9. Commitments and Contingencies

Office Space Rental

The Company leases office and laboratory facilities in Charlottesville, Virginia under a month-to-month cancelable operating lease. Rent expense related to the operating lease was $16,500 during the three months ended March 31, 2016 and 2015.

The Company also leases office space totaling approximately 2,900 square feet in Buffalo Grove, Illinois. The term of the lease commenced on September 15, 2014 and will continue through February 28, 2018. The Company has an option to renew the lease for one renewal term of three years. Under the lease agreement, the first five months were rent free and then the base rent is approximately $6,000 per month through February 28, 2016 for a total of approximately $72,000 per year. The base rent will increase to approximately $6,100 per month for the first year thereafter and $6,200 per month for the second year thereafter.

The Company’s contractual obligations with respect to rental commitments as of March 31, 2016 were as follows:

	Rental Commitments
Payments due by period:
One year	$	73,300
Two years		68,200
Three years		—
Thereafter		—
Total	$	141,500

Legal Proceedings

From time to time, the Company is subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business, which may include employment matters, breach of contract disputes and stockholder litigation. Such actions and proceedings are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its unaudited condensed consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, when the Company has assessed that a loss is probable and an amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred. In the opinion of management, as of March 31, 2016, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s condensed consolidated results of operations, financial position or cash flows.

On August 7, 2014, a complaint was filed in the Superior Court of Los Angeles County, California by Paul Feller, the Company’s former Chief Executive Officer under the caption

Paul Feller v. RestorGenex Corporation, Pro Sports & Entertainment, Inc., ProElite, Inc. and Stratus Media Group, GmbH

(Case No. BC553996). The complaint asserts various causes of action, including, among other things, promissory fraud, negligent misrepresentation, breach of contract, breach of employment agreement, breach of the covenant of good faith and fair dealing, violations of the California Labor Code and common counts. The plaintiff is seeking, among other things, compensatory damages in an undetermined amount, punitive damages, accrued interest and an award of attorneys’ fees and costs. On December 30, 2014, the Company filed a petition to compel arbitration and a motion to stay the action. On April 1, 2015, the plaintiff filed a petition in opposition to the Company’s petition to compel arbitration and a motion to stay the action. After a hearing for the petition and motion on April 14, 2015, the Court granted the Company’s petition to compel arbitration and a motion to stay the action. On January 8, 2016, the plaintiff filed an arbitration demand with the American Arbitration Association. No arbitration hearing has yet been scheduled. The Company believes this matter is without merit and intends to defend the arbitration vigorously. Because this matter is in an early stage, the Company is unable to predict its outcome and the possible loss or range of loss, if any, associated with its resolution or any potential effect the matter may have on the Company’s financial position. Depending on the outcome or resolution of this matter, it could have a material effect on the Company’s financial position.

On September 21, 2015, David Schmidt, a member of Diffusion LLC, filed suit (the “Complaint”) in the Circuit Court for Albemarle County, Virginia (Case. No. CL15-791, David G. Schmidt v. Diffusion Pharmaceuticals LLC). The Complaint alleged a claim for breach of contract asserting that Diffusion LLC breached the terms of a $1.5 million convertible promissory note, dated December 15, 2009, which he elected to fully convert into membership units on the same day at the contractual per-unit conversion price of $3.50. Mr. Schmidt also alleged that the anti-dilution provisions of the convertible promissory note and certain terms of the operating agreement entitle him to convert his note at the conversion price of $1.00 per unit, which was the conversion price that Diffusion LLC subsequently renegotiated in 2012 with other noteholders who had not converted their notes (the “2012 Renegotiation”). Mr. Schmidt contends that if he had converted his note at $1.00 per unit instead of $3.50 per unit, he would have received an additional 1,071,432.50 units. His claim for relief was an award of specific performance requiring Diffusion LLC to issue him an additional 1,071,432.50 units or to pay damages equal to the value of such units. Mr. Schmidt also asserted tort claims for breach of fiduciary duty and conversion, together with a claim for unjust enrichment. Diffusion LLC filed a Demurrer asking the court to dismiss the Complaint for failing to state a viable cause of action and various other grounds. A hearing on Diffusion LLC’s Demurrer was held on March 14, 2016, at which hearing the claim was dismissed for failing to state a viable cause of action. Mr. Schmidt had up to 21 days to file an amended, restated complaint.

On April 14, 2016, Mr. Schmidt filed an Amended Complaint. His Amended Complaint asserts a single claim for breach of contract. Mr. Schmidt alleges that he was denied the opportunity to exercise his preemptive rights under the Company’s Operating Agreement as a result of the 2012 Renegotiation. Mr. Schmidt contends that this reduction of the conversion price resulted in his ownership interest in the Company being diluted and that he should have been afforded the opportunity to purchase such number of additional units at $1.00 per unit so as to enable him to maintain the ownership percentage of the Company that he would have owned if the other notes had been converted at the original conversion price of $3.50 per unit instead of $1.00 per unit. Mr. Schmidt alleges that such number of units is 1,071,432.50 and that he would have exercised his preemptive rights to purchase this number of units for $1,071,432.50. The sole relief sought by Schmidt in the Amended Complaint is an order of specific performance requiring the Company to issue him an additional 1,071,432.50 units in exchange for his payment of $1,071,432.50.

Management and legal counsel for the Company are of the opinion that the plaintiff’s claim is without merit and the Company will continue to vigorously defend the suit.