DIFFUSION PHARMACEUTICALS INC. (NASDAQ:DFFN) Files An 8-K Entry into a Material Definitive Agreement

Item 1.01Entry into a Material Definitive Agreement.

On March 14, 2017, Diffusion Pharmaceuticals Inc. (the Company)
entered into Subscription Agreements (the Purchase Agreements)
with certain accredited investors and conducted a closing to
which the Company sold 7,837,023 shares of the Companys Series A
convertible preferred stock, par value $0.001 per share (the
Preferred Stock), initially convertible into one share of the
Companys common stock, par value $0.001 per share (the Common
Stock), at a purchase price of $2.02 per share. In addition, each
investor received a 5-year warrant (the Warrants, and
collectively with the Preferred Stock, the Securities) to
purchase one share of Common Stock for each share of Preferred
Stock purchased by such investor at an exercise price equal to
$2.22, subject to adjustment thereunder. The closing is the
initial closing (the Initial Closing) of the Companys previously
announced private placement (the Private Placement) of up to
$15,000,000 of Securities, which amount may be increased to
$25,000,000 at the discretion of the Company and its placement
agent in the Private Placement (the Maximum Offering Amount).

The Company received total gross proceeds of approximately
$15,800,000 from the Initial Closing, prior to deducting
placement agent fees and estimated expenses payable by the
Company associated with the Initial Closing. The Company
currently intends to use the proceeds of the Private Placement to
fund research and development of its lead product candidate,
transcrocetinate sodium, also known as trans sodium crocetinate,
or TSC, including clinical trial activities, and for general
corporate purposes. to the Purchase Agreements, the Company may
periodically conduct additional closings until the Company has
sold the Maximum Offering Amount.

The Securities are being offered and sold in a private placement
to exemptions from the registration requirements of the
Securities Act of 1933, as amended (the Securities Act), afforded
by Section 4(a)(2) and Rule 506 of Regulation D promulgated
thereunder. To the extent that any shares of Common Stock are
issued in connection with the conversion of the Preferred Stock
or the exercise of the Warrants, the Common Stock may not be
offered, transferred or sold in the United States absent
registration or the availability of an applicable exemption from
the registration requirements of the Securities Act.

Maxim Merchant Capital, a division of Maxim Group LLC, acted as
placement agent in connection with the Private Placement to a
Placement Agency Agreement, dated January 27, 2017 (the Placement
Agency Agreement). Under the Placement Agency Agreement, the
Company agreed: (i) to pay the placement agent a cash commission
equal to ten percent (10%) of the aggregate gross proceeds of the
Securities sold at each closing; (ii) to grant to the placement
agent or its designees 5-year warrants to purchase shares of
Common Stock equal to ten percent (10%) of the aggregate number
of shares of Preferred Stock sold through their efforts in the
Private Placement at each closing, at a price equal to 110% of
the purchase price of the Preferred Stock at such closing, with
such warrants containing a cashless exercise provision (the
Placement Agent Warrant); (iii) to reimburse the placement agent
for certain reasonable and documented expenses; and (iv) to grant
the placement agent a right of first refusal to act as lead
placement agent for certain securities offerings following the
final closing of the Private Placement. The Placement Agency
Agreement contains customary representations, warranties and
indemnification by the Company and provides for the payment to
the placement agent of up to $60,000 in expenses. The placement
agent received approximately $1,500,000 in connection with the
Initial Closing, plus $60,000 for the payment of the placement
agents expenses, and a Placement Agent Warrant to purchase
699,544 shares of Common Stock at an exercise price equal to
$2.22.

Description of Series A Preferred Stock

The rights, preferences and privileges of the Preferred Stock are
set forth in a Certificate of Designation of Preferences, Rights
and Limitations of the Series A Convertible Preferred Stock of
Diffusion Pharmaceuticals Inc. (the Certificate of Designation),
a copy of which is attached as Exhibit 3.1 to this Current Report
on Form 8-K. The Certificate of Designation was approved by the
Board of Directors of the Company (the Board) on November 23,
2016 and the holders of a majority of our Common Stock on January
6, 2017, and was filed with the Delaware Secretary of State on
March 13, 2017.

Voting

The holders of the Preferred Stock will be entitled to vote with
the holders of Common Stock (and any other class or series that
may similarly be entitled to vote with the holders of Common
Stock as the Board may authorize and issue) and not as a separate
class, at any annual or special meeting of stockholders of the
Company, and may act by written consent in the same manner as the
holders of Common Stock. In the event of any such vote or action
by written consent, each holder of shares of Preferred Stock
shall be entitled to that number of votes equal to the whole
number of shares of Common Stock into which the aggregate number
of shares of Preferred Stock held of record by such holder are
convertible as of the close of business on the record date fixed
for such vote or such written consent based on a conversion
price, solely for such purpose, equal to the closing price of our
Common Stock on the date such Preferred Stock was issued. With
respect to the shares of Preferred Stock issued at the Initial
Closing, such price shall be $2.38. In addition, for as long as
50% of the shares of Preferred Stock outstanding immediately
after the final closing remain outstanding, without the consent
of holders of at least a majority of the then outstanding shares
of Preferred Stock, the Company may not (a) amend the Companys
Certificate of Incorporation or Bylaws so as to materially and
adversely affect any rights of the holders of the Preferred
Stock, (b) increase or decrease (other than by conversion of the
Preferred Stock) the authorized number of shares of Preferred
Stock to be in excess of the number of shares required to satisfy
the Maximum Offering Amount, (c) amend the Certificate of
Designation, (d) repay, repurchase or offer to repay, repurchase
or otherwise acquire more than a de minimis number of
shares of Common Stock or Common Stock equivalents or (e) enter
into any agreement or understanding with respect to (a) through
(d).

Dividends

The Preferred Stock will be entitled to an 8.0% cumulative
preferred dividend payable semi-annually in shares of Common
Stock that will begin accruing on the issue date of the Preferred
Stock. The dividend will begin to accrue and be cumulative on the
first day of each applicable dividend period and shall remain
accumulated dividends with respect to such Preferred Stock until
paid; provided, that the first dividend payable with respect to
any share of Preferred Stock shall not begin to accrue until the
date of original issuance of such share of Preferred Stock.
Dividends shall accrue whether or not there are profits, surplus
or other funds of the Company legally available for the payment
of dividends but shall not be payable until legally permissible,
as applicable.

Liquidation

The Preferred Stock will rank senior to the Common Stock and each
other class of capital stock of the Company or series of
preferred stock of the Company authorized by the Board in the
future that does not expressly provide that such class or series
ranks senior to, or on parity with, the Preferred Stock (Junior
Securities). In the event of a Liquidation Event (as defined in
the Certificate of Designation), the holders of the Preferred
Stock shall be entitled to receive, out of the assets of the
Company or proceeds thereof legally available therefor, an amount
in cash equal to 100% of the stated value of the Preferred Stock
before any payment or distribution of the assets of the Company
is made or set apart for the holders of Junior Securities. In
addition, prior to such Liquidation Event, the holders of
Preferred Stock shall be entitled to notice so that they may
exercise their conversion rights prior to such event.

Conversion

At any time after the final closing date, each share of the
Preferred Stock, at the holders sole and absolute discretion,
shall initially be convertible into one (1) share of Common
Stock. Holders may immediately convert their Preferred Stock
prior to the occurrence of certain Liquidation Events (as defined
in the Certificate of Designation). At the Companys sole option,
each share of Preferred Stock will automatically convert,
initially, into one share of Common Stock (a) on any date that is
more than thirty trading days after the original issue date of
such share of Preferred Stock that the thirty-day moving average
of the closing price of the Common Stock on the NASDAQ Capital
Market (or any other exchange where the Common Stock is traded)
exceeds $8.00 per share (subject to adjustment in the event of a
stock dividend or split), (b) upon a financing of at least $10
million or (c) upon the majority vote of the voting power of the
then outstanding shares of Preferred Stock. The conversion price
of the Preferred Stock will be subject to adjustment as described
in the Certificate of Designation. The Company is not required to
issue any fractional shares of Preferred Stock or Common Stock in
connection with the conversion of Preferred Stock and may, in
each case, at the Companys discretion, pay the holder such amount
in cash or deliver an additional whole share in lieu thereof.

Limitations of Conversion

The number of shares of Common Stock issuable upon a conversion
of the Preferred Stock that may be acquired by a holder shall be
limited to the extent necessary to ensure that, following such
conversion (or other issuance), the total number of shares of
Common Stock then beneficially owned by such holder and its
affiliates and any other persons whose beneficial ownership of
Common Stock would be aggregated with the Holders for purposes of
Section 13(d) of the Securities and Exchange Act of 1934, as
amended (the Exchange Act), does not exceed 4.99% of the total
number of issued and outstanding shares of Common Stock
(including for such purpose the shares of Common Stock issuable
upon such conversion). However, any holder may increase or
decrease such percentage to any other percentage not in excess of
9.99% of the total number of shares of Common Stock then issued
and outstanding provided that such increase in percentage shall
not be effective until sixty-one days after notice to the
Company.

Dilution Protection.

In the event the Company, at any time after the first date of
issue of the Preferred Stock and while at least one share of
Preferred Stock is outstanding: (a) pays a dividend or otherwise
make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall
not include any shares of Common Stock issued by the Company upon
conversion of the Preferred Stock or any debt securities), (b)
subdivides outstanding shares of Common Stock into a larger
number of shares, (c) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number
of shares or (d) issues by reclassification of shares of Common
Stock any shares of capital stock of the Company, then in each
case the conversion price of the Preferred Stock shall be
multiplied by a fraction of which (x) the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and (y) the
denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made to
this section shall become effective immediately after the
effective date of the applicable event described in subsections
(a) through (d) above.

Make-Whole Adjustment

In the event the Company, during the three years immediately
following March 14, 2017, subject to certain exceptions, issues
at least $10 million of Common Stock or securities convertible
into or exercisable for Common Stock at a per share price less
than $2.02 (such lower price, the Make-Whole Price), the Company
will be required to issue to the holders of Preferred Stock a
number of shares of Common Stock equal to the additional number
of shares of Common Stock that such shares of Preferred Stock
would be convertible into if the conversion price of the
Preferred Stock was equal to 105% of the Make-Whole Price (the
Make-Whole Adjustment). The Company will only be obligated to
issue shares with respect to a Make-Whole Adjustment in the first
such subsequent offering, if any, following the consummation of
the final closing.

Description of Warrants

The terms of the Warrants are as set forth in the form of Warrant
attached as Exhibit 4.1 to this Current Report on Form 8-K. The
Warrants will have an exercise price equal to $2.22, will be
immediately exercisable and will be subject to customary
anti-dilution adjustments. The Warrants will be exercisable for
five (5) years following the final closing date. The Warrants are
subject to a provision prohibiting the exercise of such Warrants
to the extent that, after giving effect to such exercise, the
holder of such Warrant (together with the holders affiliates, and
any other persons acting as a group together with the holder or
any of the holders affiliates), would beneficially own in excess
of 19.99% of the outstanding Common Stock.

The foregoing summaries of the material terms of the Placement
Agency Agreement, the Certificate of Designation, form of Warrant
and the form of Subscription Agreement are not complete and are
qualified in their entirety by reference to the full text
thereof, copies of which are filed herewith as Exhibits 10.1,
3.1, 4.1 and 10.2, respectively, and incorporated by reference
herein. Such agreements and instruments have been included to
provide investors and security holders with information regarding
their terms. They are not intended to provide any other factual
information about the Company. The transaction documents contain
certain representations, warranties and indemnifications
resulting from any breach of such representations or warranties.
Investors and security holders should not rely on the
representations and warranties as characterizations of the actual
state of facts because they were made only as of the respective
dates of such documents. In addition, information concerning the
subject matter of the representations and warranties may change
after the respective dates of such documents, and such subsequent
information may not be fully reflected in the Companys public
disclosures.

Item 3.02.Unregistered Sales of Equity
Securities.

The information set forth in Item 1.01. Entry into a Material
Definitive Agreement is incorporated by reference herein in its
entirety.

Item 3.03.Material Modification of
Rights to Security Holders.

The information set forth in Item 5.03. Amendments to the
Articles of Incorporation or Bylaws; Change in Fiscal Year is
incorporated by reference herein in its entirety.

Possible Effects on Rights of Existing Stockholders

Existing stockholders will suffer significant dilution in
ownership interests and voting rights as a result of the issuance
of the Preferred Stock and the Dividend Shares (as defined
below), and may suffer additional dilution upon the issuance of
shares of our Common Stock upon the conversion of the Preferred
Stock or the exercise of the Warrants. The Preferred Stock will
be senior to our Common Stock with respect to dividends and
liquidation preferences, the holders of Preferred Stock will vote
with the holders of Common Stock in any vote on an adjusted,
as-converted basis and the holders thereof will be entitled to
8.0% cumulative annual dividend payable in shares of Common Stock
(the Dividend Shares). Further, existing stockholders may suffer
significant dilution due to the Make-Whole Adjustment provision
described above. The potential dilution described above is also
in addition to potential dilution from (i)the issuance of
additional shares of Common Stock due to potential future
anti-dilution adjustments on the Preferred Stock, (ii)the
issuance of shares of Common Stock to other outstanding options
and warrants or (iii)any other future issuances of our Common
Stock. The sale into the public market of these shares also could
materially and adversely affect the market price of our Common
Stock

Item 5.03.Amendments to Articles of
Incorporation or Bylaws, Change in Fiscal
Year.

The statements in Item 1.01 above describing the Certificate of
Designation, which the Company filed with the Delaware Secretary
of State on March 13, 2017, are incorporated by reference into
this Item 5.03.

Additional Information

This announcement is neither an offer to sell, nor a solicitation
of an offer to buy, any securities and shall not constitute an
offer, solicitation or sale in any jurisdiction in which such
offer, solicitation or sale is unlawful. The securities described
herein have not been and will not be registered under the
Securities Act, or any state securities laws, and unless so
registered, may not be offered or sold in the United States
except to an exemption from the registration requirements of the
Securities Act, and applicable state securities laws.

Item 9.01.Financial Statements and Exhibits

(d)Exhibits.

About DIFFUSION PHARMACEUTICALS INC. (NASDAQ:DFFN)

Diffusion Pharmaceuticals Inc., formerly RestorGenex Corporation, is a clinical-stage biotechnology company. The Company is focused on developing standard-of-care treatments, including radiation therapy and chemotherapy. The Company’s lead product candidate, transcrocetinate sodium, also known as trans sodium crocetinate (TSC) is used in various cancer types, in which tumor oxygen deprivation (hypoxia) is known to diminish the effectiveness of treatments. The Company’s Diffusion’s technology is targeted at overcoming treatment-resistance in solid cancerous tumors by combining its lead product candidate, TSC, with standard-of-care radiation and chemotherapy regimens, thus effecting a better patient survival outcome without the addition of harmful side effects. Its clinical development plan targets TSC at the radiation and chemotherapy sensitization of hypoxic tumor types, with an initial focus on primary brain cancer (glioblastoma or GBM), pancreatic cancer, and brain metastases.

DIFFUSION PHARMACEUTICALS INC. (NASDAQ:DFFN) Recent Trading Information

DIFFUSION PHARMACEUTICALS INC. (NASDAQ:DFFN) closed its last trading session up +0.11 at 2.49 with 152 shares trading hands.