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Document And Entity Information - shares	3 Months Ended
Document And Entity Information - shares	Mar. 31, 2017	May 05, 2017
Document And Entity Information
Entity Registrant Name	Diffusion Pharmaceuticals Inc.
Entity Central Index Key	0001053691
Trading Symbol	dffn
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding (in shares)		10,345,637
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false

Condensed Consolidated Balance Sheets (unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 12,212,025	$ 1,552,852
Subscription receivable	8,280,935	0
Prepaid expenses, deposits and other current assets	138,986	50,844
Total current assets	20,631,946	1,603,696
Property and equipment, net	79,524	79,755
Intangible asset	8,639,000	8,639,000
Goodwill	6,929,258	6,929,258
Other assets	63,815	232,675
Total assets	36,343,543	17,484,384
Current liabilities:
Current portion of convertible debt	1,880,000	1,880,000
Accounts payable	557,629	1,684,158
Accrued expenses and other current liabilities	1,016,263	874,264
Common stock warrant liability	48,145,520	0
Total current liabilities	51,599,412	4,438,422
Convertible debt, net of current portion	550,000	550,000
Deferred income taxes	3,279,363	3,279,363
Other liabilities	33,307	31,915
Total liabilities	55,462,082	8,299,700
Commitments and Contingencies
Convertible preferred stock, $0.001 par value: Series A - 13,750,000 shares authorized, 12,376,329 issued and outstanding at March 31, 2017; No shares authorized, issued or outstanding at December 31, 2016 (liquidation value of $25,000,000 at March 31, 2017)	0	0
Stockholders’ Equity (Deficit):
Common stock, $0.001 par value: 1,000,000,000 shares authorized; 10,345,637 shares issued and outstanding	10,346	10,346
Additional paid-in capital	69,700,264	69,363,575
Accumulated deficit	(88,829,149)	(60,189,237)
Total stockholders' equity (deficit)	(19,118,539)	9,184,684
Total liabilities, convertible preferred stock and stockholders' equity (deficit)	$ 36,343,543	$ 17,484,384

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Convertible preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Convertible preferred stock, shares authorized (in shares)	13,750,000	0
Convertible preferred stock, shares issued (in shares)	12,376,329	0
Convertible preferred stock, shares outstanding (in shares)	12,376,329	0
Convertible preferred stock, liquidation value	$ 25,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	1,000,000,000	1,000,000,000
Common stock, shares issued (in shares)	10,345,637	10,345,637
Common stock, shares outstanding (in shares)	10,345,637	10,345,637

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating expenses:
Research and development	$ 1,007,571	$ 2,352,807
General and administrative	1,553,139	3,862,484
Depreciation	6,603	7,853
Loss from operations	2,567,313	6,223,144
Other expense:
Interest expense, net	55,719	21
Change in fair value of warrant liabilities (Note 10)	12,919,674	0
Warrant related expenses (Note 7)	10,225,846	0
Other financing expenses	2,870,226	0
Net loss	(28,638,778)	(6,223,165)
Series A cumulative preferred dividends	(58,845)	0
Net loss attributable to common stockholders	$ (28,697,623)	$ (6,223,165)
Per share information:
Net loss per share of common stock, basic and diluted (in dollars per share)	$ (2.78)	$ (0.62)
Weighted average shares outstanding, basic and diluted (in shares)	10,337,726	9,996,381

Condensed Consolidated Statement of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) (unaudited) - USD ($)

Total

Common Stock

Additional Paid-in Capital

Accumulated Deficit

Increase (Decrease) in Stockholders' Equity (Deficit)

Cumulative effect of change in accounting principle

^[1]

$ 0

$ 1,134

$ (1,134)

Beginning balance (in shares) at Dec. 31, 2016

Beginning balance at Dec. 31, 2016

$ 0

Increase (Decrease) in Temporary Equity [Roll Forward]

Sale of Series A convertible preferred stock and common stock warrants (in shares)

12,376,329

Sale of Series A convertible preferred stock and common stock warrants

$ 0

Ending balance (in shares) at Mar. 31, 2017

12,376,329

Ending balance at Mar. 31, 2017

$ 0

Beginning balance (in shares) at Dec. 31, 2016

10,345,637

Beginning balance, total stockholders' equity at Dec. 31, 2016

9,184,684

$ 10,346

69,363,575

(60,189,237)

Increase (Decrease) in Stockholders' Equity (Deficit)

Sale of Series A convertible preferred stock and common stock warrants

Series A cumulative preferred dividend

(58,845)

Beneficial conversion feature for accrued interest of convertible debt

28,017

Stock-based compensation expense

366,383

Net loss

(28,638,778)

Ending balance (in shares) at Mar. 31, 2017

10,345,637

Ending balance, total stockholders' equity at Mar. 31, 2017

$ (19,118,539)

$ 10,346

$ 69,700,264

$ (88,829,149)

[1]

In 2017, the Company adopted provisions of ASU 2016-09, Improvements to Employee Share Based Payment Accounting, resulting in a cumulative effect adjustment to Accumulated Deficit and Additional Paid-in Capital for previously unrecognized stock-based compensation expense. See Note 3 for further discussion of the impacts of this standard.

Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating activities:
Net loss	$ (28,638,778)	$ (6,223,165)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	6,603	7,853
Stock-based compensation expense	366,383	393,471
Common stock issued for advisory services	0	487,500
Warrant related expense and change in fair value	26,015,746	0
Non-cash interest expense	57,185	3,383
Changes in operating assets and liabilities:
Prepaid expenses, deposits and other assets	(99,737)	(97,058)
Accounts payable, accrued expenses and other liabilities	(1,123,303)	797,827
Net cash used in operating activities	(3,415,901)	(4,630,189)
Cash flows (used in) provided by investing activities:
Purchases of property and equipment	(6,372)	(1,994)
Cash received in reverse merger transaction	0	8,500,602
Net cash (used in) provided by investing activities	(6,372)	8,498,608
Cash flows provided by financing activities:
Proceeds from the sale of Series A convertible preferred stock, net	14,269,095	0
Payment of offering costs	(187,649)	0
Net cash provided by financing activities	14,081,446	0
Net increase in cash and cash equivalents	10,659,173	3,868,419
Cash and cash equivalents at beginning of period	1,552,852	1,997,192
Cash and cash equivalents at end of period	12,212,025	5,865,611
Supplemental disclosure of non-cash investing and financing activities:
Reclassification of deferred offering costs upon completion of private placement	180,456	0
Offering costs in accounts payable and accrued expenses	178,258	0
Series A cumulative preferred dividends	(58,845)	0
Issuance of subscription receivable upon sale of Series A convertible preferred stock	(8,280,935)	0
Conversion of convertible notes and related accrued interest into common stock	0	711,495
Consideration in connection with RestorGenex Corporation merger transaction	$ 0	$ 21,261,000

Organization and Description of Business

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Description of Business



1.	Organization and Description of Business

Diffusion Pharmaceuticals Inc. (“Diffusion” or the “Company”), a Delaware Corporation, is a clinical stage biotechnology company focused on extending the life expectancy of cancer patients by improving the effectiveness of current standard-of-care treatments, including radiation therapy and chemotherapy. The Company’s lead product candidate, trans sodium crocetinate (“TSC”), uses a novel mechanism to re-oxygenate the microenvironment of solid cancerous tumors, thereby enhancing tumor cells’ response to conventional treatment without additional side effects. TSC has received orphan drug designations for the treatment of glioblastoma multiforme (“GBM”) and metastatic brain cancer. The Company expects to enter a Phase III study in newly diagnosed GBM patients in the next twelve months.

On January 8, 2016, the Company completed a reverse merger (the Merger") with RestorGenex Corporation (“RestorGenex”) whereby the Company was considered the acquirer for accounting purposes. The operational activity of RestorGenex is included in the Company’s consolidated financial statements from the date of acquisition. Accordingly, all comparative period information presented in these unaudited condensed consolidated financial statements from January 1, 2016 through January 7, 2016 exclude any activity related to RestorGenex.

Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies



3.	Basis of Presentation and Summary of Significant Accounting Policies

The Summary of Significant Accounting Policies included in our Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 31, 2017, as amended to this date, have not materially changed, except as set forth below.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”), and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements of the Company include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2016 filed with the SEC on Form 10-K on March 31, 2017.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date the financial statements and reported amounts of expense during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited condensed consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited condensed consolidated financial statements in the period they are determined necessary.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable, and accrued expenses approximate fair value due to the short-term nature of those instruments. As of March 31, 2017 and December 31, 2016, the fair value of the Company’s outstanding convertible notes was approximately $3.5 million and $2.6 million, respectively. The fair value of the convertible notes is determined using a binomial lattice model that utilizes certain unobservable inputs that fall within Level 3 of the fair value hierarchy.

Offering Costs

Offering costs consist principally of legal costs incurred through the balance sheet date related to the Company’s private placement financing and are recognized in other assets on the consolidated balance sheet. At December 31, 2016, there were $0.2 million in deferred offering costs. These costs were expensed upon completing the private placement of Series A Preferred Stock and common stock warrants in March 2017.

Intangible Assets and Goodwill

In connection with the Merger, the Company acquired RES-529 and RES-440, respectively, an $8.6 million and $1.0 million indefinite-lived In-Process Research and Development Asset (“IPR&D”) and recognized $6.9 million in goodwill. In the third quarter of 2016, the IPR&D asset associated with RES-440 was abandoned and written down to $0. RES-529 and goodwill are assessed for impairment on October 1 of the Company’s fiscal year or more frequently if impairment indicators exist. The Company has a single reporting unit and all goodwill relates to that reporting unit. There were no impairment indicators or impairments to RES-529 or goodwill during the three months ended March 31, 2017.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, convertible preferred stock, common stock warrants, stock options and unvested restricted stock that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding as of March 31, 2017 and 2016 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:



	March 31,
	2017	2016
Convertible debt	766,351	428,134
Convertible preferred stock	12,376,329	—
Common stock warrants	14,016,608	477,688
Stock options	2,304,132	1,796,360
Unvested restricted stock awards	7,665	13,802
	29,471,085	2,715,984

Amounts in the table reflect the common stock equivalents of the noted instruments.

Recent Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Compensation – Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is applicable to public business entities for fiscal years beginning after December 15, 2016 and interim periods within those years. The Company adopted this standard in 2017 by electing to account for forfeitures in the period that they occur. Under ASU 2016-09, accounting changes adopted using the modified retrospective method must be calculated as of the beginning of the period adopted and reported as a cumulative-effect adjustment. As a result, the Company recognized approximately $1,000 cumulative-effect adjustment on January 1, 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued the update to require the recognition of lease assets and liabilities on the balance sheet of lessees. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its consolidated results of operations, financial position and cash flows and related disclosures.

Liquidity

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Liquidity



2.	Liquidity

The Company has not generated any revenues from product sales and has funded operations primarily from the proceeds of private placements of its membership units (prior to the Merger), convertible notes and convertible preferred stock. Substantial additional financing will be required by the Company to continue to fund its research and development activities. No assurance can be given that any such financing will be available when needed or that the Company’s research and development efforts will be successful.

The Company regularly explores alternative means of financing its operations and seeks funding through various sources, including public and private securities offerings, collaborative arrangements with third parties and other strategic alliances and business transactions. In March 2017, the Company completed a $25.0 million private placement of its securities by offering units consisting of one share of the Company's Series A convertible preferred stock, par value $0.001 per share (“Series A Preferred Stock”) and a warrant to purchase one share of common stock for each share of Series A Preferred Stock purchased in the offering. The Company sold 12,376,329 units and received approximately $22.1 million in aggregate net cash proceeds from the private placement, after deducting commissions of approximately $2.4 million and offering expenses of approximately $0.5 million payable by the Company. The final closing of the private placement occurred on March 31, 2017, and the Company received $8.3 million of net proceeds on April 3, 2017. In addition, the Company granted to its placement agent in the offering warrants to purchase an aggregate 1,179,558 shares of common stock as compensation for its services.

The Company currently does not have any commitments to obtain additional funds and may be unable to obtain sufficient funding in the future on acceptable terms, if at all. If the Company cannot obtain the necessary funding, it will need to delay, scale back or eliminate some or all of its research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that it might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. If the Company engages in collaborations, it may receive lower consideration upon commercialization of such products than if it had not entered into such arrangements or if it entered into such arrangements at later stages in the product development process.

The Company has prepared its financial statements assuming that it will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses since inception and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates, which raises substantial doubt about the Company’s ability to continue as a going concern. Various internal and external factors will affect whether and when the Company’s product candidates become approved drugs and how significant their market share will be. The regulatory approval and market acceptance of the Company’s proposed future products (if any), length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations. The Company believes its cash and cash equivalents at March 31, 2017, together with the subscription receivables related to the Series A private placement received in April 2017, are sufficient to fund operations and meet its research and development goals through March 2018.

Acquisition

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Acquisition



4.	Acquisition

Reverse Merger with RestorGenex

On January 8, 2016, the Company completed a reverse merger transaction with RestorGenex. The Company entered into the Merger transaction in an effort to provide improved access to the capital markets in order to obtain the resources necessary to accelerate development of TSC in multiple clinical programs and continue to build an oncology-focused company.

The purchase price was calculated as follows:



Fair value of RestorGenex shares outstanding	$	19,546,000
Estimated fair value of RestorGenex stock options outstanding	1,321,000
Estimated fair value of RestorGenex warrants outstanding	384,000
CVRs – RES-440 product candidate	10,000
Total purchase price	$	21,261,000

The reverse merger transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The valuation technique utilized to value the IPR&D was the cost approach.

The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date:



Cash and cash equivalents	$	8,500,602
Prepaid expenses and other assets	195,200
Property and equipment	57,531
Intangible assets	9,600,000
Goodwill	6,929,258
Accrued liabilities	(377,432		)
Deferred tax liability	(3,644,159		)
Net assets acquired	$	21,261,000

Qualitative factors supporting the recognition of goodwill due to the reverse merger transaction include the Company’s anticipated enhanced ability to secure additional capital and gain access to capital market opportunities as a public company and the potential value created by having a more well-rounded clinical development portfolio by adding the earlier stage products acquired in the reverse merger transaction to the Company’s later state product portfolio. The goodwill is not deductible for income tax purposes.

Pro Forma Financial Information (Unaudited)

The following pro forma financial information reflects the condensed consolidated results of operations of the Company as if the acquisition of RestorGenex had taken place on January 1, 2016. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.



	Three Months Ended March 31, 2016
	Three Months Ended March 31, 2016
Net revenues	$	—
Net loss	(4,655,944		)
Basic and diluted loss per share	$	0.47

Non-recurring pro forma transaction costs directly attributable to the Merger were $1.6 million for the three months ended March 31, 2016 and have been deducted from the net loss presented above. The costs deducted from the three months ended March 31, 2016 period includes a success fee of $1.1 million and approximately 46,000 shares of common stock with a fair market value of $0.5 million paid to a financial adviser upon the closing of the Merger on January 8, 2016. Additionally, RestorGenex incurred approximately $3.0 million in severance costs as a result of resignations of executive officers immediately prior to the Merger and approximately $2.7 million in share based compensation expense as a result of the acceleration of vesting of stock options at the time of the Merger. These costs are excluded from the pro forma financial information for the three months ended March 31, 2016. No such costs were recorded in the three months ended March 31, 2017.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Other Accrued Expenses and Liabilities

3 Months Ended

Mar. 31, 2017

Payables and Accruals [Abstract]

Other Accrued Expenses and Liabilities



5.	Other Accrued Expenses and Liabilities

Other accrued expenses and liabilities consisted of the following:



	March 31, 2017		December 31, 2016
Accrued interest payable	$	57,173	$	29,359
Accrued Series A dividends	58,845		—
Accrued payroll and payroll related expenses	135,072		399,740
Accrued professional fees	185,163		72,855
Accrued clinical studies expenses	346,861		220,978
Other accrued expenses	233,149		151,332
Total	$	1,016,263	$	874,264

Convertible Debt

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Convertible Debt



6.	Convertible Debt

The following table provides the details of the convertible debt outstanding at March 31, 2017 and December 31, 2016:



Note	Issue Date	Maturity Date	Conversion Price		Interest Rate		Total Principal
2016 Convertible Notes	9/27/2016	9/27/2017	$	3.50	6.00	%	$	1,880,000
Series B Note	3/15/2011	6/30/2018	$	2.74	1.00	%	550,000
Total principal amount							$	2,430,000
Less current portion of convertible notes							(1,880,000		)
Convertible notes, net of current portion							$	550,000

The current and noncurrent portions of accrued interest related to the Company’s Convertible Notes and 2016 Convertible Notes are included within other accrued expenses and liabilities and other liabilities, respectively, within the unaudited condensed consolidated balance sheets. As of March 31, 2017, the Company had accrued interest of approximately $90,000. During the three months ended March 31, 2017, the Company recorded noncash interest expense of approximately $28,000 in connection with a beneficial conversion feature associated with accrued interest that may be converted into shares of common stock

Convertible Preferred Stock and Common Stock Warrants (Notes)

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

Convertible Preferred Stock and Common Stock Warrants



7.	Convertible Preferred Stock and Common Stock Warrants

In contemplation of completing a private placement, the Company amended and restated its articles of incorporation and authorized 13,750,000 shares of Series A Preferred Stock. The Company has classified its Series A Preferred Stock outside of stockholders’ equity (deficit) because the shares contain deemed liquidation rights that are contingent redemption features not solely within the control of the Company.

Series A Convertible Preferred Stock Transaction

In March 2017, the Company completed a $25.0 million private placement of its securities by offering units consisting of one share of the Company’s Series A Preferred Stock and a warrant to purchase one share common stock for each share of Series A Preferred Stock purchased in the offering. Each share of Series A Preferred Stock entitles the holder to an 8.0% cumulative dividend payable in shares of our common stock on a semi-annual basis. The holders may, at their option, convert each share of Series A Preferred Stock into one share of the Company’s common stock based on the initial conversion price of $2.02 per share, subject to adjustment. Each warrant entitles the holder to purchase one share of common stock at an initial exercise price of $2.22, subject to adjustment and expires on the fifth anniversary of their original issuance date.

Upon completing the private placement, the Company sold 12,376,329 units and received approximately $22.1 million in aggregate net cash proceeds from the private placement, after deducting commissions of approximately $2.4 million and offering expenses of approximately $0.5 million payable by the Company. The final closing of the private placement occurred on March 31, 2017, and the Company received $8.3 million of net proceeds on April 3, 2017. In addition, as compensation for its services, the Company granted to its placement agent in the offering warrants to purchase an aggregate of 1,179,558 shares of common stock at an initial exercise price of $2.22 per share, which expire on the fifth anniversary of their original issuance date.

During its evaluation of equity classification for the common stock warrants, the Company considered the conditions as prescribed within ASC 815-40, Derivatives and Hedging, Contracts in an Entity’s own Equity (“ASC 815-40”). The conditions within ASC 815-40 are not subject to a probability assessment. As the Company is obligated to issue a variable number of shares to settle the cumulative Series A preferred dividends, the Company cannot assert there will be sufficient authorized shares available to settle the warrants issued in connection with the Series A offering. Accordingly, these warrants are classified as liabilities. The Company will continue to classify such warrants as liabilities until they are exercised, expire, or are no longer require to be classified as liabilities.

As the fair value of the warrants upon issuance was in excess of the proceeds of the Series A offering, there are no proceeds allocated to the Series A convertible preferred stock. The excess fair value of the warrants over the gross proceeds of the Series A offering and the fair value of the warrants granted to its placement agent was $10.2 million in the aggregate and was recorded as warrant related expenses in the statement of operations for the three months ended March 31, 2017.

Dividends

The Company shall pay a cumulative preferential dividend on each share of the Series A Preferred Stock outstanding at a rate of 8.0% per annum, payable only in shares of common stock, semi-annually in arrears on April 1 and October 1 of each year commencing on October 1, 2017. This cumulative preferential dividend is not subject to declaration. The Company accrued approximately $59,000 in dividends for the three months ended March 31, 2017.

Voting

Subject to certain preferred stock class votes specified in the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (the “Certificate of Designation”) or as required by law, the holders of the Series A Preferred Stock and common stock vote together on an as-converted basis. In accordance with NASDAQ listing rules, in any matter voted on by the holders of our common stock, each share of Series A Preferred Stock entitles the holder thereof to a number of votes based upon the closing price of our common stock on the NASDAQ Capital Market on the date of issuance. Accordingly, shares of Series A Preferred Stock issued in the initial closing of the private placement on March 14, 2017 are entitled to 0.84874 votes per share and shares of Series A Preferred Stock issued in the final closing of the private placement on March 31, 2017 are entitled to 0.50627 votes per share.

Liquidation Preference

The Series A Preferred Stock is senior to the common stock. In the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or in the event of a deemed liquidation event, which includes a sale of the Company as defined in the Certificate of Designation, the holders of the Series A Preferred Stock shall be entitled to receive their original investment amount. If upon the occurrence of such event, the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire remaining assets and funds legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the full amounts to which they would otherwise be entitled.

Conversion

The Series A Preferred Stock is convertible, at the holder’s option, into common stock. At the Company’s option, the Series A convertible preferred stock can be converted into common stock upon (a) the thirty-day moving average of the closing price of the Company’s common stock exceeding $8.00 per share, (b) a financing of at least $10.0 million or (c) upon the majority vote of the voting power of the then outstanding shares of Series A convertible preferred stock. The conversion price of the Series A Preferred Stock is subject to adjustment as described in the Certificate of Designation.

Upon any conversion, any unpaid dividends shall be payable to the holders of Series A preferred stock.

Make-Whole Provision

Until March 2020 and subject to certain exceptions, if the Company issues at least $10.0 million of its 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”) while any shares of Series A Preferred Stock remain outstanding, the Company will be required to issue to these holders of Series A Preferred Stock a number of shares of common stock equal to the additional number of shares of common stock that such shares of Series A Preferred Stock would be convertible into if the conversion price of such shares was equal to 105% of the Make-Whole Price (the “Make-Whole Adjustment”). The Make-Whole Adjustment was evaluated and was not required to be bifurcated from the Series A Preferred Stock.

Common Stock Warrants

As of March 31, 2017, the Company had the following warrants outstanding to acquire shares of its common stock:



	Outstanding	Range of exercise price per share
Common stock warrants issued prior to Merger	460,721	$20.00 - $750.00
Common stock warrants issued in Series A	13,555,887	$2.22
	14,016,608

During the three months ended March 31, 2017, no warrants were exercised or expired. The common stock warrants issued prior to the Merger expire periodically through 2019. The common stock warrants issued in connection with the March 2017 Series A private placement expire in March 2022. During the three months ended March 31, 2017, the Company incurred $26.0 million in warrant related expenses associated with the private placement, which consisted primarily of the change in fair value of the common stock warrants from issuance and the excess fair value of the common stock warrants over the gross cash proceeds of the Series A offering.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
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-Section S99
-Paragraph 4
-Subparagraph (SAB Topic 4.E)
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-Section S99
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6521494

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+ Details

Stock-Based Compensation

3 Months Ended

Mar. 31, 2017

Share-based Arrangements with Employees and Nonemployees [Abstract]

Stock-Based Compensation



8.	Stock-Based Compensation

2015 Equity Plan

The Diffusion Pharmaceuticals Inc. 2015 Equity Plan, as amended (the "2015 Equity Plan"), provides for increases to the number of shares reserved for issuance thereunder each January 1 equal to 4.0% of the total shares of the Company’s common stock outstanding as of the immediately preceding December 31, unless a lesser amount is stipulated by the Compensation Committee of the board of directors. Accordingly, 413,825 shares were added to the reserve as of January 1, 2017, which shares may be issued in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate, in each case, in accordance with the terms of the 2015 Equity Plan. As of March 31, 2017, there were 356,148 shares of common stock available for future issuance under the 2015 Equity Plan.

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim condensed consolidated statements of operations for the periods indicated:



	Three Months Ended March 31,
	2017		2016
Research and development	$	43,322	$	242,277
General and administrative	323,061		151,194
Total stock-based compensation expense	$	366,383	$	393,471

The following table summarizes the activity related to all stock option grants to employees and non-employees for the three months ended March 31, 2017:



	Number of Options		Weighted average exercise price per share		Weighted average remaining contractual life (in years)
Balance at January 1, 2017	2,207,409		$	8.09
Granted	98,184		2.33
Expired	(1,461	)	15.00
Outstanding at March 31, 2017	2,304,132		$	7.84	7.6
Exercisable at March 31, 2017	1,548,216		$	9.04	6.9

Non-employee Stock Options

Non-employee options are remeasured to fair value each period through operations using a Black-Scholes option-pricing model until the options vest. During the three months ended March 31, 2017, the Company granted 9,394 stock options to non-employees. Key assumptions used to estimate the fair value of the non-employee stock options granted during the three months ended March 31, 2017 included a risk-free interest rate of 2.4%, an expected volatility of 136.4%, no expected dividend yield and an expected term equal to the remaining contractual option term. The total fair value of non-employee stock options vested during the three months ended March 31, 2017 and 2016 was approximately $53,000 and $0.3 million, respectively. At March 31, 2017, there were 27,561 unvested options subject to remeasurement and approximately $65,000 of unrecognized compensation expense that will be recognized over a weighted-average period of 2.0 years.

Employee Stock Options

The weighted average grant date fair value of stock option awards granted to employees was $2.08 during the three months ended March 31, 2017. The total fair value of options vested during the three months ended March 31, 2017 and 2016 was $0.2 million and $0.1 million, respectively. No options were exercised during any of the periods presented. At March 31, 2017, there was $2.9 million of unrecognized compensation expense that will be recognized over a weighted-average period of 5.8 years.

Options granted were valued using the Black-Scholes model and assumptions used to value the options granted during the first three months of 2017 were as follows:



Expected term (in years)	5.77
Risk-free interest rate	2.1	%
Expected volatility	125.2	%
Dividend yield	—	%

Restricted Stock Awards

As of March 31, 2017, there were 7,665 unvested shares of restricted stock. During the three months ended March 31, 2017, there were 1,533 shares that vested and the Company recognized stock-based compensation expense of approximately $3,000. At March 31, 2017, there was approximately $15,000 of unrecognized compensation expense that will be recognized over a weighted-average period of 1.2 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References + Details

Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies



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 $17,000 for the three months ended March 31, 2017 and 2016, respectively. On March 31, 2017, the Company entered into a lease for its office and laboratory facilities at a new location in Charlottesville, Virginia. Lease payments commence on May 1, 2017 and expire on April 30, 2022. The company will recognize rent expense on a straight-line basis over the lease period and will accrue for rent expense incurred but not yet paid. Future minimum rental payments under the Company's new noncancelable operating lease at March 31, 2017 was as follows:



	Rental Commitments
2017	$	73,989
2018	112,354
2019	114,409
2020	116,464
2021	118,519
Thereafter	39,735
Total	$	575,470

Legal Proceedings

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.

Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements



10.	Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis:



	March 31, 2017
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	12,212,025	$	—	$	—

Liabilities
Common stock warrant liability	$	—	$	—	$	48,145,520



	December 31, 2016
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	1,552,852	$	—	$	—

Liabilities
Common stock warrant liability	$	—	$	—	$	—

The reconciliation of the common stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:



	Common Stock Warrant Liability
Balance at December 31, 2016	$	—
Issued in connection with the Series A convertible preferred stock	35,225,846
Change in fair value	12,919,674
Balance at March 31, 2017	$	48,145,520

The common stock warrants issued in connection with the Series A convertible preferred stock are classified as liabilities on the accompanying balance sheet at March 31, 2017. The liability is marked-to-market each reporting period with the change in fair value recorded as either income or expense in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the liability to be reclassified to stockholders’ equity (deficit). The fair value of the warrant liability is estimated using the Black-Scholes model and assumptions used to value the warrants granted during the first three months of 2017 were as follows:



Stock price	$	2.38
Exercise price	$	2.22
Expected term (in years)	5
Risk-free interest rate	2.1		%
Expected volatility	127.0		%
Dividend yield	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Basis of Presentation and Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 31, 2017
Accounting Policies [Abstract]
Basis of Presentation	Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”), and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements of the Company include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2016 filed with the SEC on Form 10-K on March 31, 2017.
Use of Estimates	Use of Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date the financial statements and reported amounts of expense during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited condensed consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited condensed consolidated financial statements in the period they are determined necessary.
Fair Value of Financial Instruments	Fair Value of Financial Instruments The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable, and accrued expenses approximate fair value due to the short-term nature of those instruments.
Offering Costs	Offering Costs Offering costs consist principally of legal costs incurred through the balance sheet date related to the Company’s private placement financing and are recognized in other assets on the consolidated balance sheet.
Intangible Assets and Goodwill	Intangible Assets and Goodwill In connection with the Merger, the Company acquired RES-529 and RES-440, respectively, an $8.6 million and $1.0 million indefinite-lived In-Process Research and Development Asset (“IPR&D”) and recognized $6.9 million in goodwill. In the third quarter of 2016, the IPR&D asset associated with RES-440 was abandoned and written down to $0. RES-529 and goodwill are assessed for impairment on October 1 of the Company’s fiscal year or more frequently if impairment indicators exist. The Company has a single reporting unit and all goodwill relates to that reporting unit.
Net Loss Per Share	Net Loss Per Share Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, convertible preferred stock, common stock warrants, stock options and unvested restricted stock that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In March 2016, the FASB issued ASU 2016-09, Compensation – Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is applicable to public business entities for fiscal years beginning after December 15, 2016 and interim periods within those years. The Company adopted this standard in 2017 by electing to account for forfeitures in the period that they occur. Under ASU 2016-09, accounting changes adopted using the modified retrospective method must be calculated as of the beginning of the period adopted and reported as a cumulative-effect adjustment. As a result, the Company recognized approximately $1,000 cumulative-effect adjustment on January 1, 2017. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued the update to require the recognition of lease assets and liabilities on the balance sheet of lessees. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its consolidated results of operations, financial position and cash flows and related disclosures.

Basis of Presentation and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share



	March 31,
	2017	2016
Convertible debt	766,351	428,134
Convertible preferred stock	12,376,329	—
Common stock warrants	14,016,608	477,688
Stock options	2,304,132	1,796,360
Unvested restricted stock awards	7,665	13,802
	29,471,085	2,715,984

Acquisition (Tables)

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Preliminary Purchase Price Consideration

The purchase price was calculated as follows:



Fair value of RestorGenex shares outstanding	$	19,546,000
Estimated fair value of RestorGenex stock options outstanding	1,321,000
Estimated fair value of RestorGenex warrants outstanding	384,000
CVRs – RES-440 product candidate	10,000
Total purchase price	$	21,261,000

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date:



Cash and cash equivalents	$	8,500,602
Prepaid expenses and other assets	195,200
Property and equipment	57,531
Intangible assets	9,600,000
Goodwill	6,929,258
Accrued liabilities	(377,432		)
Deferred tax liability	(3,644,159		)
Net assets acquired	$	21,261,000

Pro Forma Information

The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.



	Three Months Ended March 31, 2016
	Three Months Ended March 31, 2016
Net revenues	$	—
Net loss	(4,655,944		)
Basic and diluted loss per share	$	0.47

Other Accrued Expenses and Liabilities (Tables)

3 Months Ended

Mar. 31, 2017

Payables and Accruals [Abstract]

Other Accrued Expenses and Current Liabilities

Other accrued expenses and liabilities consisted of the following:



	March 31, 2017		December 31, 2016
Accrued interest payable	$	57,173	$	29,359
Accrued Series A dividends	58,845		—
Accrued payroll and payroll related expenses	135,072		399,740
Accrued professional fees	185,163		72,855
Accrued clinical studies expenses	346,861		220,978
Other accrued expenses	233,149		151,332
Total	$	1,016,263	$	874,264

Convertible Debt (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Convertible Debt

The following table provides the details of the convertible debt outstanding at March 31, 2017 and December 31, 2016:



Note	Issue Date	Maturity Date	Conversion Price		Interest Rate		Total Principal
2016 Convertible Notes	9/27/2016	9/27/2017	$	3.50	6.00	%	$	1,880,000
Series B Note	3/15/2011	6/30/2018	$	2.74	1.00	%	550,000
Total principal amount							$	2,430,000
Less current portion of convertible notes							(1,880,000		)
Convertible notes, net of current portion							$	550,000

Convertible Preferred Stock and Common Stock Warrants (Tables)

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

Schedule of Stockholders' Equity Note, Warrants or Rights

As of March 31, 2017, the Company had the following warrants outstanding to acquire shares of its common stock:



	Outstanding	Range of exercise price per share
Common stock warrants issued prior to Merger	460,721	$20.00 - $750.00
Common stock warrants issued in Series A	13,555,887	$2.22
	14,016,608

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References + Details

Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Share-based Arrangements with Employees and Nonemployees [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim condensed consolidated statements of operations for the periods indicated:



	Three Months Ended March 31,
	2017		2016
Research and development	$	43,322	$	242,277
General and administrative	323,061		151,194
Total stock-based compensation expense	$	366,383	$	393,471

Schedule of Share-based Compensation, Stock Options, Activity

The following table summarizes the activity related to all stock option grants to employees and non-employees for the three months ended March 31, 2017:



	Number of Options		Weighted average exercise price per share		Weighted average remaining contractual life (in years)
Balance at January 1, 2017	2,207,409		$	8.09
Granted	98,184		2.33
Expired	(1,461	)	15.00
Outstanding at March 31, 2017	2,304,132		$	7.84	7.6
Exercisable at March 31, 2017	1,548,216		$	9.04	6.9

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

Options granted were valued using the Black-Scholes model and assumptions used to value the options granted during the first three months of 2017 were as follows:



Expected term (in years)	5.77
Risk-free interest rate	2.1	%
Expected volatility	125.2	%
Dividend yield	—	%

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments

Future minimum rental payments under the Company's new noncancelable operating lease at March 31, 2017 was as follows:



	Rental Commitments
2017	$	73,989
2018	112,354
2019	114,409
2020	116,464
2021	118,519
Thereafter	39,735
Total	$	575,470

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis:



	March 31, 2017
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	12,212,025	$	—	$	—

Liabilities
Common stock warrant liability	$	—	$	—	$	48,145,520



	December 31, 2016
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	1,552,852	$	—	$	—

Liabilities
Common stock warrant liability	$	—	$	—	$	—

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The reconciliation of the common stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:



	Common Stock Warrant Liability
Balance at December 31, 2016	$	—
Issued in connection with the Series A convertible preferred stock	35,225,846
Change in fair value	12,919,674
Balance at March 31, 2017	$	48,145,520

Fair Value Inputs, Liabilities, Quantitative Information

The fair value of the warrant liability is estimated using the Black-Scholes model and assumptions used to value the warrants granted during the first three months of 2017 were as follows:



Stock price	$	2.38
Exercise price	$	2.22
Expected term (in years)	5
Risk-free interest rate	2.1		%
Expected volatility	127.0		%
Dividend yield	—

Liquidity - Narrative (Details) - USD ($)	1 Months Ended	3 Months Ended
Liquidity - Narrative (Details) - USD ($)	Mar. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Class of Stock [Line Items]
Convertible preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Number of common stock warrants per unit (in shares)	1	1
Preferred units, outstanding (in shares)		12,376,329
Discounts and commissions	$ 2,400,000
Offering costs	500,000
Subscription receivable	$ 8,280,935	$ 8,280,935	$ 0
Series A Preferred Stock
Class of Stock [Line Items]
Number of preferred stock shares per unit (in shares)	1	1
Subscription receivable	$ 8,300,000	$ 8,300,000
Private Placement
Class of Stock [Line Items]
Net cash proceeds	22,100,000
Private Placement \| Series A Preferred Stock
Class of Stock [Line Items]
Consideration received	$ 25,000,000
Net cash proceeds		$ 22,100,000

Basis of Presentation and Summary of Significant Accounting Policies (Details Textual) - USD ($)

3 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Sep. 30, 2016

Jan. 08, 2016

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Deferred offering costs

$ 200,000

Goodwill

$ 6,929,258

6,929,258

Impairment of goodwill

Cumulative-effect adjustment

^[1]

RES-529

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Intangible assets, net (excluding goodwill)

$ 8,600,000

Goodwill

6,900,000

Impairment of intangible assets

RES-440

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Intangible assets, net (excluding goodwill)

$ 0

$ 1,000,000

Fair Value, Inputs, Level 3

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Convertible debt, fair value disclosures

$ 3,500,000

2,600,000

Accounting Standards Update 2016-09

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Cumulative-effect adjustment

$ (1,000)

[1]

Basis of Presentation and Summary of Significant Accounting Policies - Outstanding Dilutive Securities (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	29,471,085	2,715,984
Convertible debt
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	766,351	428,134
Convertible preferred stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	12,376,329	0
Common stock warrants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	14,016,608	477,688
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	2,304,132	1,796,360
Unvested restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Anti-dilutive securities (in shares)	7,665	13,802

Acquisition - Purchase Price Consideration (Details) - Diffusion LLC - RestorGenex $ in Thousands	Jan. 08, 2016 USD ($)
Business Acquisition [Line Items]
Fair value of RestorGenex shares outstanding	$ 19,546
Estimated fair value of RestorGenex stock options outstanding	1,321
Estimated fair value of RestorGenex warrants outstanding	384
CVRs – RES-440 product candidate	10
Total purchase price	$ 21,261

Acquisition - Summary of Assets Acquired and Liabilities Assumed (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016	Jan. 08, 2016
Business Acquisition [Line Items]
Goodwill	$ 6,929,258	$ 6,929,258
Diffusion LLC
Business Acquisition [Line Items]
Cash and cash equivalents			$ 8,500,602
Prepaid expenses and other assets			195,200
Property and equipment			57,531
Intangible assets			9,600,000
Goodwill			6,929,258
Accrued liabilities			(377,432)
Deferred tax liability			(3,644,159)
Net assets acquired			$ 21,261,000

Acquisition - Pro Forma Financial Information (Details) - Diffusion LLC	3 Months Ended
	Mar. 31, 2016 USD ($) $ / shares
Business Acquisition [Line Items]
Net revenues	$ 0
Net loss	$ (4,655,944)
Basic and diluted loss per share (in dollars per share) \| $ / shares	$ 0.47

Acquisition (Details Textual) - USD ($) shares in Thousands		3 Months Ended
Acquisition (Details Textual) - USD ($) shares in Thousands	Jan. 08, 2016	Mar. 31, 2017	Mar. 31, 2016
Business Acquisition [Line Items]
Stock options compensation cost		$ 366,383	$ 393,471
Acquisition-related Costs \| Diffusion LLC
Business Acquisition [Line Items]
Acquisition related costs			$ 1,600,000
Success Fee Agreement Costs \| Diffusion LLC
Business Acquisition [Line Items]
Success fees	$ 1,100,000
Shares, issued for services (in shares)	46
Stock issued for services	$ 500,000
Executive Officers
Business Acquisition [Line Items]
Severance costs	3,000,000
Equity Option
Business Acquisition [Line Items]
Stock options compensation cost	$ 2,700,000	$ 0

Other Accrued Expenses and Liabilities - Summary of Accrued Expenses (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Payables and Accruals [Abstract]
Accrued interest payable	$ 57,173	$ 29,359
Accrued Series A dividends	58,845	0
Accrued payroll and payroll related expenses	135,072	399,740
Accrued professional fees	185,163	72,855
Accrued clinical studies expenses	346,861	220,978
Other accrued expenses	233,149	151,332
Total	$ 1,016,263	$ 874,264

Convertible Debt - Outstanding Convertible Notes (Details) $ / shares in Units, $ in Thousands	Mar. 31, 2017 USD ($) $ / shares
Debt Instrument [Line Items]
Total principal amount	$ 2,430
Current portion of convertible notes	(1,880)
Convertible notes, net of current portion	$ 550
2016 Convertible Notes
Debt Instrument [Line Items]
Conversion price (in dollars per share) \| $ / shares	$ 3.50
Interest rate (percentage)	6.00%
Total principal amount	$ 1,880
Convertible Note Series B
Debt Instrument [Line Items]
Conversion price (in dollars per share) \| $ / shares	$ 2.74
Interest rate (percentage)	1.00%
Total principal amount	$ 550

Convertible Debt (Details Textual) $ in Thousands	3 Months Ended
Convertible Debt (Details Textual) $ in Thousands	Mar. 31, 2017 USD ($)
Debt Disclosure [Abstract]
Accrued Interest	$ 90
Noncash interest expense	$ 28

Convertible Preferred Stock and Common Stock Warrants (Details)		1 Months Ended	3 Months Ended
	Apr. 03, 2017 USD ($)	Mar. 31, 2017 USD ($) vote_per_share $ / shares shares	Mar. 31, 2017 USD ($) vote_per_share $ / shares shares	Mar. 31, 2016 USD ($)	Mar. 14, 2017 vote_per_share	Dec. 31, 2016 USD ($) shares
Class of Stock [Line Items]
Convertible preferred stock, shares authorized (in shares) \| shares		13,750,000	13,750,000			0
Number of common stock warrants per unit (in shares) \| shares		1	1
Exercise price (in dollars per share) \| $ / shares		$ 2.22	$ 2.22
Preferred units, outstanding (in shares) \| shares			12,376,329
Discounts and commissions		$ 2,400,000
Offering costs		500,000
Proceeds from the sale of Series A convertible preferred stock, net			$ 14,269,095	$ 0
Warrant related expenses (Note 7)		10,200,000	10,225,846	0
Accrued Series A dividends		$ 58,845	$ 58,845			$ 0
Number of votes per share of Series A preferred stock \| vote_per_share		0.50627	0.50627		0.84874
Warrant related expense and change in fair value			$ 26,015,746	$ 0
Series A Preferred Stock
Class of Stock [Line Items]
Number of preferred stock shares per unit (in shares) \| shares		1	1
Preferred stock, dividend rate (percentage)		8.00%
Stock conversion, measurement period			30 days
Minimum share price (in dollars per share) \| $ / shares			$ 8.00
Threshold percentage of stock price trigger		105.00%	105.00%
Private Placement
Class of Stock [Line Items]
Net cash proceeds		$ 22,100,000
Private Placement \| Series A Preferred Stock
Class of Stock [Line Items]
Proceeds from issuance of redeemable convertible preferred stock		$ 25,000,000
Net cash proceeds			$ 22,100,000
Conversion of Preferred Stock
Class of Stock [Line Items]
Redemption price per share (usd per share) \| $ / shares		$ 2.02	$ 2.02
Common Stock Warrants, Series A
Class of Stock [Line Items]
Exercise price (in dollars per share) \| $ / shares		$ 2.22	$ 2.22
Number of shares able to be purchased by warrants (in shares) \| shares		1,179,558	1,179,558
Legacy RestorGenex Warrants
Class of Stock [Line Items]
Warrants exercised \| shares			0
Minimum
Class of Stock [Line Items]
Proceeds from issuance of common stock			$ 10,000,000
Minimum \| Conversion of Preferred Stock
Class of Stock [Line Items]
Proceeds from issuance of common stock			$ 10,000,000
Minimum \| Legacy RestorGenex Warrants
Class of Stock [Line Items]
Exercise price (in dollars per share) \| $ / shares		$ 20.00	$ 20.00
Maximum \| Conversion of Preferred Stock
Class of Stock [Line Items]
Redemption price per share (usd per share) \| $ / shares		2.02	2.02
Maximum \| Legacy RestorGenex Warrants
Class of Stock [Line Items]
Exercise price (in dollars per share) \| $ / shares		$ 750.00	$ 750.00
Subsequent Event
Class of Stock [Line Items]
Proceeds from the sale of Series A convertible preferred stock, net	$ 8,300,000

Convertible Preferred Stock and Common Stock Warrants Schedule of Warrants Outstanding (Details)	Mar. 31, 2017 $ / shares shares
Class of Stock [Line Items]
Warrants outstanding (in shares) \| shares	14,016,608
Range of exercise price (in dollars per share)	$ 2.22
Legacy RestorGenex Warrants
Class of Stock [Line Items]
Warrants outstanding (in shares) \| shares	460,721
Common Stock Warrants, Series A
Class of Stock [Line Items]
Warrants outstanding (in shares) \| shares	13,555,887
Range of exercise price (in dollars per share)	$ 2.22
Minimum \| Legacy RestorGenex Warrants
Class of Stock [Line Items]
Range of exercise price (in dollars per share)	20.00
Maximum \| Legacy RestorGenex Warrants
Class of Stock [Line Items]
Range of exercise price (in dollars per share)	$ 750.00

Stock-based Compensation (Details Textual) - USD ($)	3 Months Ended
Stock-based Compensation (Details Textual) - USD ($)	Mar. 31, 2017	Mar. 31, 2016	Jan. 01, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)	98,184
Risk-free interest rate	2.10%
Expected volatility	125.20%
Dividend yield	0.00%
Compensation cost not yet recognized	$ 2,900,000
Compensation cost not yet recognized, period for recognition (in years)	5 years 310 days
Allocated share-based compensation expense	$ 366,383	$ 393,471
Non-employee Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)	9,394
Risk-free interest rate	2.40%
Expected volatility	136.40%
Dividend yield	0.00%
Fair value of options vested in period	$ 53,000	300,000
Number of unvested options (in shares)	27,561
Compensation cost not yet recognized	$ 65,000
Compensation cost not yet recognized, period for recognition (in years)	2 years 3 days
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options vested in period	$ 200,000	$ 100,000
Weighted average grant date fair value (in dollars per share)	$ 2.08
Unvested restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost not yet recognized, period for recognition (in years)	1 year 2 months 12 days
Unvested shares of restricted stock (in shares)	7,665
Restricted stock vested in period (in shares)	1,533
Allocated share-based compensation expense	$ 3,000
Compensation not yet recognized, restricted stock	$ 15,000
Restorgenex Corporation 2015 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of total shares eligible for plan reserve on an annual basis	4.00%
Number of shares authorized (in shares)			413,825
Number of shares available for grant (in shares)	356,148

Stock-based Compensation - Summary of Stock-based Compensation Expense (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	$ 366,383	$ 393,471
Research and Development Expense
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	43,322	242,277
General and Administrative Expense
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	$ 323,061	$ 151,194

Stock-based Compensation - Stock Option Activity (Details)	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Number of Options
Beginning balance, options outstanding (in shares) \| shares	2,207,409
Granted (in shares) \| shares	98,184
Expired (in shares) \| shares	(1,461)
Ending balance, options outstanding (in shares) \| shares	2,304,132
Weighted average exercise price per share
Beginning balance, options outstanding, weighted average exercise price (in dollars per share) \| $ / shares	$ 8.09
Granted, weighted average exercise price (in dollars per share) \| $ / shares	2.33
Expired, weighted average exercise price (in dollars per share) \| $ / shares	15.00
Ending balance, options outstanding, weighted average exercise price (in dollars per share) \| $ / shares	$ 7.84
Additional Disclosures
Options exercisable (in shares) \| shares	1,548,216
Options exercisable, weighted average exercise price (in dollars per share) \| $ / shares	$ 9.04
Options outstanding, weighted average remaining contractual term (in years)	7 years 7 months 6 days
Options exercisable, weighted average remaining contractual term (in years)	6 years 10 months 24 days

Stock-based Compensation - Share-based Payment Award, Fair Value Assumptions (Details)	3 Months Ended
	Mar. 31, 2017
Share-based Arrangements with Employees and Nonemployees [Abstract]
Expected term (in years)	5 years 281 days
Risk-free interest rate	2.10%
Expected volatility	125.20%
Dividend yield	0.00%

Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Building \| Charlottesville, Virginia
Operating Leased Assets [Line Items]
Rent expense	$ 17	$ 17

Commitments and Contingencies - Schedule of Future Minimum Rental Payments (Details)	Mar. 31, 2017 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2017	$ 73,989
2018	112,354
2019	114,409
2020	116,464
2021	118,519
Thereafter	39,735
Total	$ 575,470

Fair Value Measurements - Fair Value On a Recurring Basis (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Assets
Cash and cash equivalents	$ 12,212,025	$ 1,552,852	$ 5,865,611	$ 1,997,192
Common stock warrant liability	48,145,520	0
Fair Value, Measurements, Recurring \| Fair Value, Inputs, Level 1
Assets
Cash and cash equivalents	12,212,025	1,552,852
Common stock warrant liability	0	0
Fair Value, Measurements, Recurring \| Fair Value, Inputs, Level 2
Assets
Cash and cash equivalents	0	0
Common stock warrant liability	0	0
Fair Value, Measurements, Recurring \| Fair Value, Inputs, Level 3
Assets
Cash and cash equivalents	0	0
Common stock warrant liability	$ 48,145,520	$ 0

- Definition

Fair value, after the effects of master netting arrangements, of a financial liability or contract with one or more underlyings, notional amount or payment provision or both, and the contract can be net settled by means outside the contract or delivery of an asset, expected to be settled within one year or normal operating cycle, if longer. Includes assets not subject to a master netting arrangement and not elected to be offset.

+ References + Details

Fair Value Measurements - Schedule of Common Stock Warrant Liability Rollforward (Details)	3 Months Ended
	Mar. 31, 2017 USD ($)
Fair Value, Measurements, Recurring \| Fair Value, Inputs, Level 3
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance, liability at fair value	$ 0
Change in fair value	12,919,674
Ending balance, liability at fair value	48,145,520
Common Stock Warrants, Series A
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Issued in connection with the Series A convertible preferred stock	$ 35,225,846

Fair Value Measurements - Schedule of Fair Value Inputs (Details)	3 Months Ended
	Mar. 31, 2017 $ / shares
Fair Value Disclosures [Abstract]
Stock price	$ 2.38
Exercise price	$ 2.22
Expected term (in years)	5 years
Risk-free interest rate	2.10%
Expected volatility	127.00%
Dividend yield	$ 0