NOTE 18.

LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to us or our consolidated subsidiary or has a material interest adverse thereto; however, one or more events may lead to a formal dispute or proceeding in the future.

In October 2016, we learned that insolvency proceedings have been initiated with an Austrian commercial court with respect to Altrazeal Trading, currently a shareholder of the Company and previously a distributor of Altrazeal® for the Company. We are evaluating our position with respect to the insolvency filing by Altrazeal Trading GmbH.

On May 17, 2016, we provided KunWha Pharmaceutical Co., Ltd with a notice identifying certain breaches in the License and Supply Agreement, dated June 2, 2008. KunWha Pharmaceutical Co., Ltd failed to remedy the breaches within 30 (thirty) days of receiving our notice, and therefore, we believe that the License and Supply Agreement has been cancelled.

On May 17, 2016, we provided Jiangxi Aiqilin Pharmaceuticals Group with a notice identifying certain breaches in the License and Supply Agreement, dated June 28, 2010. Jiangxi Aiqilin Pharmaceuticals Group failed to remedy the breaches within 30 (thirty) days of receiving our notice, and therefore, we believe that the License and Supply Agreement has been cancelled.

On May 17, 2016, we provided Novartis Animal Health Inc. with a notice identifying certain breaches in the Distribution Agreement, dated August 23, 2010. In July 2016, we received confirmation from Novartis Animal Health Inc. that the Distribution Agreement has been cancelled.

In late March 2016, we provided Altrazeal AG with a notice identifying certain breaches in the ELSA. On or about March 24, 2016, we learned that Altrazeal AG had commenced an insolvency proceeding in Switzerland and immediately sent an additional notice of termination referencing the insolvency. On or about April 18, 2016, we have learned that the insolvency petition filed by Altrazeal AG in Switzerland has been accepted by the court and an administrator is to be appointed. As a result of the breaches by Altrazeal AG in the ELSA, we believe that the ELSA has been cancelled. As a result of the accepted insolvency petition, we believe that our ownership interest in Altrazeal AG is deemed to be worthless and certain net accounts receivables with Altrazeal AG are uncollectible.

In March 2016, we learned that insolvency proceedings have been initiated with an Austrian commercial court with respect to IPMD GmbH and that one of its affiliated operating entities, ORADISC GmbH, might be affected by such insolvency proceeding filing. Subsequently, we were informed that the insolvency application was opposed with various parties taking opposing views and that these legal proceedings continue to evolve. We continue to evaluate our position with respect to IPMD GmbH and ORADISC GmbH.

In October 2012, we executed a License and Supply Agreement with ORADISC GmbH for the marketing of applications of our OraDisc™ erodible film technology for dental applications including benzocaine (OraDisc™ B), re-mineralization dental strips, fluoride dental strips, long-acting breath freshener, Amlexanox (OraDisc™ A). We also granted to ORADISC GmbH a twenty-four month option to utilize the OraDisc™ erodible film technology for drug delivery for migraine, nausea and vomiting, cough and cold, and pain. In January 2015, the initial twenty-four month option period to utilize the OraDisc™ erodible film technology by ORADISC GmbH was extended until December 31, 2015. In addition, this option expanded the applications for use to include anti-psychotics, neurologic products, and actives for the treatment of erectile dysfunction. On December 30, 2015, we received notice from ORADISC GmbH of their exercise of the option. We informed ORADISC GmbH that under the terms of the option, the right to use the OraDisc™ erodible film technology expired on December 31, 2015. In March 2016, we also provided ORADISC GmbH with a notice identifying certain breaches in the License and Supply Agreement with ORADISC GmbH. As a result of the breaches by ORADISC GmbH in the License and Supply Agreement, the License and Supply Agreement has been terminated in accordance with its terms and ORADISC GmbH has ceased to be a product distributor for the Company. Since delivering the termination notice to ORADISC GmbH we have not had any communication from ORADISC GmbH with respect to the License and Supply Agreement.