfavorable outcome
to BayMedica would have a material adverse impact on the Company’s business and financial condition and on BayMedica’s ability
to continue operations.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
67
PART
II