17.	Subsequent Event

Merger with Diffusion LLC

On January 8, 2016, the Company, through a subsidiary, completed the Merger with and into Diffusion LLC pursuant to the Merger Agreement and, as a result, Diffusion LLC became a wholly-owned subsidiary of the Company creating a combined company that is a clinical stage biotechnology company focused on developing therapeutics for the treatment of certain cancers. In connection with the Merger, the Company issued to the holders of outstanding units of Diffusion LLC an aggregate of 82,963,544 shares of Common Stock and, as a result, immediately following the completion of the Merger, the former equity holders of Diffusion LLC owned approximately 84.1% of the Common Stock of the Company and the stockholders of RestorGenex immediately prior to the Merger owned approximately 15.9% of the Common Stock of the combined company, in each case, on a fully-diluted basis (subject to certain exceptions and adjustments). Also in connection with the Merger, the pre-Merger directors and officers of the Company tendered their resignations and the pre-Merger directors and officers of Diffusion LLC were appointed as the new directors and officers of the Company, and our corporate headquarters moved from Buffalo Grove, Illinois to Charlottesville, Virginia. Following the completion of the Merger, the Company changed its corporate name from “RestorGenex Corporation” to “Diffusion Pharmaceuticals Inc.” and changed the trading symbol of the Company’s common stock from “RESX” to “DFFN.”

At the effective time of the Merger, each outstanding unit of membership interest of Diffusion (“Diffusion Units”) was converted into the right to receive 3.652658 shares of the Company’s common stock, as determined pursuant to the Merger Agreement (“Exchange Ratio”). Also at the effective time of the Merger, $1,125,000 of Diffusion convertible notes were outstanding and

the rights of the holders of each outstanding convertible promissory note convertible into Diffusion Units (“Diffusion Convertible Notes”) was converted into the right to convert such securities into a number of shares of the Company’s common stock equal to the number of Diffusion Units such Diffusion Convertible Note would be convertible into pursuant to its terms multiplied by the Exchange Ratio. In addition, at the effective time of the Merger and as a result of the Merger, all outstanding options to purchase Diffusion Units were converted into and became options to purchase the Company’s common stock on terms substantially identical to those in effect prior to the effective time of the Merger, except for adjustments to the underlying number of shares and the exercise price based on the Exchange Ratio. As a result of the Merger, and taking into account the adjustments to the number of shares and exercise price as a result of the Merger, we assumed options to purchase Diffusion Units which converted into options to purchase an aggregate of 14,952,101 shares of the Company’s common stock with a weighted average exercise price of $0.40 per share. No fractional shares of the Company’s common stock were issued in connection with the Merger, and holders of Diffusion Units received cash in lieu thereof.

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally acceptable accounting principles in the United States (“U.S. GAAP”) and Diffusion LLC is considered the accounting acquirer. Accordingly, Diffusion LLC’s historical results of operations will replace the Company’s historical results of operations for all periods prior to the Merger and, for all periods following the Merger, the results of operations of the combined company will be included in the Company’s financial statements.

During 2015, the Company incurred transaction costs of $1,193,115 in connection with the Merger that were incurred and expensed within “general and administrative expenses” on the consolidated statements of operations during the year ended December 31, 2015.

The completion of the Merger constituted a “change in control” under the Company’s non-plan option agreements thereby resulting in automatic acceleration of vesting of all options outstanding as of the effective time of the Merger and such options remaining exercisable for the remainder of their terms. In addition, because of the termination of employment of the Company’s officers and employees in connection with the Merger, the Company incurred approximately $3,039,860 in severance costs during the first quarter of 2016, which amounts were paid to the affected employees in January 2016.

Contingent Value Rights Distribution

Prior to the effective time of the Merger, the Company’s Board of Directors authorized, declared and effected a distribution of contingent value rights (“CVRs”) to existing stockholders of the Company as of the close of business on January 7, 2016 (the “CVR Record Date”) at a rate of one CVR for each share of the Company’s common stock. The CVRs, which are not certificated and not attached to the shares of the Company’s common stock, were payable immediately prior to the effective time. Each CVR represents a non-transferable right (subject to certain limited exceptions) to potentially receive certain cash payments in the event the Company receives net cash payments during the five-year period after the Merger as a result of the sale, transfer, license or similar transaction relating to the Company’s product currently known as RES-440, which is a “soft” anti-androgen, upon the terms and subject to the conditions set forth in a contingent value rights agreement, dated January 8, 2016, between the Company and Computershare, Inc., as rights agent (the “CVR Agreement”). The aggregate cash payments to be distributed to the holders of the CVRs, if any, will be equal to the amount of net cash payments received by the Company as a result of the sale, transfer, license or similar transaction relating to RES-440, as determined pursuant to the CVR Agreement, but will not exceed $50 million in the aggregate. Any option or warrant holder of the Company as of the record date for the CVRs would, at the time of exercise, be entitled to receive one CVR for each share of the Company’s common stock issued upon the future exercise of the option or warrant, which would entitle the holder to a pro rata portion of any CVR payments made after the date of exercise.

Voting and Lock-Up Agreements

On January 8, 2016, the Company entered into a voting and lock-up agreement with each of the pre-closing directors and executive officers of the Company and Diffusion, who collectively held approximately 16.6% of the outstanding common stock of the combined company after the Merger, pursuant to which such persons agreed, for six months after the Merger, to vote all of their respective shares of common stock owned after the Merger for such proposals that are reasonably presented by the Company’s Board of Directors and to not sell, pledge, encumber or take certain other actions with respect to such shares.

Assumption of Diffusion Indebtedness

As a result of the Merger, all of the outstanding indebtedness of Diffusion became the obligation of the Company. As of the closing date of the Merger, there was $1,125,000 of principal amount of notes outstanding (the “Notes”) with an aggregate of approximately $38,264 of interest accrued thereon, of which $550,000, $325,000, $50,000 and $200,000 of principal amount were issued as Series B, Series C, Series E and Series F Notes, respectively. The Series B Notes were issued in March 2011, mature June 2018 and, as a result of the completion of the Merger, are convertible into the Company’s common stock at a conversion price of $0.273773236 per share. The Series C notes were issued in September 2012, mature March 2016 and, as a result of the completion of the Merger, are convertible into the Company’s common stock at a conversion price of $0.273773236 per share. The Series E Notes were issued in June 2014, mature June 2018 and, as a result of the completion of the Merger, are convertible into the Company’s common stock at a conversion price of $0.410659854 per share. The Series F Notes were issued in December 2015, mature December 2019 and, as a result of the completion of the Merger, are convertible into the Company’s common stock at a conversion price of $0.547546472. Immediately following the Effective Time, the Notes were convertible into an aggregate of 3,821,571 shares of the Company’s common stock.

All of the Notes bear interest at a rate of 1.0% per annum and are convertible into shares of Company’s common stock at the holder’s discretion. In the event a holder does not convert prior to a Note’s maturity date, the entire principal amount and all accrued interest are due and payable on such date. The Notes are subject to acceleration in the case of certain customary events of default, including failure to make payments on the Notes when due and certain bankruptcy events, and the conversion prices are subject to adjustment in the case of certain dilutive company events.