UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )2)

Diffusion Pharmaceuticals Inc.

(Name of Registrant as Specified In Its Charter)

Not Applicable

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

PRELIMINARY COPY PROXY MATERIALS

SUBJECT TO COMPLETION, DATED MARCH 18,DECEMBER 1, 2022

In accordance with Rule 14a-6(d) under Regulation 14A, please be advised that the Diffusion Pharmaceuticals Inc. intends to release definitive copies of this Proxy Statement on or about March 28, 2022.

Diffusion Pharmaceuticals Inc.
300 East Main Street, Suite 201
Charlottesville, Virginia 22902

March [•],[  ], 2022         

Dear Fellow Stockholders:

We are pleased to invite you to join us for a Specialthe Diffusion Pharmaceuticals Inc. 2022 Annual Meeting of Stockholders of Diffusion Pharmaceuticals Inc. to be held on Thursday, April 14,Friday, December 30, 2022, at 9:00[ ] a.m., Eastern Time. The meetingAnnual Meeting will be conducted virtually andas a virtual meeting hosted by means of a live webcast. YouRegistered stockholders as of the record date or your proxyholdertheir proxyholders will be able to attend the meetingAnnual Meeting online, vote, and submit questions by following the instructions provided in the accompanying noticeNotice Regarding the Availability of meetingProxy Materials and proxy statement.

Your vote is particularly important at the Annual Meeting. As you may be aware, LifeSci Special Opportunities Master Fund Ltd. (“LifeSci”) has notified the Company that it intends to nominate a slate of six nominees to stand for election as directors at the Annual Meeting in opposition to the nominees recommended by our Board of Directors. You may receive a proxy statement, blue proxy card and other solicitation materials from LifeSci; however, since LifeSci has the option to choose which of our stockholders will receive their proxy solicitation materials, we cannot be certain whether you will receive them. The Company is not responsible for the accuracy of any information provided by, or relating to, LifeSci or its nominees contained in any proxy solicitation materials filed or disseminated by, or on behalf of, LifeSci, or any other statements that LifeSci may otherwise make.

Our Board of Directors does NOT endorse any of LifeSci’s nominees and unanimously recommends that you vote “FOR” each of the six nominees proposed by our Board of Directors on your enclosed WHITE proxy card. The Diffusion Board of Directors strongly urges you NOT to sign or return any blue proxy card sent to you by LifeSci. If you have previously submitted a blue proxy card sent to you by LifeSci, you can revoke that proxy and vote for our Board of Directors’ nominees and on the other matters to be voted on at the Annual Meeting at any time before it is exercised by signing, dating and mailing the enclosed WHITE proxy card in the envelope provided. Only your latest dated proxy will be counted. Even if you would like to elect some or all of LifeSci’s nominees, we strongly recommend you use the Company’s WHITE proxy card to do so.

We strongly encourage you to read the accompanying proxy statement carefully and to use the enclosed WHITE proxy card to vote for the Board of Directors’ nominees, and in accordance with the Board of Directors’ recommendations on the other proposals, as soon as possible. It is important that your shares be represented at the meeting, regardless of the number of shares you hold. Accordingly, please exercise your right to vote by completing, signing, dating, and returning your proxy card, by using Internet or telephone voting as described in the accompanying proxy statement, or by voting at the meeting by following the instructions in the accompanying proxy statement.

On behalf of the Board of Directors and management of Diffusion Pharmaceuticals Inc., it is my pleasure to express our appreciation for your support. If you have any questions, please contact Innisfree M&A Incorporated, Inc., our proxy solicitor assisting us in connection with the Annual Meeting. Stockholders in the U.S. and Canada may call toll-free at (877) 456-3402. Banks and brokers may call collect at (212) 750-5833.

Sincerely,

/s/ Robert J. Cobuzzi, Jr.

Robert J. Cobuzzi, Jr.
President and Chief Executive Officer

THE ACCOMPANYING PROXY STATEMENT AND PROXY CARD ARE FIRST BEING MAILED TO STOCKHOLDRES ON OR ABOUT MARCH [•], 2022.Your vote is important. Please exercise your right to vote as soon as possible by completing, signing, dating, and returning your enclosed proxy card by mail in the postage-paid envelope provided, by using Internet or telephone voting as described in your enclosed proxy card, or by following the other instructions for voting on your enclosed proxy card.

PRELIMINARY COPY SUBJECT TO COMPLETION DATED MARCH 18, 2022

In accordance with Rule 14a-6(d) under Regulation 14A, please be advised that the Diffusion Pharmaceuticals Inc. intends to release definitive copies of this Proxy Statement on or about March 28, 2022.

NOTICE OF SPECIAL2022 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 14,FRIDAY, DECEMBER 30, 2022

To the Stockholders of Diffusion Pharmaceuticals Inc.:

A SpecialThe 2022 Annual Meeting of Stockholders of Diffusion Pharmaceuticals Inc., a Delaware corporation (“Diffusion” or the “Company”), will be held virtually on Thursday, April 14,Friday, December 30, 2022 at 9:00[   ] a.m. Eastern Time by means of a live webcast for the following purposes:

The meetingRegistered stockholders as of the record date and their proxyholders will be completely virtual and there will be no physical location for stockholdersable to attend. In order to attendsubmit questions in advance of the meeting, youlisten to the meeting live, and vote online. To access and participate in the virtual meeting, registered stockholders and beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to pre-register by [ ] a.m. Eastern Time on December [ ], 2022. To pre-register for the meeting, please follow these instructions:

Registered Stockholders

Stockholders of record as of the record date may register to participate in the Annual Meeting remotely by visiting the website [ ]. Please have your proxy card, or Notice, containing your control number available and follow the instructions to complete your registration request. After registering, stockholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting. Requests to register to participate in the Annual Meeting remotely must pre-register at [•be received no later than [ ] a.m., Eastern Time, on December [ ], 2022.

Beneficial Stockholders

Stockholders whose shares are held through a broker, bank or other nominee as of the record date may register to participate in the Annual Meeting remotely by 11:59 p.m. ETvisiting the website [ ].

Please have your Voting Instruction Form, Notice, or other communication containing your control number available and follow the instructions to complete your registration request. After registering, stockholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting. Requests to register to participate in the Annual Meeting remotely must be received no later than [ ] a.m., Eastern Time, on April [•],December [ ], 2022. If you holdare a beneficial stockholder and you wish to vote your shares in “street name” through aonline during the virtual Annual Meeting, rather than submitting your voting instructions before the Annual Meeting, you will need to contact your bank, broker or other nominee and also wish to vote at the meeting,obtain a legal proxy form that you will need to obtain from that entitysubmit electronically with your ballot during the online virtual Annual Meeting using a “legal proxy” and submit it when you register. After you register, you will receive an email with a unique link and password that will allow youPDF, JPG, JPEG, GIF or PNG file format.

Questions on How to attend the meeting. If your shares are held in “street name” and you provided a legal proxy when you registered, that email will also contain a control number that will allow you to vote at the meeting. Pre-register

If you hold your shares through our transfer agent, usehave any questions or require any assistance with pre-registering, please contact the control number on yourCompany’s proxy card to vote at the meeting.solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll free: (877) 456-3402

Banks and Brokers may call collect: (212) 750-5833

The meeting webcast will begin promptly at 9:00[ ] a.m. Eastern Time. We encourage you to access the meeting prior to the start time. Online check-inAs the Annual Meeting will begin at 8:45 a.m. Eastern Time, and you should allow ample time for the check-in procedures. If you experience technical difficulties during the check-in process or during the meeting, please call the number on thebe a completely virtual meeting, portal landing pagethere will be no physical location for assistance. For additional information on how you can attend and participate in the meeting, please see the instructions beginning on page 1 of the proxy statement that follows.stockholders to attend.

Only stockholders of record at the close of business on March [•],[ ], 2022 will be entitled to notice of, and to vote at, the meeting and any adjournments or postponements thereof. A stockholder list will be available electronically upon request tobeginning December 20, 2022, the Company beginningdate which is ten days prior to the date of the meeting, during normal business hours for examination by any stockholder registered on Diffusion’s stock ledger as of the record date for any purpose germane to the meeting.

We have received notice from LifeSci Special Opportunities Master Fund Ltd.(“LifeSci”) that it intends to nominate a slate of six nominees to stand for election as directors at the Annual Meeting in opposition to the nominees recommended by our Board of Directors. Our Board of Directors does not endorse the election of any of the LifeSci nominees for director and recommend that you vote “FOR” each of the Company’s six director nominees. You may receive proxy solicitation materials from LifeSci or other persons or entities affiliated with LifeSci, including an opposition proxy statement or blue proxy card. Our Board of Directors urges you to disregard such materials. We are not responsible for the accuracy of any information provided by or relating to LifeSci or its nominees contained in solicitation materials filed or disseminated by or on behalf of LifeSci or any other statements LifeSci may otherwise make. LifeSci chooses which of the Company’s stockholders will receive its proxy solicitation materials. Therefore, you may or may not receive those materials depending on what LifeSci decides.

Even if you have previously signed a blue proxy card sent to you by or on behalf of LifeSci, you have the right to change your vote by following the instructions on the enclosed WHITE proxy card to vote via the Internet or by telephone or by completing, signing, dating and returning the enclosed WHITE proxy card by mail in the postage-paid envelope provided. Only the latest-dated, properly executed proxy you submit will be counted. We urge you to disregard any blue proxy card sent by or on behalf of LifeSci or any person other than the Company. Voting to “WITHHOLD” your vote with respect to the nominees on any blue proxy card that is circulated by or on behalf of LifeSci is not the same as voting for our director nominees, because a vote to “WITHHOLD” with respect to any of the nominees on a blue proxy card will revoke any previous proxy submitted by you on the WHITE proxy card. Your vote is very important.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE COMPANY’S SIX DIRECTOR NOMINEES NAMED ON THE ENCLOSED WHITE PROXY CARD, AND URGES YOU NOT TO SIGN OR RETURN ANY blue PROXY CARD SENT TO YOU BY OR ON BEHALF OF LIFESCI.

If your shares are held in street name through a broker, bank or other nominee, you are considered the beneficial owner of those shares. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares. Without your voting instructions, because of the contested nature of the proposals, to the extent your broker, bank or other nominee provides you with LifeSci’s proxy materials, your broker, bank or other nominee may not vote your shares with respect to the election of the Board of Directors’ nominees (Proposal 1) or on any of the other proposals on the agenda for the Annual Meeting. Even if your broker, bank or other nominee does not provide you with LifeSci’s proxy materials, without your voting instructions, your broker, bank or other nominee may only vote your shares on proposals considered to be routine matters. For non-routine matters, your shares will not be voted without your specific voting instructions. To the extent you receive proxy materials from LifeSci, none of the proposals to be voted on at the Annual Meeting will be considered “routine” and therefore, if you do not instruct your broker as to how to vote your shares, your shares will not be voted and will result in “broker non-votes”.  We encourage you to instruct your broker, bank or other nominee to vote your shares by following the instructions on the enclosed WHITE proxy card to vote by telephone or internet, or by completing, dating, signing and mailing the enclosed WHITE proxy card in the postage-paid envelope provided.

If you have any questions regarding this information or the proxy materials, please contact Innisfree M&A Incorporated,Inc., our proxy solicitor. Stockholders in the U.S. and Canada may call toll-free at (877) 456-3402. Banks and brokers may call collect at (212) 750-5833.

Whether you plan to be present at the Annual Meeting or not, you are requested to promptly submit your proxy either electronically via the Internet or by telephone as described on the enclosed WHITE proxy card or by completing, signing and returning the proxy card by mail to ensure that your shares will be represented.

March [•], 2022
Charlottesville, Virginia

TABLE OF CONTENTS

As used

INTRODUCTORY NOTES

Note Regarding Company References and Other Defined Terms

Unless the context otherwise requires, in this proxy statement,the accompanying Proxy Statement and related materials, (i) references to “Diffusion,”the “Company,“Company,”“we, “we,”“us, “our,”“our” and similar references or “us” refer to Diffusion Pharmaceuticals Inc. and our consolidated subsidiaries, (ii) the term “common stock” refersreferences to our“common stock” refer to the common stock, par value $0.001 per share, of the Company. We have also used several other defined terms in the accompanying Proxy Statement and (iii)related materials, which are explained or defined below:

Note Regarding Stock Splits

Unless the term “Series C Preferred Stock” referscontext otherwise requires, in this Proxy Statement, all share and per share amounts related to our Series C convertible, preferredcommon stock par value $0.001 per share.give effect to our 1-for-50 reverse stock split effective April 18, 2022.

Note Regarding Trademarks, Trade Names, and Service Marks

This Proxy Statement contains certain trademarks, trade names, and service marks of ours, including “DIFFUSIO2N.” All other trade names, trademarks, and service marks appearing in this Proxy Statement are, to the knowledge of Diffusion, the property of their respective owners. To the extent any such terms appear without the trade name, trademark, or service mark notice, such presentation is for convenience only and should not be construed as being used in a descriptive or generic sense.

300 East Main Street, Suite 201
Charlottesville, Virginia 22902

PROXY STATEMENT FOR SPECIALANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON THURSDAY APRIL 14,FRIDAY DECEMBER 30, 2022

The board of directors (the “Board”) of Diffusion Pharmaceuticals Inc. (the “Company”) is using this proxy statement (this “Proxy Statement”) to solicit your proxy for use at a Specialthe Diffusion Pharmaceuticals Inc. 2022 Annual Meeting of Stockholders (the “Special Meeting”) to be held virtually at 9:00[   ] a.m., Eastern Time, on Thursday, April 14,Friday, December 30, 2022. The Board expects to mailmake available electronically or to send to our stockholders the Notice of Annual Meeting of Stockholders, this Proxy Statement and a form of proxy on or about March [•],[   ], 2022.

GENERAL INFORMATION ABOUT THE SPECIALANNUAL MEETING AND VOTING

Why am I receiving these materials?

We have sent you this Proxy Statement and the enclosedWHITE proxy card because the Board is soliciting your proxy to vote at the SpecialAnnual Meeting. The SpecialAnnual Meeting will be conducted online only. You are invited to virtually attend the SpecialAnnual Meeting to vote on the proposals described in this Proxy Statement by following instructions included herein.in this Proxy Statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed WHITEproxy card by mail in the postage-paid envelope provided, or follow the instructions below on the closed WHITE proxy card to submit your proxy over the telephone or on the Internet.

I previously received materials for a special meeting of the Company’s stockholders to be held on April 14, 2022 dated February 28, 2022. Are these materials different?

Yes. As described in more detail herein, on March 18, 2022, we filed a current report on Form 8-K with the U.S. Securities and Exchange Commission (“SEC”) announcing our cancellation of the special meeting of stockholders previously scheduled for April 14, 2022 (the “Old Special Meeting”), the termination of the Prior Solicitation (as defined herein), the approval of the Bylaw Amendment (as defined herein), and the anticipated closing of the Series C Issuance (as defined herein).

This Proxy Statement relates the new Special Meeting, which was called for the same date and time (i.e., April 14, 2022 at 9:00 a.m. Eastern Time) subsequent to the consummation of the transactions described above.

I already voted my shares after I received materials related to the Old Special Meeting. Do I need to vote again?

Yes. Votes cast and proxies granted in connection with the Old Special Meeting will not count at the new Special Meeting. Holders who voted their shares in connection with the Old Special Meeting must re-cast their or re-grant their proxy pursuant to the instructions included herein to be counted or be effective at the new Special Meeting.

When and where will the SpecialAnnual Meeting be held?

The SpecialAnnual Meeting will be held online via live webcast on Thursday, April 14,Friday, December 30, 2022, at 9:00[   ] a.m., Eastern Time.

The SpecialHow do I attend the Annual Meeting?

Attendance at the Annual Meeting or any adjournment or postponement thereof will be limited to stockholders of the Company as of the close of business on the record date and guests of the Company. You will not be able to attend the Annual Meeting in person at a completelyphysical location. In order to attend the virtual meeting, you will need to pre-register by [●]:00 a.m. Eastern Time on [●], 2022. To pre-register for the meeting, please follow these instructions:

Registered Stockholders

Stockholders of stockholders conducted exclusively by live webcast to enable our stockholdersrecord as of the record date may register to participate from any location aroundin the world that is convenientAnnual Meeting remotely by visiting the website [   ]. Please have your proxy card, or Notice, containing your control number available and follow the instructions to them. No physical meetingcomplete your registration request. After registering, stockholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting. Requests to register to participate in the Annual Meeting remotely must be held.received no later than [●] a.m., Eastern Time, on [●], 2022.

WeBeneficial Stockholders

Stockholders whose shares are held through a broker, bank or other nominee as of the record date may register to participate in the Annual Meeting remotely by visiting the website [   ].

Please have createdyour Voting Instruction Form, Notice, or other communication containing your control number available and implementedfollow the instructions to complete your registration request. After registering, stockholders will receive a confirmation email with a link and instructions for accessing the virtual formatAnnual Meeting. Requests to facilitate stockholder attendance and participation by enabling stockholdersregister to participate fully,in the Annual Meeting remotely must be received no later than [●] a.m., Eastern Time, on [●], 2022. If you are a beneficial stockholder and equally, from any location aroundyou wish to vote your shares online during the world, at no cost. A virtual SpecialAnnual Meeting, makes it possible for more stockholders (regardless of size, resources,rather than submitting your voting instructions before the Annual Meeting, you will need to contact your bank, broker or physical location)other nominee to have direct accessobtain a legal proxy form that you will need to information more quickly, while saving the company and our stockholders time and money, especially as physical attendance at meetings has dwindled. We also believe thatsubmit electronically with your ballot during the online tools wevirtual Annual Meeting using a PDF, JPG, JPEG, GIF or PNG file format.

Questions on How to Pre-Register

If you have selected will increase stockholder communication. However, you will bear any costs associatedquestions or require any assistance with your Internet access, such as usage charges from Internet access providerspre-registering, please contact the Company’s proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll free: (877) 456-3402

Banks and telephone companies.Brokers may call collect: (212) 750-5833

The online meeting will begin promptly at 9:00[ ] a.m. Eastern Time on April 14,December 30, 2022. We encourage you to access the meeting approximately 15[   ] minutes prior to the start time in order to leave ample time for the check in.time. Please follow the registration instructions as outlined in this proxy statement.Proxy Statement.

How do I attend the Special Meeting? Do I needhave the option to registercall in advance in order to attend the Special Meeting?Annual Meeting instead of attending the live webcast?

BothNo. Stockholders will not have the option to call in to the virtual meeting and listen by telephone. To participate in the Annual Meeting, stockholders of record and street name stockholders will be able to attendmust stream the SpecialAnnual Meeting live via live audio webcast and vote their shares electronically at the Special Meeting. However, you will need to register in advance in accordance with the instructions below in order to attend.webcast.

In order to attend the meeting, you must pre-register at [•] by 11:59 p.m. ET on April [•], 2022. If you hold your shares in “street name” through a bank, broker or other nominee, and also wish to vote at the meeting, you will need to obtain from that entity a “legal proxy” and submit it when you register. After you register, you will receive an email with a unique link and password that will allow you to attend the meeting. If your shares are held in “street name” and you provided a legal proxy when you registered, that email will also contain a control number that will allow you to vote at the meeting. If you hold your shares through our transfer agent, use the control number on your proxy card to vote at the meeting. You will not need the Virtual Control Number to join the meeting, you will need it if you choose to vote during the meeting.

How do I submit questions for the SpecialAnnual Meeting?

You can submit questions pertinent to meeting matters at the virtual SpecialAnnual Meeting only if you are a stockholder of record of the Company at the close of business on the Record Date and you registered in advance to attend the Annual Meeting, or if you were a beneficial owner as of the Record Date and you registered in advance to attend the SpecialAnnual Meeting.

During The question and answer session will answer questions submitted live during the Special Meeting, we are committed to acknowledging each appropriate question in the order in which it was received. StockholdersAnnual Meeting. Questions may also submit questions prior to the date of the Special Meeting by e-mailing them to proxyrequests@diffusionpharma.com. When submitting questions, stockholders should identify themselves and provide contact information in the event follow up is necessary. Each stockholder who submits a question will be identified before his or her question is answered. Any questions relevant to the business of the Special Meeting that cannot be answered due to time constraints can be submitted to Diffusion Investor Relations by e-mailing info@diffusionpharma.com. Stockholders participating in the virtual meeting will be in a listen-only mode and will not be able to speak during the webcast.Annual Meeting on the Annual Meeting website using the ‘Ask a Question’ box.

In accordance with the rules of order, a copy of which will be available during the SpecialAnnual Meeting, only questions pertinent to meeting matters will be answered. In the interest of fairness to all stockholders, the question and answer period will be limited to a total of twenty[   ] minutes and multiple questions submitted on the same topic will be summarized and responded to collectively. The Company reserves the right to not address any questions that are repetitious, irrelevant to the Company’s business, related to pending or threatened litigation, derogatory in nature, related to personal grievances, or otherwise inappropriate.

During the Annual Meeting, we are committed to acknowledging each appropriate question in the order in which it was received. When submitting questions, stockholders should identify themselves and provide contact information in the event follow up is necessary. Any questions relevant to the business of the Annual Meeting that cannot be answered due to time constraints can be submitted to Diffusion Investor Relations by e-mailing info@diffusionpharma.com.

Whom do I contact if I am encountering difficulties attending the SpecialAnnual Meeting online?

There will be technicians readyThe virtual meeting platform is fully supported across browsers (MS Edge, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most up-to-date version of applicable software and plugins. Participants should ensure that they have a strong Wi-Fi connection wherever they intend to assistparticipate in the Annual Meeting. We encourage you with any technical difficulties you may have accessingto access the SpecialAnnual Meeting live audio webcast. Please be sure to check in by 8:45 a.m. ET on April 14, 2022, (i.e., 15 minutes prior to the start oftime. A link on the meeting is recommended) so that any technical difficultiespage will provide further assistance should you need it or you may be addressedcall the support number found in the reminder email you will receive the day before the Special Meeting live audio webcast begins. If you encounter any difficulties accessing the webcast during the check-in or meeting time, please email [•] or call [•].Annual Meeting.

What is the purpose of the SpecialAnnual Meeting?

The purpose of the SpecialAnnual Meeting is to vote on the following proposals:

Who is entitled to vote at the Annual Meeting?

Stockholders of record at the close of business on [   ], 2022, the Record Date, will be entitled to notice of and to vote at the meeting or any adjournment or postponement of the Annual Meeting. As of the Record Date, there were [______] shares of our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to be voted on at the Annual Meeting.

How do I vote my shares?

Your vote is important. Whether you hold shares directly as a stockholder of record or beneficially in “street name” (through a broker, bank, or other nominee), you may vote your shares without attending the Annual Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee.

If you are a stockholder whose shares are registered in your name, the Board encourages you to follow the instructions on your WHITE proxy card to vote your shares by one of the following methods:

If your shares are held in “street name” through a brokerage firm, bank, dealer or similar organization, as the beneficial owner of those shares you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Annual Meeting via the Internet. However, because you are not the stockholder of record, you may not vote your shares at the Annual Meeting unless you request and obtain a valid legal proxy from your broker or other agent. Please follow the instructions from your broker, bank or other agent included on the WHITE Voting Instruction Form accompanying these proxy materials, or contact your broker, bank or other agent to request a legal proxy. If you hold your shares in “street name,” please instruct your bank, broker, trust or other nominee how to vote your shares using the WHITE Voting Instruction Form provided by your bank, broker, trust or other nominee so that your vote can be counted. The WHITE Voting Instruction Form provided by your bank, broker or other nominee may also include information about how to submit your voting instructions over the Internet or by telephone, if such options are available.

The deadline for voting by telephone or by using the Internet is 11:59 p.m. Eastern Time on [   ], December [__], 2022. Please see your proxy card or the information your bank, broker or other holder of record provided to you for more information on your options for voting.

Has Diffusion been notified that a stockholder intends to propose alternative director nominees at the Annual Meeting?

Yes. LifeSci has announced that it intends to nominate a slate of six nominees for election to the Board of Directors at the Annual Meeting in opposition to the nominees recommended by the Board of Directors. The Board does NOT endorse any LifeSci nominee and unanimously recommends that you vote “FOR” the election of each of the six nominees recommended by the Board. Each of Diffusion and LifeSci will use its own version of a universal proxy card containing the names of both Diffusion’s and LifeSci’s nominees. The Board urges you to vote “FOR” the election of each of the six nominees recommended by the Board using our enclosed universal WHITE proxy card and NOT to sign or return or vote using any universal blue proxy card sent to you by LifeSci. However, if you have already voted “FOR” the election of each of the six nominees recommended by the Board using a blue proxy card sent to you by LifeSci, you do not need to vote on the enclosed universal WHITE proxy card.If you sent in a blue proxy card and wish to change your vote, you can revoke the blue proxy card at any time before it is exercised by voting using the enclosed WHITE proxy card.

What does it mean if I receive more than one proxy card?

Many of our stockholders hold their shares in more than one account and may receive separate proxy cards or voting instruction forms for each of those accounts. If you receive more than one WHITE proxy card, your shares are registered in more than one name or are registered in different accounts. Please sign, date and return or otherwise submit your proxy with respect to each WHITE proxy card to ensure that all of your shares are voted.

Additionally, LifeSci has stated its intention to nominate six individuals for election as directors at the Annual Meeting. If LifeSci proceeds with its nominations, you may receive proxy solicitation materials from LifeSci, including an opposition proxy statement and a blue proxy card. Because LifeSci may choose to send its proxy solicitation materials to only a portion of our stockholders, you may or may not receive those materials depending on what LifeSci decides.

In the event you do receive materials from LifeSci, the Board of Directors unanimously recommends that you disregard and do NOT return any blue proxy card you receive from LifeSci.

Voting to “WITHHOLD” with respect to any LifeSci nominee on a blue proxy card sent to you by LifeSci is NOT the same as voting for the Board of Directors’ nominees because a vote to “WITHHOLD” with respect to any LifeSci nominee on its blue proxy card will revoke any proxy you previously submitted. For example, this means that if you have submitted a validly executed proxy voting FOR the nominees recommended by the Board but later submit a validly executed proxy withholding your votes from the LifeSci nominees, your prior vote in favor of the nominees recommended by the Board will not be counted.

If you have already voted using LifeSci’s blue proxy card, you have every right to change your vote and revoke your prior proxy before it is exercised by signing and dating the enclosed WHITE proxy card and returning it by mail in the postage-paid envelope provided, by voting via the Internet, or by telephone by following the instructions provided on the enclosed WHITE proxy card. Only the latest dated proxy you submit will be counted. If you have any question or need assistance voting, please call Innisfree M&A Incorporated, Inc., Diffusion’s proxy solicitor. Stockholders in the U.S. and Canada may call toll-free at (877) 456-3402. Banks and brokers may call collect at (212) 750-5833.

How will my shares be voted?

The Board encourages stockholders to fill out and return your signed WHITE proxy card enclosed with this proxy statement or use Internet or telephone voting as instructed on your WHITE proxy card before the Annual Meeting. The named proxies will vote your shares as you direct.

For Proposal No. 1—Election of Directors, you may:

If you vote for more than six nominees for director, your vote on Proposal No. 1 will be invalid and will not be counted. To the extent a registered stockholder votes “FOR” with respect to at least one but fewer than six nominees on Proposal No. 1, his or her shares will only be voted “FOR” those nominees he or she has marked. Any remaining votes on Proposal No. 1 shall not be voted and will have the same effect as a vote to “WITHHOLD” for all other nominees. However, if he or she does not specify how to vote any shares (i.e., he or she does not mark a vote “FOR” or to “WITHOLD” with respect to any nominees), the proxies will vote their shares “FOR” the Board’s six nominees for director, in accordance with the Board’s recommendations.

For Proposal No. 2—Ratification of Selection of Independent Registered Public Accounting Firm and Proposal No. 3 – Advisory Vote on Executive Compensation you may:

How does the Board recommend that I vote?

The Board recommends that you use the enclosed WHITE proxy card to vote as follows:

THE BOARD URGES YOU NOT TO SIGN, RETURN OR VOTE ANY BLUE PROXY CARD THAT MAY BE SENT TO YOU BY LIFESCI EVEN AS A PROTEST VOTE, AS ONLY YOUR LATEST DATED PROXY CARD WILL BE COUNTED. IF YOU HAVE PREVIOUSLY SUBMITTED A VOTE USING THE BLUE PROXY CARD SENT TO YOU BY LIFESCI, YOU CAN REVOKE IT BY USING THE ENCLOSED WHITE PROXY CARD TO VOTE “FOR” OUR BOARD’S NOMINEES AND “FOR” ALL OTHER PROPOSALS RECOMMENDED BY OUR BOARD.

How can I revoke or change my vote?

If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time before it is exercised by one of the following methods:

If you hold your shares through a broker, bank or other nominee, you may revoke your proxy by following instructions your broker, bank or other nominee provides.

If you have previously signed a blue proxy card sent to you by LifeSci, you may change your vote and revoke your prior proxy by signing and dating the WHITE proxy card enclosed with this proxy statement and returning it by mail in the postage-paid envelope provided or by voting via the Internet or by telephone following the instructions on the enclosed WHITE proxy card. Submitting a blue proxy card—even if you vote to “WITHHOLD” with respect to the LifeSci Nominees—will revoke any votes you previously made via our WHITE proxy card. Accordingly, if you wish to vote pursuant to the recommendation of our Board, you should disregard and NOT return any blue proxy card that you may receive from LifeSci, even as a protest vote against LifeSci.

Is the Company using a universal proxy card in connection with voting at the Annual Meeting?

Yes. The SEC has adopted new rules requiring the use of a universal proxy card in contested director elections that took effect on August 31, 2022 (the “New Proxy Rules”). As the Annual Meeting will be held on December 30, 2022, the New Proxy Rules are applicable to the 2022 Annual Meeting. Each of Diffusion and LifeSci will use its own version of a universal proxy card containing the names of both Diffusion’s and LifeSci’s nominees. Diffusion is using the enclosed WHITE universal proxy card. Our Board unanimously recommends using the enclosed WHITE universal proxy card and voting “FOR” all of the nominees proposed by the Board and disregarding any blue proxy card that may be sent to you by LifeSci.

What happens if I return a WHITE proxy card but give voting instructions for more than six candidates?

An “overvote” occurs when a stockholder submits more votes for director nominees than there are Board of Director seats up for election.

To the extent an overvote (i.e., voting “FOR” with respect to more than six nominees on Proposal 1) occurs on a record holder’s WHITE proxy card, all such votes on Proposal 1 regarding nominees will be invalid and will not be counted.

What happens if I return a WHITE proxy card but give voting instructions for less than six candidates?

An undervote occurs when a stockholder submits less votes “FOR” director nominees than there are Board of Director seats up for election.

To the extent a registered stockholder votes “FOR” or to “WITHHOLD” with respect to at least one but fewer than six nominees on Proposal No. 1, his or her shares will only be voted “FOR” those nominees he or she has marked. Any remaining votes on Proposal No. 1 will not be voted and will have the same effect as a vote to “WITHHOLD” for all other nominees.

However, if you are a registered stockholder and you send in your WHITE proxy card or use Internet or telephone voting as instructed on your WHITE proxy card, but do not specify how you want to vote any of your shares (i.e., you do not vote “FOR” or to “WITHOLD” with respect to any nominees), the proxies will vote their shares “FOR” the Board’s six nominees for director, in accordance with the Board’s recommendations.

Can I use the WHITE proxy card if I want to vote for one or more of the LifeSci nominees?

Yes, if you would like to elect some or all of the LifeSci nominees, we strongly recommend you use the Company’s WHITE proxy card to do so.

Who is entitledWhat happens if LifeSci withdraws or abandons its solicitation or fails to vote atcomply with the Special Meeting?New Proxy Rules and I already granted proxy authority in favor of LifeSci?

HoldersStockholders are encouraged to submit their votes on the WHITE proxy card. If LifeSci withdraws or abandons its solicitation or fails to comply with the universal proxy rules after a stockholder has already granted proxy authority, stockholders can still sign and date a later submitted WHITE proxy card.

If LifeSci withdraws or abandons its solicitation or fails to comply with the universal proxy rules, any votes cast in favor of recordLifeSci nominees will be disregarded and not be counted, whether such vote is provided on the Company’s WHITE proxy card or the LifeSci proxy card.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies on behalf of the Company. In addition to these proxy materials, our common stockdirectors and our Series C Preferred Stockemployees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks, and other agents for the reasonable cost of forwarding proxy materials to beneficial owners.

LifeSci will bear the entire cost of any proxies that they solicit. In its nomination letter, LifeSci indicated that, in the event any of its nominees are elected or appointed to the Board at the closeAnnual Meeting, LifeSci intends to seek reimbursement from the Company of business on March [•], 2022 (the “Record Date”) will be entitledall expenses it incurs in connection with its solicitation of proxies for election of its nominees to notice of, and to vote as a single classthe Board at the Special Meeting and any adjournment thereof.Annual Meeting.

How willmany shares ofmust be present to hold the Series C Preferred Stock be counted for purposes of determining theAnnual Meeting?

The presence of a quorum at the Special Meeting?

For purposes of determining the presence of a quorum at the SpecialAnnual Meeting, shares of our Series C Preferred Stock will be counted with shares of our common stock as a single class on an “as converted” basis. That means that each share of Series C Preferred Stock present will be counted for quorum purposes as the number of shares of common stock into which that such share of Series C Preferred Stock is convertible as of the Record Date. As of the Record Date, each share of Series C Preferred Stock is convertible into one share of our common stock.

How will the presence of a quorum at the Special Meeting be determined?

As previously disclosed in our Current Report on Form 8-K filed with the SEC on March 18, 2022, effective March 18, 2022, the Board approved an amendment to our bylaws, as amended (the “Bylaws”), providing that the presence, in personvirtually or by proxy, duly authorized, of the holders of 33.4% of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business at any meeting of our stockholders (the “Bylaw Amendment”). The Board based its decision to amend the bylaws on our quorum requirement on, among other things, the increasing prevalence of brokerage firms opting to forego discretionary or proportionate voting of the shares held by them in street name, which is making it increasingly difficult for companies with a large retail stockholder base to obtain a quorum of the majority. For additional information, see “Proposal 1 – Reasons for the Reverse Stock Split, Our Prior Solicitation of Proxies, and Our Series C Preferred Stock – Our Prior Solicitation of Proxies and Reflecting the Will of Our Stockholders Amidst Evolutions in Financial Markets and the Stockholder Franchise.” We believe the change to the quorum requirement for stockholder meetings will improve the Company’s ability to hold stockholder meetings when called and transact necessary business without unnecessary cost and delay, while also maintaining a quorum level high enough to ensure that a broad range of our stockholders are represented at the meeting.

Accordingly, the presence at the Special Meeting, virtually or by proxy, of the holders of at least 33.4% of the shares entitled to vote at the Special Meetingcommon stock as of the Record Date will constitute a quorum for the transaction of business at the Special Meeting, provided thatAnnual Meeting. In general, shares of our Series C Preferred Stock will be counted on an “as converted” basis for such purpose. Accordingly, the presence at the Special Meeting of holders of at least [•] shares will be required to achieve a quorum.

In general, sharescommon stock represented by a properly signed and returned proxy card will be counted as shares present and entitled to vote at the SpecialAnnual Meeting for purposes of determining a quorum. Shares represented by proxies marked “Abstain” and “broker non-votes” arerepresenting shares held by stockholders who have not received proxy materials from LifeSci, will be counted in determining whether a quorum is present. A “broker non-vote” is a proxy returned by a broker on behalf of its beneficial owner customer that is not voted on a particular matter because voting instructions have not been received by the broker from the customer, and the broker does not have discretionary authority to vote on behalf of such customer on such matter. If there is not a quorum, a majority of the votesshares of our common stock present at the SpecialAnnual Meeting (including votes represented by proxy) may adjourn the SpecialAnnual Meeting to a later date.

What is “mirrored voting” and how will votes cast by holders of the Series C Preferred Stock be counted for purposes of determining whether each proposal has been approved?

If a quorum is present, holders of our Series C Preferred Stock will vote with holders of our common stock on both proposals at the Special Meeting as a single class on a “mirrored” basis. For every share of Series C Preferred Stock held, the holder will be entitled to 80,000 votes. However, the holders of our Series C Preferred Stock are (i) only permitted to vote on proposals related to the Reverse Stock Split and (ii) are required to cast their votes “For” and “Against” each such proposal in the same proportions as the holders of our common stock eligible and voting at the Special Meeting cast their votes, in the aggregate. For example, if a holder of Series C Preferred Stock is entitled to cast 80,000 votes on a proposal, and the holders of our common stock eligible and voting cast their ballots 90% “For” the proposal and 10% “Against,” the Series C Preferred Stockholder’s 80,000 votes are required to be cast 72,000 votes “For” and 8,000 votes “Against.”

How many total votes are entitled to be cast at the Special Meeting?

As of the Record Date, there were:

Accordingly, assuming a quorum is present, the aggregate number of votes entitled to be cast at the Special Meeting is [901,924,581].

How may shares of common stock be voted?

If you return your signed proxy card or use Internet or telephone voting before the Special Meeting, the named proxies will vote your shares as you direct.

For both Proposal 1 – Approval of the Reverse Stock Split and Proposal 2 – Approval of Adjournment of the Special Meeting, you may:

If you send in your proxy card or use Internet or telephone voting, but you do not specify how you want to vote your shares, the proxies will vote your shares in accordance with the Board’s recommendations.

How does the Board recommend that I vote my shares of common stock?

The Board recommends that you vote:

What vote is required for each proposal to be approved?

Assuming a quorum is present at the SpecialAnnual Meeting, the following table summarizes the vote threshold required for approval of each proposal and the effect on the outcome of the vote of abstentions and uninstructed shares by brokers (referred to as broker non-votes).

Additional Information Regarding Proposal 1 Voting

LifeSci has notified Diffusion of its intent to nominate a slate of six alternative nominees for election as directors at the Annual Meeting in opposition to the six nominees recommended by your Board. As a result, assuming such nominees are in fact proposed for election at the Annual Meeting and such nominations have not been timely withdrawn by LifeSci, the election of directors at the Annual Meeting will be considered a contested election and, as provided under Section 2.8 of our Bylaws, directors will be elected on a plurality basis. Under the plurality voting standard, you may vote “FOR” or “WITHHOLD” authority to vote for up to six nominees, and the six nominees receiving the greatest number of votes cast “FOR” their election among all stockholders will be elected, regardless of whether they were nominated by your Board or by LifeSci. Votes to “WITHHOLD” or “ABSTAIN” with respect to any nominee are not votes cast and will result in the applicable nominee(s) receiving fewer votes cast “FOR” such nominee(s).

HowIt will NOT help elect the nominees recommended by your Board if you sign and return blue proxy cards sent by LifeSci even if you vote to “WITHHOLD” or “ABSTAIN” with respect to LifeSci directors. In fact, doing so will cancel any previous vote you cast on a WHITE proxy card sent to you by Diffusion. The only way to support your Board’s nominees is to vote “FOR” all of your Board’s nominees, which registered stockholders can do I vote my shares?by marking the “FOR ALL” box on the WHITE proxy card. ONLY THE LATEST-DATED, VALIDLY EXECUTED PROXY RECEIVED WILL BE COUNTED.

Your voteAdditional Information Regarding Voting on Proposals 2 and 3

Typically, the ratification of the independent registered public accounting firm is important. Whether you hold shares directlya routine matter as a stockholder of record or beneficially in “street name” (throughto which, under applicable NYSE rules (which NYSE-registered brokers must comply with even with respect to Nasdaq-listed companies), a broker bank,will have discretionary authority to vote if instructions are not received from the client at least 10 days prior to the Annual Meeting (so-called “broker non-votes”). However, because LifeSci has initiated a proxy contest, to the extent that LifeSci provides a proxy card or other nominee),voting instruction form to stockholders who hold their shares in “street” name, brokers will not have discretionary voting authority to vote on any of the proposals at the Annual Meeting. As a result, assuming LifeSci has provided you maywith its proxy materials, all proposals disclosed in this proxy statement, including Proposal 2 for the ratification of the selection of the Company’s independent registered public accounting firm, will be considered non-routine under the rules of the NYSE and your broker will not vote your shares on any proposal without attending the Special Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions toyour instructions.

Accordingly, it is very important that you instruct your broker or nominee.how you wish your shares to be voted on these matters.

“Street Name” Holders (e.g., your shares are in a traditional brokerage account)Who will count the votes at the Annual Meeting?

We currently expect that First Coast Results, Inc. will tabulate the votes and be our independent inspector of elections for the Annual Meeting.

Whom do I contact if I have questions regarding the Annual Meeting?

If you holdhave any questions regarding this information or the proxy materials, please contact Innisfree M&A Incorporated, Inc., our proxy solicitor. Stockholders in the U.S. and Canada may call toll-free at (877) 456-3402. Banks and brokers may call collect at (212) 750-5833.  

Are there any matters to be voted on at the Annual Meeting that are not included in this Proxy Statement?

We currently are not aware of any business to be acted upon at the Annual Meeting other than that described in this Proxy Statement. If, however, other matters are properly brought before the Annual Meeting, or any adjournment or postponement of the Annual Meeting, your shares in street name, you should followproxy includes discretionary authority on the instructions provided by your bank, broker, or other nomineepart of the individuals appointed to vote your shares beforeor act on those matters according to their best judgment, including to adjourn the Special Meeting. You can also vote at the SpecialAnnual Meeting if you register for the meeting following the instructions above under “How do I attend the Special Meeting?”.

Registered Holders (e.g., you have a Diffusion stock certificate or shares in an account with our transfer agent, Computershare)quorum is not present.

If you are a stockholder whose shares are registered in your name, you may vote your shares by one of the following methods:

The telephone and internet voting facilities will close at 11:59 p.m. ET on April [•], 2022. If you are a registered holder voting by one of those methods, please cast your votes before that time.

Under the rules of the New York Stock Exchange that govern how brokers may vote shares for which they have not received voting instructions from the beneficial owner, brokers are permitted to exercise discretionary voting authority only on “routine” matters when voting instructions have not been timely received from a beneficial owner. These New York Stock Exchange rules apply to brokers even when the securities at issue are traded on Nasdaq.

Both Proposal 1 regarding the Reverse Stock Split and Proposal 2 regarding adjournment are considered “routine” matters. Therefore, if you do not provide voting instructions to your broker regarding either proposal, your broker will be permitted to exercise discretionary voting authority to vote your shares on your behalf.

How can I revoke or change my vote if I am a holder of common stock?

If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time before it is voted by one of the following methods:

If you hold your shares through a broker, bank or other nominee, you may revoke your proxy by following instructions your broker, bank or other nominee provides.

Who is paying for this proxy solicitation?

The Company will pay for the entire cost of soliciting proxies.

We have engaged Alliance Advisors, LLC to assist in the solicitation of proxies and provide related advice and information support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $160,000 in total.

In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks, and other agents for the reasonable cost of forwarding proxy materials to beneficial owners.

Who will count the votes at the Special Meeting?

We currently expect that our [•] will be our inspector of elections for the Special Meeting.

Whom do I contact if I have questions regarding the Special Meeting?

If you have questions about the Special Meeting or would like additional copies of this Proxy Statement, you should contact us via e-mail at proxyrequests@diffusionpharma.com.

How will business be conducted at the SpecialAnnual Meeting?

The presiding officer at the SpecialAnnual Meeting will determine how business at the meeting will be conducted. Only nominations and other proposals brought before the Annual Meeting in accordance with the advance notice and information requirements of our Bylaws will be considered. No such nominations or other proposals were received other than the nominations from LifeSci, and no other nominations for election to our Board may be made by stockholders at the Annual Meeting. In order for a stockholder proposal to have been included in our Proxy Statement for the Annual Meeting, our General Counsel & Corporate Secretary must have received such proposal a reasonable period of time before we began to print and send our proxy materials. Under our Bylaws, because the date of the Annual Meeting is delayed by more than thirty (30) days after the anniversary of the 2021 Annual Meeting of Stockholders, in order to be included in this Proxy Statement, complete and timely written notice of a proposed nominee for election to the Board at the Annual Meeting or a proposal for any other business to be brought before the Annual Meeting must have been received by our General Counsel & Corporate Secretary not later than the close of business on the tenth day following the day on which public announcement of the date of the Annual Meeting is first made.

PROPOSAL 1

APPROVALBACKGROUND OF A REVERSE STOCK SPLIT OF OUR OUTSTANDING SHARES OF COMMON STOCK BY A RATIO OF ANY WHOLE NUMBER BETWEEN 1-FOR-2 AND 1-FOR-50, AT ANY TIME PRIOR TO DECEMBER 31, 2022, THE IMPLEMENTATION AND TIMING OF WHICH SHALL BE SUBJECT TO THE DISCRETION OF THE BOARD

Summary of Reverse Stock Split Proposal

Our Board of Directors (the “Board”) has unanimously approved, and unanimously recommends that our stockholders approve, an amendment to our Charter (the “Certificate of Amendment”), to effect the reclassification and combination of all shares of common stock outstanding at a ratio of not less than one-for-two and not greater than one-for-50 (the “Reverse Stock Split”), with the final decision of whether to proceed with the Reverse Stock Split, the effective time of the Reverse Stock Split, and the exact ratio of the Reverse Stock Split (the “Split Ratio”) to be determined by the Board, in its discretion, at any time prior to December 31, 2022.SOLICITATION

As describedreported in more detail below, the Board believes that the Reverse Stock Split is desirable and in the best interests of Diffusion and our stockholders for many reasons, including regaining compliance with the listing requirementsDiffusion’s 2021 Annual Report, one of the Nasdaq Capital Market, maintaining increased accesskey objectives underlying the Company’s business strategy for 2022 involved identifying and pursuing opportunistic transactional opportunities intended to capital markets that we believe will be required to continue fundingdiversify the developmentCompany’s portfolio of our product candidates and improvingreduce the Company’s overall perception of our common stockrisk profile as an investment security, particularly long-term investors that support and have interest in our product development plans.

If our stockholders approve the Reverse Stock Split, and the Board decides to implement it, the Reverse Stock Split will become effective as of 12:01 a.m., Eastern Time on a date to be determined by the Board and specified in the Certificate of Amendment. However, if the Board does not implement the Reverse Stock Split prior to December 31, 2022, the authority to implement the Reverse Stock Split granted by stockholders’ approvalinvestment.  In pursuit of this proposal will terminate.

Ifobjective, from time to time during the Board decides to implementfourth quarter of 2021 and first half of 2022, Diffusion’s management team entered into customary nondisclosure agreements and held conversations with several potential counterparties with the Reverse Stock Split, it will be realized simultaneouslyintent of identifying assets and uniformly by all shares and all holders of outstanding common stock immediately prior to the effective time determined by the Board. Immediately following the Reverse Stock Split, each stockholder will hold the same percentage of common stock outstanding ascommercial opportunities that stockholder held immediately prior to the Reverse Stock Split, subject to minor adjustments that may result from the treatment of fractional shares described below. In other words, the Reverse Stock Split will have no material impact on the total percentage of common stock that you own. The Reverse Stock Split will not change the parwould enhance long-term value of our common stock or the number of authorized shares of common stock under our Charter. However, the exercise price and number of shares of common stock underlying warrants, options, restricted stock units, shares of preferred stock, and any other securities exercisable for or convertible into common stock will be adjusted proportionally as of the effective time based on the Split Ratio in accordance with their respective terms.

In addition, if our stockholders approve the Reverse Stock Split, we will be entitled to force the holders of our Series C Preferred Stock, and holders of our Series C Preferred Stock will have the option, to convert their shares of preferred stock to shares of our common stock at a conversion price of $0.50 per share of common stock.

Reasons for the Reverse Stock Split, Our Prior Solicitation of Proxies, and Our Series C Preferred Stock

Curing our Nasdaq Listing Deficiency and Maintaining Market Access for Our Company and Our StockholdersDiffusion’s stockholders.

On May 6, 2021, we received10, 2022, the Company’s Board held a written notice frommeeting and authorized management to being the staff (the “Staff”)process of engaging an investment bank to further support the Company’s process.

On May 26, 2022, David Dobkin, in his capacity as a managing director of LifeSci Capital, an investment bank that claims it provides life science companies with independent advisory services and experienced counsel to assist in making fully informed capital markets decisions and an affiliate of LifeSci, sent an unsolicited email to Robert Cobuzzi, Diffusion’s Chief Executive Officer, and Willian Hornung, Diffusion’s Chief Financial Officer, and placed a call to Diffusion purportedly on behalf of an unidentified large stockholder of Diffusion, requesting a call to discuss strategic alternatives.  In response to the outreach, William Elder, Diffusion’s General Counsel, contacted Mr. Dobkin that same day. When asked, Mr. Dobkin refused to disclose the identity of the Listing Qualifications Departmentinvestor or the nature of The Nasdaq Stock Market, LLC indicatingthe alternatives. In addition to serving as a managing director for LifeSci Capital, Mr. Dobkin also serves as a portfolio manager for LifeSci.

That next day, Mr. Dobkin emailed Mr. Elder again requesting that wehis client have a direct forum with Diffusion’s management to discuss merging one or several new assets into Diffusion, a restructuring, and/or other strategic alternatives. Mr. Dobkin continued his refusal to identify his client and indicated that he and his client were unwilling to enter into a customary nondisclosure agreement prior to a substantive discussion with Diffusion.

On June 1, 2022, representatives of Tiberend Strategic Communications (“Tiberend”), Diffusion’s investor relations firm, attempted to reach Mr. Dobkin, but he did not return their call.

On July 18, 2022, Diffusion engaged Canaccord Genuity (“Canaccord”) as its financial advisor in complianceconnection with the minimum bid price requirement containedBoard’s expansion of its ongoing evaluation of potential financial and strategic transactions to enhance stockholder value, including with respect to a sale of the Company.

On August 4, 2022, Mr. Dobkin emailed Mr. Elder again requesting a call with management without providing any specific information regarding the identity his purported client(s) or any further details regarding the strategic alternatives he was proposing.

Diffusion did not hear again from Mr. Dobkin or LifeSci for a number of weeks. Then, on September 14, 2022, Mr. Dobkin again emailed Dr. Cobuzzi and Mr. Elder, this time asserting that an unidentified client of LifeSci Capital had amassed a 4.9% stake in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) becauseDiffusion. In follow-up communications between representatives of Diffusion, Tiberend and Mr. Dobkin over the bid pricenext couple of days, Mr. Dobkin claimed that his client and affiliated companies had assets complementary to Diffusion’s lead product candidate, trans sodium crocetinate, and desired to explore strategic alternatives. Mr. Dobkin continued to press for oura call with management but refused to identity his client(s) or provide any further details regarding any proposed alternatives.

On September 21, 2022, Mr. Elder again offered for Diffusion to enter into a mutual nondisclosure agreement with LifeSci Capital or its client to facilitate a conversation regarding proposed alternatives. On September 26, 2022, Mr. Elder presented Mr. Dobkin with a customary nondisclosure agreement, to which Mr. Dobkin responded that LifeSci Capital and/or its client were unwilling to agree to certain provisions of the proposed non-disclosure agreement but that he would now be willing to share additional information without a nondisclosure agreement.

On September 27, 2022, on a call with Mr. Elder and representatives from Tiberend, Mr. Dobkin identified three purported clients of LifeSci Capital purportedly interested in a transaction with Diffusion, (1) an alleged asset manager for high net-worth individuals that according to Mr. Dobkin held the 4.9% position in Diffusion’s common stock had closed below $1.00 per sharereferred to in his e-mails of May 26, 2022 and September 14, 2022, (2) a private, U.S.-based oncology company (“Company A”), and (3) a private, Latin America-based healthcare company. Mr. Dobkin, however, did not specify the nature of the transaction(s) contemplated or any other proposed details.

On October 16, 2022, Mr. Dobkin sent an unsolicited proposal to Diffusion, purportedly on behalf of Company A for the previous 30 consecutive business days. On November 3, 2021, after failing to regain compliance withpurchase of all outstanding shares of Diffusion common stock for $6.58 per share. The price offered in the Bid Price Rule within 180 days of our receiptproposal represented just over 50% of the first notice, we received an additional notice from the Staff providing that, although the Company had not regained compliance with the Bid Price Rule by the previously stated deadline, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company would be granted an additional 180 calendar days, or until May 2,value of Diffusion’s balance of cash, cash equivalents and marketable securities at September 30, 2022 to regain compliance with the Bid Price Rule. To regain compliance, the bid price for the Company’s common stock must close at $1.00of approximately $12.68 per share or more for a minimum of 10 consecutive business days.

We are optimistic and excited about Diffusion’s future and we believe regaining compliance with the Bid Price Rule and maintaining our Nasdaq listing is a critical near-term step to fulfilling our Company’s potential.share.

Delisting Destroys Stockholder ValueOn October 18, 2022, Diffusion’s Board, together with Diffusion’s senior management team and Diffusion’s independent financial and legal advisors, met to discuss, among other things, the unsolicited proposal and the potential for publicly disclosing Diffusion’s strategic review process.

Historical evidence demonstratesOn October 19, 2022, Mr. Dobkin followed up with Diffusion, purportedly on behalf of Company A, regarding the destructionanticipated timing of Diffusion’s response to Company A’s unsolicited offer.

On October 20, 2022, Mr. Elder replied to Mr. Dobkin, stating that Diffusion was evaluating the offer, but expected to have a response soon.

On October 25, 2022, Diffusion issued a press release publicly disclosing its ongoing strategic review process.  That same day, a letter was delivered to Mr. Dobkin on behalf of Diffusion’s Board rejecting the proposal from Company A as woefully inadequate and inviting Company A to contact the Company’s investment bankers regarding participation in Diffusion’s ongoing strategic process should Company A desire to submit a more competitive offer.  Mr. Dobkin was also provided with the form of nondisclosure agreement provided to other bidders in the process.  To date, however, neither Mr. Dobkin nor any other representative of LifeSci Capital, has directly responded to the invitation or provided any comments or feedback on the proposed form of nondisclosure agreement which had been provided to and entered into by other participants in the process. 

On November 7, 2022, Mr. Dobkin, in his capacity as a portfolio manager of LifeSci Special Opportunities Master Fund Ltd., submitted a letter to Diffusion seeking to nominate an alternative slate of directors at the Annual Meeting on LifeSci’s own behalf.

According to LifeSci’s nomination letter, entities affiliated with LifeSci began accumulating Diffusion stock on May 2, 2022 and had acquired a 4.8% position as of November 7, 2022. During his communications with Diffusion and its representatives between May 2022 and October 2022 in his capacity as a managing director for LifeSci Capital, despite contemporaneously serving as a portfolio manager for LifeSci, Mr. Dobkin at no point disclosed that the purported 4.9% stockholder valueto which he alluded on multiple occasions had any affiliation with LifeSci Capital other than the alleged investment banking relationship.

On November 9, 2022, Diffusion’s Board, together with Diffusion’s senior management team and Diffusion’s independent financial and legal advisors, held a meeting to discuss, among other things, the strategic review process, the LifeSci nomination letter and the timing of the Annual Meeting. At that typically resultsmeeting, Canaccord noted that a number of companies had expressed potential interest in a transaction with the Company but reported that there had still been no response from LifeSci or Company A with respect to joining the process.  In addition, Diffusion’s Board determined to reschedule the date of the Annual Meeting until December 30, 2022 to, among other things, afford the Company more time to devote to progressing the strategic review process in a manner best designed to enhance stockholder value.

On November 10, 2022, Diffusion filed a Current Report on Form 8-K announcing that the date of the Annual Meeting had been rescheduled to December 30, 2022.

On November 14, 2022, Diffusion issued a press release in which it provided an update on its ongoing strategic review process and, among other things, publicly disclosed its receipt and rejection of the unsolicited offer from Company A and its subsequent receipt of the nomination letter from LifeSci.

On November 17, 2022, LifeSci issued a press release announcing its intention to nominate its own slate of nominees to the Company’s Board.

On November 18, 2022, Diffusion filed a preliminary proxy statement on Schedule 14A with the SEC.

On November 22, 2022, LifeSci filed a preliminary proxy statement on Schedule 14A with the SEC.

On November 28, 2022, Diffusion filed this revised preliminary proxy statement on Schedule 14A with the SEC.

CORPORATE GOVERNANCE

Introduction

Our common stock being delistedis currently listed for quotation on the Nasdaq Capital Market under the symbol “DFFN.” As required by the Listing Rules of the Nasdaq Capital Market, the Board has adopted certain governance standards, including its standard of independence.

Corporate Governance Guidelines

Our Board has adopted Corporate Governance Guidelines, a copy of which can be found on the Investor Relations—Corporate Governance section of our corporate website at www.diffusionpharma.com. Among the topics addressed in our Corporate Governance Guidelines are:

Directors & Director Independence

The Board has fixed the number of directors at seven as of the date of this Proxy Statement and has determined that six of our seven current directors — Robert Adams, Eric Francois, Mark T. Giles, Jane H. Hollingsworth, Diana Lanchoney, and Alan Levin — are “independent directors” under the Listing Rules of the Nasdaq Capital Market.

One of our current directors – Eric Francois – has resigned from the Board and each of its committees effective as of December 16, 2022 as a large, national exchange. A 2003 articleresult of certain mandatory internal policies and procedures of his current employer following a return to his investment banking career in late 2021. Accordingly, Mr. Francois will not stand for re-election at the Annual Meeting. On November 13, 2022, in connection with Mr. Francois’ resignation and in accordance with and pursuant to Section 3.2 of the Company’s Bylaws, the Board resolved to reduce the number of directors on the Board from seven to six, effective simultaneous with, and contingent upon, the effectiveness of Mr. Francois’ resignation from the Board. Accordingly, as of the date of the Annual Meeting, the number of directors on the Board is expected to be six.

Following the effectiveness of Mr. Francois’ resignation, five of our six directors and director nominees – each of the individuals identified above as independent directors other than Mr. Francois – would be “independent directors” under the Listing Rules of the Nasdaq Capital Market.

Board Leadership Structure

The Board believes that our stockholders are best served if the Board retains the flexibility to adapt its leadership structure to applicable facts and circumstances, which necessarily change over time. Accordingly, under our Corporate Governance Guidelines, the office of Chairman of the Board and Chief Executive Officer may or may not be held by one person. The Board believes it is best not to have a fixed policy on this issue and that it should be free to make this determination based on what it believes is best under the circumstances.

Currently, Jane H. Hollingsworth serves as the Chair of the Board and Robert J. Cobuzzi, Jr. serves as our Chief Executive Officer. The Board believes that it is currently in the Journal of Law and Economics studied the market experiencebest interests of the common stockCompany’s stockholders to separate these offices. This separation allows for our Board Chair to act as a bridge between the Board and the operating organization, while our Chief Executive Officer focuses on running the Company’s business. The Board believes that this separation allows for a more effective utilization of 55 companiesthe proven leadership capabilities, breadth of industry experience, and business success of the individuals holding both positions, and that the Company and its stockholders are best currently served by this leadership structure.

Executive Sessions

Generally, at regular meetings of the Board, our independent directors meet in executive session with no company management present during a portion of each meeting. Ms. Hollingsworth typically presides over these executive sessions and serves as a liaison between the independent directors and our Chief Executive Officer.

Board Meetings and Attendance

During 2021, the Board held nine meetings, including one joint meeting with the Compensation Committee. Each of our directors attended 75 percent or more of the meetings of the Board and all committees on which he or she served during 2021. In addition, the Company’s directors are expected to participate in the 30 days precedingannual meetings of stockholders, and 30 days followingall the stock’s delistingCompany’s directors participated in the 2021 annual meeting of stockholders.

Board Committees

The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each of these committees has the composition and responsibilities described below. The Board, from time to time, may establish other committees to facilitate the New York Stock Exchangemanagement of the Company and corresponding listingmay change the composition and the responsibilities of the existing committees. Each of the three standing committees has a charter which can be found on the over-the-counter pink sheets. Among other findings,Investor Relations—Corporate Governance section of our corporate website at www.diffusionpharma.com.

Audit Committee

Responsibilities.

The primary responsibilities of the paper reported:Audit Committee include:

Drug Development Requires Large InvestmentsThe Audit Committee has the authority to engage the services of Moneyoutside experts and Time

Drug development is an extremely expensive, risky,advisors as it deems necessary or appropriate to carry out its duties and time-consuming endeavor. For example, a recent study published in JAMA Network found, among 63 therapeutics and biologics approved by the U.S. Food and Drug Administration between 2007 and 2018, the median capitalized research and drug development cost per product was $985 million, and the mean time required to complete development was 8.3 years. Estimates published in prior studies have been even higher.

As most of our stockholders likely know, we are a biopharmaceutical company developing novel therapies that enhance the body’s ability to deliver oxygen to areas where it is needed most. Our lead product candidate, trans sodium crocetinate (“TSC”), is being developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic solid tumors.

We anticipate that we will need to secure additional funding to complete development of TSC, either through additional capital raising transactions or other means, such as strategic partnerships or collaborations. As a pre-revenue, early-stage company that has traditionally funded operations through sales of equity securities, we believe maintaining a listing on a premier, nationally recognized exchange such as the Nasdaq Capital Market provides access to a much larger universe of potential investors, which is critical to our ability to drive stockholder value by funding our business and TSC through its potential approval.

Liquidity, Low-Transaction Costs, and Reduced Barriers to Entry for Our Stockholders

We also believe our Nasdaq Capital Market listing provides value to our stockholders in their capacity as market participants. If we are unable to regain compliance with the listing requirements of the Nasdaq Capital Market, our common stock would likely begin trading on an over-the-counter market such as the OTCQX or the pink sheets. Traditionally, securities trading on over-the-counter markets such as these have less liquid and orderly trading, decreased price discovery, increased bid-ask spreads, and higher overall transaction costs as compared to those listed on a large, national exchange like the Nasdaq Capital Market.Moreover, if our stock were to begin trading on an over-the-counter market, it may, as a result, be subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny stock rules can make trading more difficult for retail investors, requiring, among other things, that brokers who trade those stocks to individuals other than “established customers” complete certain documentation, make “suitability” inquiries of investors, and provide investors with certain information concerning trading in the security prior to facilitating a transaction. If we become subject to the penny stock rules, it could result in increased administrative burden and disclosure requirements for our investors, adversely affect the marketability of our securities, and make it more difficult for our stockholders to buy and sell shares.

Increasing Interest, Marketability, and the Perception of Our Common Stock as an Investment Security

Given the capital needs required to develop TSC through potential approval and commercialization, we believe our chances of success are improved by opening up the market for our common stock to investors who support our strategy, are dedicated to our Company’s long-term and are committed to holding our common stock as an investment security. We believe we can increase the appeal and marketability of our common stock to long-term holders by structuring the characteristics of the security within our control in a manner that allows investment by a broad cross-section of investors, including traditional institutional investors. Many institutional investment funds, family offices, and other private wealth managers have investment policies prohibiting them from buying and/or holding lower-priced stocks in their portfolios, which may prohibit them from investing in our common stock at the current price. In addition, brokerage firms may be reluctant to recommend lower-priced securities to their clients due to the perceived risk profile and/or because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Although there would be a lower number of shares of common stock outstanding following the Reverse stock Split, a larger number of investors participating in the market for the stock may provide support to the degree of liquidity in the market for our common stock.responsibilities.

Although thereComposition and Audit Committee Financial Expert. The current members of the Audit Committee are Messrs. Francois, Giles, and Levin and Ms. Hollingsworth. Mr. Levin is no assurancethe chair of the Audit Committee.

Each current member of the Audit Committee qualifies as “independent” for purposes of membership on audit committees under the Listing Rules of the Nasdaq Capital Market and the rules and regulations of the SEC and is “financially literate” under the Listing Rules of the Nasdaq Capital Market. In addition, the Board has determined that Mr. Levin qualifies as an “audit committee financial expert” as defined by the Reverse Stock Split willrules and regulations of the SEC and meets the qualifications of “financial sophistication” under the Listing Rules of the Nasdaq Capital Market as a result of his experience in an increasesenior financial positions. Stockholders should understand that these designations related to the trading priceAudit Committee members’ experience and understanding with respect to certain accounting and auditing matters are disclosure requirements of the SEC and the Nasdaq Capital Market and do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of the Audit Committee or of the Board.

Meetings. The Audit Committee met five times during 2021.

Processes and Procedures for Complaints. The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters, and the submission by our common stock,employees, on a confidential and anonymous basis, of concerns regarding questionable accounting or auditing matters. Our personnel with such concerns are encouraged to discuss their concerns with their supervisor first, who in turn will be responsible for informing our Chief Executive Officer of any concerns raised. If an increase would potentially result in increased interestemployee prefers not to discuss a particular matter with his or her own supervisor, the employee may instead discuss such matter with our Chief Executive Officer. If an individual prefers not to discuss a matter with the Chief Executive Officer or if the Chief Executive Officer is unavailable and visibility through other channels as well, such as:the matter is urgent, the individual is encouraged to contact the Chair of the Audit Committee, Mr. Levin.

Compensation Committee

Responsibilities. The primary responsibilities of the Compensation Committee include:

Our Prior SolicitationThe Compensation Committee has the authority to engage the services of Proxiesoutside experts and Reflectingadvisors as it deems necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the WillCompensation Committee are Messrs. Adams and Francois, Ms. Hollingsworth and Dr. Lanchoney. Mr. Adams is the chair of Our Stockholders Amidst Evolutions in Financial Marketsthe Compensation Committee. Each of the four current members of the Compensation Committee is an “independent director” under the Listing Rules of the Nasdaq Capital Market and a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.

Meetings. The Compensation Committee met seven times during 2021, including one joint meeting with the Board.

Processes and Procedures for Consideration and Determination of Executive Compensation. The Compensation Committee has authority to determine all compensation applicable to our executive officers. In setting executive compensation for our executive officers, the Compensation Committee considers, among other things, the following primary factors: each executive’s position within the Company and the Stockholder Franchiselevel of responsibility; the ability of the executive to affect key business initiatives; the executive’s individual experience and qualifications; compensation paid to executives of comparable positions by companies similar to our Company; Company and individual performance; and the executive’s current and historical compensation levels. The Compensation Committee has also from time to time – including during 2021 – retained the services of its independent consulting firm, Radford, to provide advice with respect to executive compensation, such as developing a group of comparable peer companies and reviewing executive and director compensation levels. In making decisions regarding the form and amount of compensation to be paid to our executives, the Compensation Committee may consider information gathered by, and the recommendations of, Radford, when necessary and appropriate.

We believeIn making decisions regarding the form and amount of compensation to be paid to our stockholders valueexecutive officers (other than our Chief Executive Officer), the same benefits,Compensation Committee considers and recognizegives weight to the same risks, described above.recommendations of our Chief Executive Officer recognizing that due to his reporting and otherwise close relationship with each executive, the Chief Executive Officer often is in a better position than the Compensation Committee to evaluate the performance of each executive (other than himself). In making decisions regarding the form and amount of compensation to be paid to our Chief Executive Officer, the Compensation Committee considers the recommendation of the Chief Executive Officer with respect to his own compensation and the Compensation Committee’s own assessment of the Chief Executive Officer’s annual performance and input from other Board members. The Compensation Committee meets in executive session regularly and makes all executive compensation decisions about the Chief Executive Officer without the presence of the Chief Executive Officer or any executive or employee of our company.

On February 28, 2022, we filed a definitive proxy statement with the SEC relatedProcesses and Procedures for Consideration and Determination of Director Compensation. The Board has delegated to the solicitation of proxies (the “Prior Solicitation”)Compensation Committee the responsibility, among other things, to establish and lead a process for determining compensation payable to our non-employee directors. The Compensation Committee makes recommendations regarding compensation payable to our non-employee directors to the Old Special Meeting previously scheduled for Thursday, April 14, 2022 at 9:00 a.m. (i.e.,entire Board, which then makes the same date and time as the Special Meeting) at which our stockholders were to vote upon a proposal to effect a reverse stock split substantially similar to Proposal 1 (the “Prior Split Proposal”). The preliminary voting results from the Prior Solicitation indicated significant levels of support for the Prior Split Proposal among a significant and broad sample of our common stockholders as of the record date for the Prior Solicitation, with over 75% of the votes cast as of March 18, 2022 in favor of approving the Prior Split Proposal. In addition, on March 16, 2022, Institutional Shareholder Services Inc. recommended our stockholders vote “For” the Prior Split Proposal in its proxy analysis and benchmark policy voting recommendations for the Prior Solicitation issued on March 16, 2022. Accordingly, we believe there is a significant level of support for the Reverse Stock Split among our common stockholders.final decision.

However, despite this significant levelIn making decisions regarding compensation to be paid to our non-employee directors, the Board considers factors such as its own views as to the form and amount of support, we believecompensation to be paid, the current and anticipated time demands placed on non-employee directors and other factors that recent evolutions in financial markets and the stockholder franchise,may be relevant, including the developments described below, significantly reduced the likelihoodrecommendations of approvalRadford, when necessary and appropriate.

Nominating and Corporate Governance Committee

Responsibilities. The primary responsibilities of the Prior Split Proposal, thereby jeopardizing our ability to reflect the will of our stockholdersNominating and potentially subjecting the Company to the various negative consequences of failing to do so described above.

Negative Effects of Market Democratization and Broker Rule Change on Meeting Participation

The financial markets and financial industry more generally have experienced their own series of significant changes in recent years, many a result of what is often referred to as the continuing democratization of finance and investing. Advances and innovations have provided market access historically restricted to a select few to increasingly large numbers of investors. At Diffusion, we hope the increasing breadth and diversity of our own stockholder base driven (at least in part) by this evolution is indicative of the broad appeal of Diffusion’s story. However, a growing and increasingly dispersed stockholder base, a legal, regulatory, and administrative infrastructure designed for the old financial market paradigm, and changes to certain broker-dealers discretionary voting policies for shares they hold in “street name” have had a variety of consequences for Diffusion and other similarly situated companies.

Among these consequences are increased trading volume and stockholder turnover, significant reductions in stockholder meeting attendance (despite increased ease of access through developments such as virtual annual meetings), and corresponding challenges approving and implementing ordinary course corporate actions. Some of the negative effects of these trends are highlighted by Diffusion’s own experience at our recent annual meetings:Corporate Governance Committee are:

The Nominating and Corporate Governance Committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the Nominating and Corporate Governance Committee are Messrs. Adams, Giles, and Levin and Dr. Lanchoney. Mr. Giles is the chair of the Nominating and Corporate Governance Committee. Each of the four current members of the Nominating and Corporate Governance Committee is an “independent director” within the meaning of the Listing Rules of the Nasdaq Capital Market.

Meetings. The Nominating and Corporate Governance Committee met three times during 2021.

Processes and Procedures for Consideration Director Nominations. In selecting nominees for the Board, the Nominating and Corporate Governance Committee first determines whether the incumbent directors are qualified to serve, and wish to continue to serve, on the Board. The Nominating and Corporate Governance Committee believes that our Company and stockholders benefit from the continued service of certain qualified incumbent directors because those directors have familiarity with and insight into our Company’s affairs that they have accumulated during their tenure with Diffusion. Appropriate continuity of Board membership also contributes to the Board’s ability to work as a collective body. Accordingly, it is the practice of the Nominating and Corporate Governance Committee, in general, to re-nominate an incumbent director at the upcoming annual meeting of stockholders if the director wishes to continue his or her service with the Board, the director continues to satisfy the Nominating and Corporate Governance Committee’s criteria for membership on the Board, the Nominating and Corporate Governance Committee believes the director continues to make important contributions to the Board and there are no special, countervailing considerations against re-nomination of the director.

In identifying and evaluating new candidates for election to the Board, the Nominating and Corporate Governance Committee from time to time solicits recommendations from persons with whom the Nominating and Corporate Governance Committee is familiar and who are knowledgeable about the Company and the biotech industry generally for nominees likely to have the qualifications, skills and characteristics required for Board nominees. Such persons may include members of the Board and senior management of Diffusion. In addition, the Nominating and Corporate Governance Committee may engage a search firm to assist it in identifying qualified candidates. The Nominating and Corporate Governance Committee would typically review and evaluate each candidate whom it believes merits serious consideration, taking into account available information concerning the candidate, any qualifications or criteria for Board membership established by the Nominating and Corporate Governance Committee, the existing composition of the Board (including with respect to diversity), and other factors that it deems relevant. In conducting its review and evaluation, the Nominating and Corporate Governance Committee may solicit the views of our management, other Board members and any other individuals it believes may have insight into a candidate. The Nominating and Corporate Governance Committee may designate one or more of its members and/or other Board members to interview any proposed candidate.

The Nominating and Corporate Governance Committee will consider recommendations for the nomination of directors submitted by our stockholders. The Nominating and Corporate Governance Committee will evaluate candidates recommended by stockholders in the same manner as those recommended as described above.

There are no formal requirements or minimum qualifications that a candidate must meet in order for the Nominating and Corporate Governance Committee to recommend the candidate to the Board. The Nominating and Corporate Governance Committee believes that each nominee should be evaluated based on his or her merits as an individual, taking into account the needs of the Company and the Board. However, in evaluating candidates, there are a number of criteria that the Nominating and Corporate Governance Committee generally views as relevant and is likely to consider. Some of these factors include:

The Growing “Quorum Problem”

Diffusion is not alone in this experience. In 2021, many companies were forced to undertake costly solicitation campaigns and/or adjourn their annual meetings multiple times due to an inability to achieve a simple quorum. Certain other companies, though able to reach a quorum, were forced to retract proposals viewed by the companies’ boards as critical to their business due in part to an inability to achieve sufficient turnout despite expending significant time and resources on extended solicitation campaigns. In response to this trend, many issuers have amended their governance documents to reduce the threshold required to achieve a quorum at a meeting of stockholders, with over 40 companies listed on the Nasdaq doing so between June 1, 2021 and December 31, 2021.

In light of the foregoing and other factors, effective March 18, 2022, the Board approved an amendment to our Bylaws providing that the presence, in person or by proxy duly authorized, of the holders of 33.4% of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business at any meeting of our stockholders. We believe the change to the quorum requirement for stockholder meetings will improve the Company’s ability to hold stockholder meetings when called and transact necessary business without unnecessary cost and delay, while also maintaining a level high enough to ensure that a broad range of our stockholders are represented at the meeting.

Our Series C Preferred Stock

As of March 18, 2022, there were less than 50 days remaining for the Company to regain compliance with the Bid Price Rule prior to our May 2, 2022 deadline. As we evaluated alternatives to resolve our listing deficiency, we reviewed, among other things, the considerations described above. In summary, we believe:

With these and other factors in mind, on March 18, 2022, we filed a current report on Form 8-K with the SEC announcing our cancellation of the Old Special Meeting, the termination of the Prior Solicitation, the approval of the Bylaw Amendment, and the anticipated closing of an offering (the “Series C Issuance”) in which we issued 10,000 shares of our Series C Preferred Stock in a private placement to Robert J. Cobuzzi, Jr., Ph.D., our President and Chief Executive Officer, and William R. Elder, our General Counsel & Corporate Secretary, both of whom are accredited investors. The Series C Issuance resulted in aggregate gross proceeds to the Company of $5,000.

Each share of Series C Preferred Stock (i) has a stated value of $0.50, (ii) is convertible into one (1) share of our common stock at a price of $0.50 per share, (iii) will be counted on an “as converted” basis for purposes of determining the presence of a quorum at the Special Meeting, (iv) will be entitled to 80,000 votes on Proposals 1 and 2 at the Special Meeting, and (v) will be required to cast such votes “For” and “Against” each proposal in the same proportion as our common stockholders present and voting at the meeting, taken as a whole (i.e., on a “mirrored” basis). In other words, holders of the Series C Preferred Stock are only permitted to vote with the holders of our common stock on proposals related to the Reverse Stock Split and are required to vote their shares of Series C Preferred Stock in a manner that “mirrors” the proportions of “For” and “Against” votes cast by the holders of the Company’s common stock are voted on the Amendment (excluding, for the avoidance of doubt, any shares of common stock that are not voted).The shares of Series C Preferred Stock are not redeemable at any time.

Among other reasons, we believe the Series C Issuance is in the best interests of the Company and our common stockholders because it is structured in a manner designed to navigate and balance the Company’s particular facts and circumstances described above, including the following:

Determination of the Split Ratio

The ratio of the Reverse Stock Split, if approved and implemented, will be a ratio of not less than one-for-two and not more than one-for-50, as determined by our Board in its sole discretion. The Board believes that stockholder adoption of a range of Reverse Stock Split ratios (as opposed to adoption of a single Reverse Stock Split ratio or a set of fixed ratios) provides maximum flexibility to achieve the purposes of a Reverse Stock Split and, therefore, is in the best interests of the Company. In determining a ratio following the receipt of stockholder adoption, the Board (or any authorized committee of the Board) may consider, among other things, factors such as:

Principal Effects of Reverse Stock Split

Decrease in the Number of Shares of Common Stock Outstanding

If our stockholders approve the proposed Reverse Stock Split and the Board elects to affect the Reverse Stock Split, our issued and outstanding shares of common stock would be reduced; for example, a one-for-ten Split Ratio would result in one (1) share of common stock for every ten (10) shares of common stock currently outstanding. The Reverse Stock Split would be affected simultaneously for all of our common stock, and the Split Ratio would be the same for all shares of common stock. The Reverse Stock Split would affect all of our stockholders uniformly and would not affect any stockholders’ percentage ownership interests in the Company, except to the extent that it results in a stockholder receiving cash in lieu of fractional shares. The Reverse Stock Split would not affect the relative voting or other rights that accompany the shares of our common stock, except to the extent that it results in a stockholder receiving cash in lieu of fractional shares. Common stock issued pursuant to the Reverse Stock Split would remain fully paid and non-assessable. The Reverse Stock Split would not affect our securities law reporting and disclosure obligations, we would continue to be subject to the periodic reporting requirements of the Exchange Act and bid and ask prices for our common stock would continue to be quoted on the Nasdaq Capital Market under the symbol “DFFN”. However, our common stock would receive a new CUSIP number.

Increase the Per Share Price of our Common Stock

By effectively combining a number of pre-split shares into one share of common stock, the per share price of a post-split share is generally greater than the per share price of a pre-split share. The amount of the initial increase in per share price and the duration of such increase, however, is uncertain. The Board intends to utilize the Reverse Stock Split as part of its plan to maintain the required minimum per share price of the common stock under the Nasdaq listing standards.

Increase in the Number of Shares of Common Stock Available for Future Issuance

By reducing the number of shares outstanding without reducing the number of shares of available but unissued common stock, the Reverse Stock Split will increase the number of authorized but unissued shares. The Board believes the increase is appropriate for use to fund the future operations of the Company. Although the Company does not have any pending acquisitions for which shares are expected to be used, the Company may also use authorized shares in connection with the financing of future acquisitions.

Although the Reverse Stock Split would not have any dilutive effect on our stockholders, the Reverse Stock Split without a reduction in the number of shares authorized for issuance would reduce the proportion of shares owned by our stockholders relative to the number of shares authorized for issuance, giving the Board an effective increase in the authorized shares available for issuance, in its discretion. The Board from time to time may deem it to be in the best interests of the Company to enter into transactions and other ventures that may include the issuance of shares of our common stock. If the Board authorizes the issuance of additional shares subsequent to the Reverse Stock Split, the dilution to the ownership interest of our existing stockholders may be greater than would occur had the Reverse Stock Split not been effected.

Adjustment to Currently Outstanding Securities Exercisable or Convertible into Shares of our Common Stock

The Reverse Stock Split would effect a reduction in the number of shares of common stock issuable upon the exercise or conversion of our outstanding stock options, settlement of restricted stock units and exercise of our outstanding warrants in proportion to the Split Ratio. The exercise price of outstanding options and warrants would be subject to a corresponding increase in proportion to the Split Ratio.

Adjustment to the Number of Shares of Common Stock Available for Issuance Under our 2015 Equity Plan

In connection with any reverse stock split, there would also be a corresponding reduction in the number of shares available for future issuance under the 2015 Equity Plan.

Conversion Notice of Series C Preferred Stock

If the stockholders approve the Reverse Stock Split, on such date or any time thereafter, the outstanding shares of Series C Preferred Stock will be convertible into shares of our common stock at the option of the Company or the holder at a conversion price of $0.50 per share of common stock.

Illustrative Examples of Effects of Reverse Stock Split on Common Stock and Series C Preferred Stock at Minimum and Maximum Ratio

The following table contains approximate information relating to our securities as of the Record Date:

* Assumes conversion of all outstanding Series C Preferred Stock to common stock upon approval of the Reverse Stock Split.

Certain Risks Associated with the Reverse Stock Split

We cannot predict whether the Reverse Stock Split will increase the market price for our common stock. The history of similar stock split combinations for companies in like circumstances is varied, and the market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. Further, there are a number of risks associated with the Reverse Stock Split, including:

Process for Effecting Reverse Stock SplitWhile we do not have a stand-alone diversity policy, in considering whether to recommend any director nominee, including candidates recommended by stockholders, the Nominating and Exchanging Stock CertificatesCorporate Governance Committee will consider the factors described above. The Nominating and Corporate Governance Committee seeks nominees with a broad diversity of experience, expertise, and backgrounds. The Nominating and Corporate Governance Committee does not assign specific weights to particular criterion and no particular criterion is necessarily applicable to all prospective nominees. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.

IfBoard Diversity

We believe it is important that our Board is composed of individuals reflecting the Reverse Stock Split is approveddiversity represented by our employees, our clients, and our communities.  Below, we provide an enhanced disclosure regarding the diversity of our Board as required by the Company’s stockholders, and if at such time the Board still believes that the Reverse Stock Split is in the best interestslisting standards of the Company and its stockholders, the Board will determine the ratio of the Reverse Stock Split to be implemented. The Reverse Stock Split will become effective as of 12:01 a.m., Eastern Time on the date specified in the Certificate of Amendment as filed with the office of the Secretary of State of the State of Delaware (the “effective time”). The Board will determine the exact timing of the filing of the Certificate of Amendment based on its evaluation as to when the filing would be the most advantageous to the Company and its stockholders. If the Board does not decide to implement the Reverse Stock Split prior to December 31, 2022, the authority granted in this proposal to implement the Reverse Stock Split will terminate.

Except as described below under the section titled “Fractional Shares,” at the effective time, each number of issued and outstanding pre-Reverse Stock Split shares that the Board has determined will be combined into one post-Reverse Stock Split share and will, automatically and without any further action on the part of our stockholders, be combined into and become one share of common stock, and each certificate which, immediately prior to the effective time represented pre-Reverse Stock Split shares, will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares.

Book-Entry Shares

If the Reverse Stock Split is effected, stockholders who hold uncertificated shares (i.e., shares held in book-entry form and not represented by a physical stock certificate), either as direct or beneficial owners, will have their holdings electronically adjusted automatically by our transfer agent (and, for beneficial owners, by their brokers or banks that hold in “street name” for their benefit, as the case may be) to give effect to the Reverse Stock Split. Stockholders who hold uncertificated shares as direct owners will be sent a statement of holding from our transfer agent that indicates the number of post-reverse stock split shares of our common stock owned in book-entry form.

If the proposed Reverse Stock Split is approved and effected, we intend to treat common stock held by stockholders in “street name,” through a bank, broker or other nominee, in the same manner as stockholders whose shares are registered in their own names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their customers holding common stock in “street name.” However, these banks, brokers or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. If you hold shares of common stock with a bank, broker or other nominee and have any questions in this regard, you are encouraged to contact your bank, broker or other nominee.

Certificated Shares

As soon as practicable after the effective time of the Reverse Stock Split, stockholders will be notified that the Reverse Stock Split has been effected. We expect that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us or our exchange agent. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares.

STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) FOR EXCHANGE UNTIL REQUESTED TO DO SO.

Fractional Shares

No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders of record who otherwise would be entitled to receive fractional shares will be entitled to an amount in cash (without interest or deduction) equal to the fraction of one share to which such stockholder would otherwise be entitled multiplied by the product of: (i) the average of the closing prices of our common stock on the Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split and (ii) the Split Ratio. Except for the right to receive the cash payment in lieu of fractional shares, stockholders will not have any voting, dividend or other rights with respect to the fractional shares they would otherwise be entitled to receive.Market.

Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders may reside, where we are domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the Reverse Stock Split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by us or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

Accounting Matters; Effect on Par Value

The Reverse Stock Split will not affect the common stock capital account on our balance sheet and will not affect the par value of our common stock, which will remain at $0.001 per share. However, because the par value of our common stock will remain unchanged at the effective time of the Reverse Stock Split, the components that make up the common stock capital account will change by offsetting amounts. Depending on the ratio of the Reverse Stock Split the Board decides to implement, the stated capital component will be reduced proportionately based upon the Reverse Stock Split and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced subject to minor adjustments for fractional shares. Immediately after the Reverse Stock Split, the per share net income or loss and net book value of our common stock will be increased because there will be fewer shares of common stock outstanding. All historic share and per share amounts in our financial statements and related footnotes will be adjusted accordingly for the Reverse Stock Split.

Potential Anti-Takeover Effect; No Going Private TransactionBoard Oversight of Risk

Even thoughThe Board as a whole has responsibility for risk oversight, with more in-depth reviews of certain areas of risk being conducted by the proposed Reverse Stock Split would result in an increased proportion of unissued authorized sharesrelevant Board committees that report on their deliberations to issued shares, which could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the compositionfull Board. The oversight responsibility of the Board or contemplating a tender offer or other transaction for the combination of us with another company), the Reverse Stock Splitand its committees is not being proposed in response to any effort of which we are aware to accumulate shares of our common stock or obtain control of us, nor is it part of a planenabled by management reporting processes that are designed to recommend a series of similar amendmentsprovide information to the Board about the identification, assessment and our stockholders. Furthermore, notwithstanding the decrease in the numbermanagement of outstanding shares following the proposed Reverse Stock Split, our Board does not intend for this transaction to be the first step in a “going private transaction” within the meaningcritical risks and management’s risk mitigation strategies. The areas of Rule 13e-3 of the Exchange Act.

No Dissenters’ or Appraisal Rights

Under the Delaware General Corporation Law, our Charter or bylaws, the Company’s stockholders are not entitled to dissenters’ appraisal rights with respect to the Reverse Stock Split,risk that we focus on include regulatory, operational, financial (accounting, credit, liquidity and we will not independently provide stockholders with any such right.

Certain United States Federal Income Tax Consequencestax), legal, compensation, competitive, health, safety and environment, economic, political and reputational risks.

The followingcommittees of the Board oversee risks associated with their respective principal areas of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of financial reporting to stockholders, our processes for the management of business and financial risk, our financial reporting obligations, and our compliance with significant applicable legal, ethical and regulatory requirements. The Audit Committee, along with management, is not intended as tax or legal advice. Each stockholder should seek advice based on his, her or its particular circumstances from an independent tax advisor.also responsible for developing and participating in a process for review of important financial and operating topics that present potential significant risk to our company. The Compensation Committee is responsible for overseeing risks and exposures associated with our compensation programs and arrangements, including our executive and director compensation programs and arrangements. The Nominating and Corporate Governance Committee oversees risks relating to our corporate governance matters and policies and management and director succession planning.

We recognize that a fundamental part of risk management is understanding not only the risks a company faces and what steps management is taking to manage and mitigate those risks, but also understanding what level of risk is appropriate for our Company. The followinginvolvement of the full Board in setting our business strategy is a summary of certain United States federal income tax consequenceskey part of the Reverse Stock Split generally applicable to holdersBoard’s assessment of shares of our common stock. This summary addresses only such stockholders who hold their pre-split shares as capital assets and will hold the post-split shares as capital assets. This discussion does not address all United States federal income tax considerations that may be relevant to particular stockholders in light of their individual circumstances or to stockholders that are subject to special rules, such as financial institutions, trusts, estates, entities treated as partnershipsmanagement’s appetite for U.S. federal income tax purposes, tax-exempt organizations, regulated investment companies, real estate investment trusts, insurance companies, dealers in securities and foreign stockholders. The following summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury Regulations thereunder, judicial decisions and Internal Revenue Service (“IRS”) rulings, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. Tax consequences under state, local, foreign, and other laws are not addressed herein. Each stockholder should consult their tax advisor as to the particular facts and circumstances which may be unique to such stockholderrisk and also as to any estate, gift, state, local or foreign tax considerations arising outa determination of the Reverse Stock Split.what constitutes an appropriate level of risk for our company.

Exchange Pursuant to Reverse Stock Split

The Reverse Stock SplitWe believe our current Board leadership structure is intended to qualify asappropriate and helps ensure proper risk oversight for our company for a tax-free recapitalization under the Code. Assuming the Reverse Stock Split so qualifies, then generally, for U.S. federal income tax purposes, no gain or loss will be recognizednumber of reasons, including: (1) general risk oversight by the Companyfull Board in connection with its role in reviewing our key long-term and short-term business strategies and monitoring on an on-going basis the Reverse Stock Split,implementation of our key business strategies; (2) more detailed oversight by our Board committees that are currently comprised of and no gain or loss will be recognizedchaired by our independent directors and (3) the stockholders that exchange their pre-split shares for post-split shares except as described below with respect to cash received in lieufocus of fractional shares. The post-split shares in the hands of a stockholder following the Reverse Stock Split will generally have an aggregate tax basis equal to the aggregate tax basisour Chairman of the pre-split shares held by that stockholder immediately prior toBoard on allocating appropriate Board agenda time for discussion regarding the Reverse Stock Split,implementation of our key business strategies and a stockholder’s holding period for its post-split shares generally will be the same as its holding period for the pre-split shares.specifically risk management.

Tax Consequences to StockholdersCode of Business Conduct and Ethics

Stockholders should not recognize any gain or loss for U.S. federal income tax purposes as a resultOur Code of Business Conduct and Ethics applies to all of our directors, executive officers and other employees, and meets the requirements of the Reverse Stock Split, except toSEC. A copy of our Code of Business Conduct and Ethics is available on the extentInvestor Relations—Corporate Governance—Code of any cash received in lieuBusiness Conduct and Ethics section of a fractional share of common stock (which fractional share will be treated as received and then exchanged for cash). Each stockholder’s aggregate tax basis in the common stock received in the Reverse Stock Split, including any fractional share treated as received and then exchanged for cash, should equal the stockholder’s aggregate tax basis in the common stock exchanged in the Reverse Stock Split. In addition, each stockholder’s holding period for the common stock it receives in the Reverse Stock Split should generally be the same as the stockholder’s holding period for the common stock exchanged in the Reverse Stock Split.our corporate website at www.diffusionpharma.com.

In general, a stockholder who receives cash in lieuPolicy Regarding Director Attendance at Annual Meetings of a fractional share of common stock pursuant toStockholders

It is the Reverse Stock Split should be treated for U.S. federal income tax purposes as having received a fractional share pursuant to the Reverse Stock Split and then as having received cash in exchange for the fractional share and should generally recognize capital gain or loss equal to the difference between the amount of cash received and the stockholder’s tax basis allocable to the fractional share. Any capital gain or loss will generally be long term capital gain or loss if the stockholder’s holding period in the fractional share is greater than one year aspolicy of the effective dateBoard that directors standing for re-election should attend our annual meeting of the Reverse Stock Split. Special rules may apply to cause all or a portion of the cash received in lieu of a fractional share to be treated as dividend income with respect to certain stockholders who own more than a minimal amount of common stock (generally more than 1% of the shares outstanding) or who exercise some control over the affairs of the Company. Stockholders should consultif their own tax advisors regarding the tax effects to them of receiving cash in lieu of fractional shares based on their particular circumstances.schedules permit.

Interests of Directors and Executive OfficersProcess Regarding Stockholder Communications with Board

Our directors and executive officers have no substantial interests, directlyStockholders may communicate with the Board or indirectly, inany one particular director by sending correspondence to our General Counsel & Corporate Secretary via e-mail to proxyrequests@diffusionpharma.com or via mail to 300 East Main Street, Suite 201, Charlottesville, Virginia 22902, with an instruction to forward the matters set forth in this proposal exceptcommunication to the extent of their ownership of shares of our common stock.

Certificate of AmendmentBoard or one or more particular directors. Our General Counsel & Corporate Secretary will forward promptly all such stockholder communications to Our Charter

If the Reverse Stock Split is approved,Board or the following paragraph shall be added at the end of subsection A of Article IV of the Charter:

“Effective upon [intentionally left blank], the effective time of this Certificate of Amendment of the Certificate of Incorporationone or more particular directors, with the Secretary of State of the State of Delaware (the “Effective Time”), each [intentionally left blank] shares of Common Stock issued and outstanding immediately prior to the Effective Time shall, automatically and without the necessityexception of any further action, be changed, reclassifiedadvertisements, solicitations for periodical or other subscriptions and combined into one (1) share of Common Stock (the “Reverse Stock Split”). No fractional shares shall be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares of Common Stock shall be entitled to receive cash (without interest and subject to applicable withholding taxes) in lieu of such fractional shares in an amount equal to the product obtained by multiplying such fractional share of Common Stock by the inverse of Reverse Stock Split ratio times the average closing price per share of Common Stock on the securities trading market on which the shares were traded for the five consecutive trading days immediately preceding the date on which the Effective Time occurs.. Each certificate that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificates”), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been combined, subject to the elimination of fractional shares as described above.”

The Certificate of Amendment attached hereto as Appendix A reflects the changes that will be made to our Charter if the Reverse Stock Split is approved and the Board decides to implement it.

Reservation of Right to Abandon Reverse Stock Split if Approved

We reserve the right to not file the Certificate of Amendment and to abandon the Reverse Stock Split without further action by our stockholders at any time before the effectiveness of the filing with the Secretary of the State of Delaware of the Certificate of Amendment, even if the authority to effect these amendments is approved by our stockholders at the Special Meeting. By voting in favor of a reverse stock split, you are expressly also authorizing the Board to delay, not proceed with, and abandon, these proposed amendments if it should so decide, in its sole discretion, that such action is in the best interests of our stockholders.other similar communications.

*****PROPOSAL NO. 1
ELECTION OF DIRECTORS

Number of Directors

Our Bylaws provide that the Board will consist of at least one member, or such other number as may be determined by the Board or our stockholders. The Board has fixed the number of directors at seven as of the date of this Proxy Statement. One of our current directors – Eric Francois – has resigned from the Board effective as of December 16, 2022 as a result of certain mandatory internal policies and procedures of his current employer following a return to his investment banking career in late 2021 and, accordingly, will not stand for re-election at the Annual Meeting. On November 13, 2022, in connection with Mr. Francois’ resignation and in accordance with and pursuant to Section 3.2 of the Company’s Bylaws, the Board resolved to reduce the number of directors on the Board from seven to six, effective simultaneous with, and contingent upon, the effectiveness of Mr. Francois’ resignation from the Board. Accordingly, as of the date of the Annual Meeting, the number of directors on the Board is expected to be six.

Nominees for Director

The Board has nominated the following six individuals, each of whom is currently a director on our Board, to serve as our directors until the next annual meeting of our stockholders or until their successors are elected and qualified:

Proxies only can be voted for the number of persons named as nominees in this Proxy Statement, which is six. If prior to the Annual Meeting, the Board should learn that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for a substitute nominee as selected by the Board. Alternatively, the proxies, at the discretion of the Board, may be voted for that fewer number of nominees as results from the inability of any nominee to serve. The Board has no reason to believe that any of the nominees will be unable to serve. We strongly encourage you to read this Proxy Statement carefully and to use the enclosed WHITE proxy card to vote for the Board's nominees named herein in accordance with the Board's recommendation.

Information About Current Directors Standing for Re-Election and Board Nominees

The table below sets forth, as of the date of this Proxy Statement, certain information that has been furnished to us by each current director standing for re-election and each other individual who has been nominated by the Board to serve as a director of our company:

^A - Member of Audit Committee as of the date of this Proxy Statement.

^C – Member of Compensation Committee as of the date of this Proxy Statement.

^N – Member of Nominating & Corporate Governance Committee as of the date of this Proxy Statement.

Additional Information About Current Directors and Board Nominees

The paragraphs below provide further information about each current director, each of whom has been nominated for election at the Annual Meeting by the Board, including all positions he or she holds, his or her principal occupation and business experience for the past five years, and the names of other publicly held companies of which he or she currently serves as a director or served as a director during the past five years. We believe that all of our directors and director nominees display personal and professional integrity; satisfactory levels of education and/or business experience; broad-based business acumen; an appropriate level of understanding of our business and its industry and other industries relevant to our business; the ability and willingness to devote adequate time to the work of the Board and its committees; a fit of skills and personality with those of our other directors that helps build a board of directors that is effective, collegial and responsive to the needs of our company; strategic thinking and a willingness to share ideas; a diversity of experiences, expertise and background; and the ability to represent the interests of all of our stockholders. The information presented below regarding each director and nominee for director also sets forth specific experience, qualifications, attributes and skills that led the Board to the conclusion that he or she should serve as a director in light of our business and structure.

Board Nominees

Robert Adams — Mr. Adams has served as a director since January 2016 and as a director of Diffusion LLC since 2002. Prior to his retirement in 2015, Mr. Adams was a partner in the intellectual property law firm of Nixon & Vanderhye P.C, where he had practiced for over 25 years, focusing on patent litigation and international patent licensing and negotiations. During that time period, Mr. Adams was lead litigation counsel in more than 50 major intellectual property lawsuits, where he directly handled, for example, all intellectual property valuations and settlements on behalf of his U.S. and foreign clients. Moreover, Mr. Adams served as the head negotiator for a well-known Japanese consumer products company for 15 years in various complicated licensing situations. Those negotiations typically involved the cross-licensing of up to hundreds of U.S. and foreign patent rights. His lead licensing activities on behalf of that client included, among other things, multi-year negotiations with Texas Instruments, Advanced Micro Devices and Freescale. Mr. Adams received a B.A. from the University of Maryland and a J.D. from George Washington University (with honors), and is a member of the Virginia State Bar.

The Board believes Mr. Adams’ perspective and experience as a director of Diffusion, as well as the depth and breadth of his intellectual property experience, provide him with the qualifications to serve as a director.

Robert J. Cobuzzi, Jr., Ph.D. – Dr. Cobuzzi has served as a director since January 2020 and as our President and Chief Executive Officer since September 2020. Dr. Cobuzzi also currently serves as a Venture Partner and Chairman of the Business Development Board for Sunstone Life Science Ventures, an independent European venture capital investment firm focused on life science therapeutic innovations. Previously, Dr. Cobuzzi served as an Advisor to the Mitochondrial Disease Research Program at the Children’s Hospital of Philadelphia, an internationally recognized hospital and research center devoted to children, from January 2019 to April 2020, and as President and Chief Executive Officer of MitoCUREia, Inc., an affiliated company, from July 2019 to July 2020. From 2005 to 2018, Dr. Cobuzzi served in various roles at Endo International PLC, a specialty branded and generic pharmaceuticals manufacturer, most recently serving as President of Endo Ventures Limited. Dr. Cobuzzi received his Bachelor of Arts in Biochemistry and Art History from Colby College and his Ph.D. in Molecular and Cellular Biochemistry from Loyola University Chicago. He served as a Post-doctoral Fellow in Experimental Therapeutics at Roswell Park Cancer Institute.

The Board believes Dr. Cobuzzi’s experience and insight with drug development and business development and funding, both in the U.S. and abroad, as well as his experience and background as our Chief Executive Officer, provide him with the qualifications to serve as a director.

Mark T. Giles — Mr. Giles has served as a director since January 2016 and as a director of Diffusion LLC since 2008. Since July 2007, Mr. Giles has been the sole managing member of Panda Holdings, LLC, which engages in the investment and management of private capital. Since February 2015, Mr. Giles has been a general partner of Anchormark Holdings, LLC, which engages in the investment and management of private capital. Prior to joining Panda Holdings and Anchormark Holdings, Mr. Giles served as the Chief Executive Officer of Virginia National Bank from July 1998 until June 2007 and thereafter continued to serve as the non-executive Chairman until December 2011. Prior to joining Virginia National Bank, Mr. Giles also served as the president of two publicly traded bank holding companies and subsidiary banks in Texas and practiced law with the banking group of a Houston law firm. He chairs the board of Expedition Trust Company. Mr. Giles received a B.S. from the McIntire School of Commerce at the University of Virginia and a J.D. from the University of Virginia School of Law.

The Board believes Mr. Giles’ perspective and experience as a director of Diffusion, as well as the depth and breadth of his business and legal experience, provide him with the qualifications to serve as a director.

Jane H. Hollingsworth – Ms. Hollingsworth has served as a director since September 2020. She currently serves as the founding Managing Partner of Militia Hill Ventures, an organization that creates, builds, and invests in life sciences companies, a role she has held since 2013. While at Militia Hill, Jane co-founded and currently serves as Executive Chair of Eliksa Therapeutics, a regenerative medicine company, co-founded and served as Executive Chair of Spirovant Sciences, a gene therapy company sold to Sumitomo Dainippon Pharma, and served as Executive Chair and CEO of Immunome Inc., a cancer immunotherapy company. Prior to founding Militia Hill, Ms. Hollingsworth co-founded and served as Chief Executive Officer of NuPathe, Inc., a neuroscience focused biopharmaceutical company. She also co-founded and served as EVP of Auxilium Pharmaceuticals, a urology and rare disease focused biopharmaceutical company. Ms. Hollingsworth also currently serves on the boards of the life science companies Afimmune Ltd. and Ribonova, and various industry and community organizations, including the University City Science Center, the Kimmel Center for the Performing Arts and Breatcancer.Org. Ms. Hollingsworth received her B.A. from Gettysburg College and her J.D. from Villanova University.

The Board believes Ms. Hollingsworth’s industry perspective and experience, including as chief executive officer and director of a publicly-traded biopharmaceutical company, as well as her depth of her other operating and senior management experience in our industry and educational background, provide her with the qualifications to serve as a director.

Diana Lanchoney, M.D. – Dr. Lanchoney has served as a director since June 2021. Since 2014, Dr. Lanchoney has served as a Vice President of CSL Behring, Inc., a global biopharmaceutical company manufacturing plasma-derived and recombinant therapeutic products, since October 2021 as Vice President, R&D Strategy Implementation, from January 2018 to October 2021 as Vice President, Clinical Pharmacology and Translational Development and prior to that as Vice President, R&D Project Management, from October 2014 to December 2017. Prior to joining CSL, Dr. Lanchoney served in positions of increasing responsibility with Merck & Co., a global pharmaceutical company, most recently as Associate Vice President, Corporate Strategy. Dr. Lanchoney received her B.A. in Economics and German Studies from Tufts University and her M.D. from the University of Pennsylvania.

The Board believes Dr. Lanchoney’s professional and academic background and experience provide her with the qualifications to serve as a director, including the depth and breadth of her experience with clinical development, corporate strategy, and pharmaceutical industry partnering.

Alan Levin — Mr. Levin has served as a director since January 2016 and as a director of Diffusion LLC since June 2015. He previously served as Executive Vice President and Chief Financial Officer of Endo Health Solutions Inc., a global specialty healthcare company, from June 2009 until his retirement in September 2013. Prior to joining Endo, Mr. Levin worked with Texas Pacific Group, a leading private equity firm, and one of their start-up investments. Before that, he was Senior Vice President & Chief Financial Officer of Pfizer, Inc. where he worked for 20 years in a variety of executive positions of increasing responsibility, including Treasurer and Senior Vice President of Finance & Strategic Management for the company’s research and development organization. Mr. Levin received a bachelor’s degree from Princeton University and a master’s degree from New York University’s Stern School of Business. Mr. Levin is a certified public accountant. Mr. Levin currently serves as a member of the board of directors of Biocryst Pharmaceuticals, Inc., a Nasdaq-traded biopharmaceuticals company. He is also a member of the Advisory Board of Auven Therapeutics, a private equity fund; and the Critical Path Institute, a nonprofit collaboration between the Food and Drug Administration and pharmaceutical industry participants focused on streamlining and accelerating the development and regulatory pathways for innovative medicines. From December 2013 to July 2019, he was a member of the board of directors of Aceto Corporation, a Nasdaq-traded company specialized in generics and pharmaceutical intermediate products.

The Board believes that the combination of Mr. Levin’s perspective and experience as a director of Diffusion; his experience in financial reporting, treasury and corporate finance (including his prior positions as chief financial officer of Endo and Pfizer, Inc.); and his executive-level experience in the pharmaceutical industry all provide him with the qualifications and skills to serve as a director.

Board Recommendation

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVALTHE ELECTION OF A REVERSE STOCK SPLIT OF OUR OUTSTANDING SHARES OF COMMON STOCK BY A RATIO OF ANY WHOLE NUMBER BETWEEN 1-FOR-2 AND 1-FOR-50, AT ANY TIME PRIOR TO DECEMBER 31, 2022, THE IMPLEMENTATION AND TIMING OF WHICH SHALL BE SUBJECT TO THE DISCRETIONALL SIX OF THE BOARD.NOMINEES FOR DIRECTOR NAMED IN THIS PROXY STATEMENT. WE STRONGLY ENCOURAGE YOU TO USE THE ENCLOSED WHITE PROXY CARD TO VOTE FOR THE BOARD'S NOMINEES NAMED HEREIN IN ACCORDANCE WITH THE BOARD'S RECOMMENDATION.

On November 22, 2022, LifeSci filed a preliminary proxy statement with the SEC that includes a proposal for the election of six nominees whom LifeSci has nominated for election as directors at the 2022 Annual Meeting. As a result, the election of directors is considered a contested election, meaning the six nominees receiving the largest pluralities of the votes cast will be elected. The Board does not endorse any LifeSci Nominee and unanimously recommends that you disregard any blue proxy card that may be sent to you by LifeSci. Voting to “WITHHOLD” with respect to any LifeSci Nominee on its proxy card is not the same as voting for the Board’s nominees, because a vote to “WITHHOLD” with respect to any LifeSci Nominee on its blue proxy card will revoke any previous WHITE proxy card submitted by you. If you have already voted using a proxy card sent to you by LifeSci, you have the right to change your vote at any time before it is exercised and we urge you to revoke that proxy by voting the enclosed WHITE proxy card by telephone or by Internet, or by signing, dating and returning it promptly by mail. Only the latest-dated, validly executed proxy that you submit will be counted. Diffusion is not responsible for the accuracy of any information provided by or relating to LifeSci or their nominees contained in any proxy solicitation materials filed or disseminated by, or on behalf of, LifeSci or any other statements that LifeSci may otherwise make.

Although the Company is required to include all nominees for election on its WHITE proxy card, for additional information regarding LifeSci Nominees and any other related information, please refer to LifeSci’s proxy statement if and when it is provided to you by LifeSci. Stockholders will be able to obtain, free of charge, copies of all proxy statements, any amendments or supplements thereto and any other documents (including the WHITE proxy card) when filed by the applicable party with the SEC in connection with the 2022 Annual Meeting at the SEC’s website (http://www.sec.gov).

PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING TO THE EXTENT THERE ARE INSUFFICIENT VOTES AT THE SPECIAL MEETING TO APPROVE PROPOSAL 1Selection of Independent Registered Public Accounting Firm

The Audit Committee has selected KPMG as our independent registered public accounting firm for the fiscal year ending December 31, 2022.

Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of KPMG as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of KPMG to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in our best interests and the best interests of our stockholders.

Representatives of KPMG will be present at the Annual Meeting to respond to appropriate questions. They also will have an opportunity to make a statement if they wish to do so.

SummaryIndependent Auditor’s Fees

IfThe table below presents fees billed to us for professional services rendered by KPMG, our current independent registered public accounting firm, for the numberyears ended December 31, 2021 and December 31, 2020.

Tax Fees in 2020 represent fees paid to KPMG in connection with an analysis under Section 382 of shares present virtually or representedthe Tax Code.

Pre-Approval Policies and Procedures

The Audit Committee has adopted procedures pursuant to which all audit, audit-related and tax services and all permissible non-audit services provided by proxy atour independent registered public accounting firm must be pre-approved by the Special MeetingAudit Committee. All services rendered by KPMG during 2021 and voting “FOR”2020 were permissible under applicable laws and regulations and were approved in advance by the adoption of Proposal 1 are insufficient to approve such proposal, we may move to adjournAudit Committee in accordance with the Special Meetingrules adopted by the SEC in order to enable us to solicit additional proxies in favorimplement requirements of the adoptionSarbanes-Oxley Act of Proposal 1. If the adjournment is for more than thirty days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the Special Meeting.2002.

For the avoidance of doubt, any proxy authorizing the adjournment of the Special Meeting shall also authorize successive adjournments thereof, at any meeting so adjourned, to the extent necessary for us to solicit additional proxies in favor of the adoption of such proposal.

*****Board Recommendation

THEBOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF AN ADJOURNMENTRATIFICATION OF THE SPECIAL MEETINGSELECTION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER31, 2022. WE STRONGLY ENCOURAGE YOU TO USE THE EXTENT THERE ARE INSUFFICIENT VOTES ATENCLOSED WHITE PROXY CARD TO VOTE IN ACCORDANCE WITH THE SPECIAL MEETING TO APPROVE PROPOSAL 1.BOARD'S RECOMMENDATION.

AUDIT COMMITTEE REPORT

This report is furnished by the Audit Committee of the Board with respect to our financial statements for the year ended December 31, 2021.

One of the purposes of the Audit Committee is to oversee our accounting and financial reporting processes and the audit of our annual financial statements. Our management is responsible for the preparation and presentation of complete and accurate financial statements. Our independent registered public accounting firm is responsible for performing an independent audit of our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (U.S.) and for issuing a report on their audit.

In performing its oversight role, the Audit Committee has reviewed and discussed our audited financial statements for the year ended December 31, 2021 with our management. Management represented to the Audit Committee that our financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee has discussed with KPMG, our independent registered public accounting firm for the year ended December 31, 2021, the matters required to be discussed under Public Company Accounting Oversight Board standards. The Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding communications with audit committees concerning independence. The Audit Committee has discussed with KPMG its independence and concluded that the independent registered public accounting firm is independent from the Company and our management.

Based on the review and discussions of the Audit Committee described above, the Audit Committee recommended to the Board that our audited financial statements for the year ended December 31, 2021 be included in our annual report on Form 10-K for the year ended December 31, 2021 for filing with the Securities and Exchange Commission.

Audit Committee
Alan Levin, Chair
Eric Francois

Mark T. Giles

Jane H. Hollingsworth

EXECUTIVE OFFICERS

The table below sets forth, as of the date of this Proxy Statement, certain information concerning our executive officers. Biographical information for Dr. Cobuzzi is included under the heading, “Proposal No. 1—Election of Directors—AdditionalInformation About Current Directors and Board Nominees”.

William K. Hornung – Mr. Hornung serves as our Chief Financial Officer, a position he has held since September 2018. Prior to his appointment as Chief Financial Officer, Mr. Hornung served as the Chief Business Officer at Diffusion from July 2017 through September 2018. Previously, Mr. Hornung served as Chief Financial Officer of Contravir Pharmaceuticals from June 2014 to November 2015 and helped the company up-list to Nasdaq and raise nearly $30 million. Prior to Contravir, from 2002 through 2014 Mr. Hornung held positions of increasing responsibility with PTC Therapeutics, most recently serving as Vice President of Finance from April 2012 to March 2014. While at PTC Therapeutics, he oversaw the IPO process and raised more than $1 billion. From 1998 through 2002, Mr. Hornung was with Elan Pharmaceuticals (formerly The Liposome Company) in various financial roles. At Liposome and Elan he was responsible for strategic planning and operations of the company's UK-based European headquarters. Earlier in his career, Mr. Hornung worked for a clinical research organization where he was responsible for project management and nearly all financial aspects of the company. Mr. Hornung holds a Bachelor of Science in Accounting from the William Paterson State University of New Jersey.

Christopher D. Galloway, M.D. – Dr. Galloway has served as our Chief Medical Officer since October 2020. Prior to joining Diffusion, Dr. Galloway served as senior medical director in critical care for La Jolla Pharmaceutical Company from August 2018 to September 2020, where he chaired and oversaw La Jolla’s investigator-initiated and collaborative research programs and supported the commercial and medical teams in connection with the launch of GIAPREZA™(angiotensin II), which has been approved by the U.S. Food and Drug Administration as a vasoconstrictor to increase blood pressure in adults with septic or other distributive shock. Prior to his time at La Jolla, Dr. Galloway served as medical director for global clinical development at Rakuten Medical Inc. (f/k/a Aspyrian Therapeutics, Inc.), a biotechnology company developing cell-targeting investigative immuno-oncology therapies, from December 2016 to July 2018 and as medical affairs director within Merck & Co., Inc.’s immunotherapy division from August 2015 to November 2016. Dr. Galloway received his doctor of medicine from the University of Texas Medical Branch at Galveston, completed his residency in emergency medicine at Carolinas Medical Center in Charlotte, NC, and received a B.A. in biology from the University of Texas at Austin. He is licensed to practice medicine in the State of Colorado and is a diplomate of the American Board of Emergency Medicine.

Raven Jaeger – Ms. Jaeger has served as our Chief Regulatory Officer since May 2022. Prior to joining Diffusion, Ms. Jaeger served from April 2018 to May 2022 in positions of increasing seniority at BridgeBio, Inc., a publicly traded biopharmaceutical company developing treatments for genetic diseases and cancers with clear genetic drivers, as well as several of its affiliate companies, most recently serving as Senior Vice President, Regulatory Affairs. From 2011 to April 2018, Ms. Jaeger served in a variety of positions, most recently as Director, Regulatory Affairs, at Leadiant Biosciences Inc. (f/k/a Sigma-Tau Pharmaceuticals), a biopharmaceutical company specializing in the development of treatments for rare diseases. Prior to her time at Leadiant, Ms. Jaeger served in a variety of regulatory roles at ICON Clinical Research (f/ka ICON Development Solutions) and Nabi Biopharmaceuticals, Inc. She received a B.S. in natural sciences area with an emphasis in biology and biophysics from The Johns Hopkins University and her M.S. in biotechnology management from the University of Maryland University College.

William R. Elder – Mr. Elder has served as our General Counsel & Corporate Secretary since September 2020. Prior to joining Diffusion, Mr. Elder principally served as president and chief executive officer of BillyVonElds, LLC, a season-long and daily fantasy sports company, where he managed all corporate, legal, and operational aspects of the business from April 2019 to September 2020. From July 2020 to September 2020, Mr. Elder also served as a part-time consultant to Diffusion. From 2011 to February 2019, Mr. Elder served as a corporate and securities associate for Dechert LLP, an international law firm, where Mr. Elder’s practice focused primarily on counseling public companies on securities laws and regulatory requirements, corporate governance matters, and financial transactions in the equity and debt markets. He received his J.D. from the University of Pennsylvania Law School, an M.S. in finance from Villanova University, and a B.A. in economics from Tufts University.

No family relationships exist among any of our directors or executive officers.

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below provides summary compensation information concerning compensation awarded for service during the years ended December 31, 2021 and December 31, 2020 to the individuals that served as our named executive officers during the year ended December 31, 2021. Raven Jaeger, our current Chief Regulatory Officer, was appointed in May 2022 and did not receive any compensation from the Company during the years ended December 31, 2021 or 2020.

Employment Agreements

Robert J. Cobuzzi, Jr., Ph.D., President & Chief Executive Officer. Effective September 8, 2020, we entered into an employment agreement with Dr. Cobuzzi pursuant to which he serves as our President & Chief Executive Officer. The employment agreement has an indefinite term. Dr. Cobuzzi is currently entitled to an initial annual base salary of $410,000, subject to increase at the discretion of the Board. Dr. Cobuzzi has the opportunity to earn a target annual bonus of 50 percent of his base salary. The Board may, in its discretion, pay a portion of Dr. Cobuzzi’ annual salary and annual bonus in the form of equity or equity-based compensation, provided that commencing with the year following the year in which a “change of control” (as defined in the employment agreement) occurs, Dr. Cobuzzi’s entire base salary and annual bonus will be paid in cash. For 2021, Dr. Cobuzzi’s entire pro-rated base salary was paid in cash. The employment agreement contains certain severance and change of control provisions as described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements.” The employment agreement also contains certain non-competition and non-solicitation provisions (each applicable during employment and for 24 months thereafter), as well as confidentiality and non-disparagement provisions (each applicable during employment and at all times thereafter).

William K. Hornung, Chief Financial Officer. Effective September 21, 2018, we entered into an amended and restated employment agreement with Mr. Hornung pursuant to which he serves as our Chief Financial Officer. The employment agreement has an indefinite term. Mr. Hornung was entitled to an annual base salary of $298,100 during 2020, subject to increase at the discretion of the Board. Mr. Hornung has the opportunity to earn a target annual bonus of 35 percent of his base salary. The Board may, in its discretion, pay a portion of Mr. Hornung’s annual salary and annual bonus in the form of equity or equity-based compensation, provided that commencing with the year following the year in which a “change of control” (as defined in the employment agreement) occurs, Mr. Hornung’s entire base salary and annual bonus will be paid in cash. For 2021, Mr. Hornung’s entire base salary was paid in cash. The employment agreement contains certain severance and change of control provisions as described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements.” The employment agreement also contains certain non-competition and non-solicitation provisions (each applicable during employment and for 18 months thereafter), as well as confidentiality and non-disparagement provisions (each applicable during employment and at all times thereafter).

Christopher D. Galloway, Chief Medical Officer. Effective October 19, 2020, we entered into an employment agreement with Dr. Galloway pursuant to which he serves as our Chief Medical Officer. The employment agreement has an indefinite term. Dr. Galloway is entitled to an initial annual base salary of $375,000, subject to increase at the discretion of the Board. Dr. Galloway has the opportunity to earn a target annual bonus of 40 percent of his base salary. The employment agreement contains certain severance and change of control provisions as described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements.” The employment agreement also contains certain non-competition (applicable during employment and for 12 months thereafter) and non-solicitation provisions (applicable during employment and for 24 months thereafter), as well as confidentiality and non-disparagement provisions (each applicable during employment and at all times thereafter).

Raven Jaeger, Chief Regulatory Officer. Effective May 18, 2022, we entered into an employment agreement with Ms. Jaeger pursuant to which she serves as our Chief Regulatory Officer. The employment agreement has an indefinite term. Ms. Jaeger is entitled to an initial annual base salary of $400,000, subject to increase at the discretion of the Board. Ms. Jaeger has the opportunity to earn a target annual bonus of 35 percent of her base salary. The employment agreement contains certain severance and change of control provisions as described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements.” The employment agreement also contains certain non-competition (applicable during employment and for 12 months thereafter) and non-solicitation provisions (applicable during employment and for 24 months thereafter), as well as confidentiality and non-disparagement provisions (each applicable during employment and at all times thereafter).

William R. Elder, General Counsel & Corporate Secretary. Effective September 23, 2020, we entered into an employment agreement with Mr. Elder pursuant to which he serves as our General Counsel & Corporate Secretary. The employment agreement has an indefinite term. Mr. Elder is entitled to an initial annual base salary of $250,000, subject to increase at the discretion of the Board. Mr. Elder has the opportunity to earn a target annual bonus of 30 percent of his base salary. The Board may, in its discretion, pay a portion of Mr. Elder’s annual salary and annual bonus in the form of equity or equity-based compensation, provided that commencing with the year following the year in which a “change of control” (as defined in the employment agreement) occurs, Mr. Elder’s entire base salary and annual bonus will be paid in cash. For 2021, Mr. Elder’s entire pro-rated base salary was paid in cash. The employment agreement contains certain severance and change of control provisions as described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements.” The employment agreement also contains certain non-competition and non-solicitation provisions (each applicable during employment and for 24 months thereafter), as well as confidentiality and non-disparagement provisions (each applicable during employment and at all times thereafter).

Long-Term Equity Incentive Compensation and Other Compensatory Arrangements

The Compensation Committee administers the 2015 Equity Plan in which our named executive officers participate, the bonus payments made to our named executive officers provided for in the employment agreements described under the heading “—Employment Agreements,” and any other compensation-related matters as they otherwise determine in their discretion. The option grants made for service during 2020 to the named executive officers vest and become exercisable in equal (or as near equal as possible) installments over a 36-month period until fully vested, subject to their continued employment through the applicable vesting date.

During 2021, the Compensation Committee determined that 50% of any annual long-term equity incentive awards granted to our named executive officers for service during the year would be granted at the outset of the year in the form of performance-based options the vesting of which will be dependent on the achievement of specified performance metrics during the year of grant. The remaining 50 percent were granted in the form of option awards subject to time-based vesting early in the subsequent year (i.e. 2022) at the discretion of the Compensation Committee in accordance with past practice. In 2022, the Compensation Committee determined to return to the Company's historic practice of granting all such awards as options subject to time-based vesting.

2021 Bonus Compensation

Executive bonuses are determined by the Compensation Committee. The Compensation Committee determines whether bonuses are earned and the amounts of the bonus payout by considering a number of factors, the principal factor being based upon the performance goals developed by the Compensation Committee. Other important factors include clinical trial progress, business development activities, status of public filings, capital raising transactions, and stock price performance.

Outstanding Equity Awards at Fiscal Year End

Option Awards

The table below provides information regarding unexercised stock option awards held by each of our named executive officers that remained outstanding as of December 31, 2021. Unless otherwise indicated, each grant was awarded under our 2015 Equity Plan. Raven Jaeger, our current Chief Regulatory Officer, was appointed in May 2022 and did not hold any option awards as of December 31, 2021.

* - Non-plan based equity award grant made as an inducement to the individual’s acceptance of employment with Diffusion in accordance with Nasdaq Listing Rule 5635(c)(4).

** - Pursuant to the terms of the corresponding award agreements, two-thirds of the underlying shares originally granted were automatically forfeited due to the first patient in the ILD-DLCO Trial not being dosed on or before September 30, 2021. The Company announced dosing of the first patients in the ILD-DLCO Trial on December 16, 2021.

Restricted Stock Unit Awards

The table below provides information regarding restricted stock unit awards held by each of our named executive officers that remained outstanding as of December 31, 2021, if any. Each grant was awarded under our 2015 Equity Plan.

401(k) Retirement Plan

We maintain our 401(k) Plan pursuant to which all eligible employees are entitled to make pre-tax and after-tax contributions of their compensation. In addition, the Company makes discretionary matching contributions at a rate of 100% for contributions up to 3% of the participant’s eligible compensation and 50% for any additional contributions up to 5% of the participant’s eligible compensation. The matching contributions received by our named executive officers in 2021 and 2020 are reported in the “All Other Compensation” column of the Summary Compensation Table above.

Post-Termination Severance and Change in Control Arrangements

As described under the heading “—Employment Agreements,” we have entered into employment agreements with each of Drs. Cobuzzi and Galloway, Messrs. Hornung and Elder and Ms. Jaeger that provide for certain severance and change of control benefits, subject to the execution and non-revocation of a release of claims by the executive or his estate (as applicable).

Under Dr. Cobuzzi’s employment agreement, if his employment is terminated by us other than for “cause,” death or “disability,” or by Dr. Cobuzzi for “good reason” (as such terms are defined in the employment agreement), Dr. Cobuzzi will be entitled to any unpaid bonus earned in the year prior to the termination, a pro-rata portion of the bonus earned during the year of termination, continuation of base salary for 12 months, plus 12 months of COBRA premium reimbursement, provided that if such termination occurs within 60 days before or within 24 months following a “change of control” (as defined in the employment agreement), then Dr. Cobuzzi will be entitled to receive the same severance benefits as described above, except that he will receive (a) a payment equal to two times the sum of his base salary and the higher of his target annual bonus opportunity and the bonus payment he received for the year immediately preceding the year in which the termination occurred instead of 12 months of base salary continuation, and (b) a payment equal to 36 times the monthly COBRA premium for him and his eligible dependents instead of 12 months of COBRA reimbursements (the payments in clauses (a) and (b) are paid in a lump sum in some cases and partly in a lump sum and partly in installments over 12 months in other cases). In addition, if Dr. Cobuzzi’s employment is terminated by us without cause or by Dr. Cobuzzi for good reason, in either case, upon or within 24 months following a change of control, then Dr. Cobuzzi will be entitled to full vesting of all equity awards received by him from us (with any equity awards that are subject to the satisfaction of performance goals deemed earned at not less than target performance, and with any equity award that is in the form of a stock option or stock appreciation right to remain outstanding and exercisable for 24 months following the termination date (but in no event beyond the expiration date of the applicable option or stock appreciation right)).

Under the employment agreements for each of Dr. Galloway, Ms. Jaeger and Messrs. Hornung and Elder, in the event that the executive’s employment is terminated by us other than for “cause”, death or “disability” or upon the executive’s resignation for “good reason” (as such terms are defined in the applicable employment agreement), the applicable executive will be entitled to any unpaid bonus earned in the year prior to the termination, a pro-rata portion of the bonus earned during the year of termination, continuation of base salary for nine months, plus 12 months of COBRA premium reimbursement, provided that if such termination occurs within 60 days before or within 24 months following a “change of control” (as defined in the applicable employment agreement), then the executive will be entitled to receive the same severance benefits as described above, except that the executive will receive (a) a payment equal to 1.5 times the sum of the executive’s base salary and the higher of the executive’s target annual bonus opportunity and the bonus payment the executive received for the year immediately preceding the year in which the termination occurred instead of nine months of base salary continuation and (b) a payment equal to 18 times the monthly COBRA premium for the executive and any eligible dependents instead of 12 months of COBRA reimbursements (the payments in clauses (a) and (b) are paid in a lump sum in some cases and in installments over nine or 12 months in other cases). In addition, if the applicable executive’s employment is terminated by the Company without cause or by the applicable executive for good reason, in either case, upon or within 24 months following a change of control, then the applicable executive will be entitled to full vesting of all equity awards received by the executive from us (with any equity awards that are subject to the satisfaction of performance goals deemed earned at not less than target performance, and with any equity award that is in the form of a stock option or stock appreciation right to remain outstanding and exercisable for 24 months following the termination date (but in no event beyond the expiration date of the applicable option or stock appreciation right)).

Under the employment agreements for each of our current named executive officers, in the event that the executive’s employment is terminated due to his or her death or disability, the executive (or the executive’s estate) will be entitled to any unpaid bonus earned in the year prior to the termination, a pro-rata portion of the bonus earned during the year of termination, 12 months of COBRA premium reimbursement and accelerated vesting of (a) all equity awards received in payment of base salary or an annual bonus and (b) with respect to any other equity award, the greater of the portion of the unvested equity award that would have become vested within 12 months after the termination date had no termination occurred and the portion of the unvested equity award that is subject to accelerated vesting (if any) upon such termination under the applicable equity plan or award agreement (with performance goals deemed earned at not less than target performance, and with any equity award that is in the form of a stock option or stock appreciation right to remain outstanding and exercisable for 12 months following the termination date or, if longer, such period as provided under the applicable equity plan or award agreement (but in no event beyond the expiration date of the applicable option or stock appreciation right)).

Further, under the terms of the stock option agreements with our named executive officers, upon a completion of a “change of control” (as defined in the 2015 Equity Plan), options held by our named executive officers will become immediately vested and remain exercisable through their expiration date regardless of whether the holder remains in the employment or service of the Company after the change of control. Alternatively, in connection with a change of control, the Compensation Committee may, in its sole discretion, cash out the options.

PROPOSAL NO. 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION

Introduction

The Board is providing our stockholders with an advisory vote on executive compensation pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Exchange Act. This advisory vote, commonly known as a “say-on-pay” vote, is an annual, non-binding vote on the compensation paid to our named executive officers as described in this Proxy Statement under the heading “Executive Compensation”, including the Summary Compensation Table and the other related tables and narrative disclosure.

In general, our executive compensation program during the year ended December 31, 2021 was designed to, among other things, attract and retain executives who are important to the success of our company and the creation of value for our stockholders, create stockholder value by aligning executives’ interests with stockholders’ interests, and motivate and reward our executives for the achievement of company and individual performance objectives, the creation of stockholder value in the short and long term and their contributions, in general, to the success of our company by supporting a “pay-for-performance” philosophy.

Please read the “Executive Compensation” section of this Proxy Statement. That section of this Proxy Statement, which includes compensation tables and related narrative discussion, describes the compensation programs and policies for our named executive officers and the executive compensation decisions made by the Compensation Committee and the Board in 2021.

We are requesting stockholder approval of the compensation of our named executive officers as disclosed in this Proxy Statement. This “say-on-pay” vote gives our stockholders the opportunity to express their views on our executive compensation. The vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the compensation philosophy, policies and practices described in this Proxy Statement.

As this is an advisory vote, the outcome of the vote is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers, or otherwise. However, the Compensation Committee and the Board will take into account the outcome of the vote when considering future executive compensation decisions.

Proposed Resolution

Accordingly, the Board unanimously recommends that our stockholders vote in favor of the say-on-pay vote as set forth in the following advisory resolution at the Annual Meeting:

RESOLVED, that the stockholders of Diffusion Pharmaceuticals Inc. hereby approve, on an advisory basis, the compensation paid to the named executive officers during the year ended December 31, 2021, as described in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the “Executive Compensation” section, the Summary Compensation Table and the other related tables and narrative disclosure.

Board Recommendation

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. WE STRONGLY ENCOURAGE YOU TO USE THE ENCLOSED WHITE PROXY CARD TO VOTE IN ACCORDANCE WITH THE BOARD'S RECOMMENDATION.

DIRECTOR COMPENSATION

Overview of Director Compensation Program

As described in more detail under the heading “Corporate Governance—Compensation Committee—Responsibilities,” the Board has delegated to the Compensation Committee the responsibility, among other things, to establish and lead a process for the determination of compensation payable to our non-employee directors. The Compensation Committee makes recommendations regarding compensation payable to our non-employee directors to the entire Board, which then makes final decisions regarding such compensation. Dr. Cobuzzi, our Chief Executive Officer, is not compensated separately for serving on the Board while also serving as an employee.

As further described below, the principal elements of our non-employee director compensation program for 2021 included cash compensation in the form of annual cash retainers and long-term equity-based incentive compensation, in the form of stock options and restricted stock units.

Cash Compensation

The cash compensation paid to our non-employee members of the Board consists of the following cash retainers:

The annual cash retainers are paid in regular installments and otherwise in accordance with the Company’s standard payroll practices. The Compensation Committee has also reserved the right to make a portion of such payments in the form of equity rather than cash under certain conditions. During the fiscal year 2021, all retainers were paid in cash.

Long-Term Equity-Based Incentive Compensation

In addition to cash compensation, our non-employee directors receive long-term equity-based incentive compensation in the form of options to purchase shares of our common stock and restricted stock units. Upon a non-employee director’s initial appointment to the Board, he or she shall receive a stock option award to purchase a number of shares of common stock equal to 0.114% of our shares of common stock outstanding on the grant date, vesting in 18 equal monthly installments following his or her appointment to the Board. In addition, upon appointment he or she also receives a restricted stock unit award for an equivalent number of shares, vesting in six tri-monthly installments commencing on the 18-month anniversary of his or her appointment to the Board. Directors appointed prior to January 1, 2020 received the entirety of this initial appointment award in the form of an option.

In addition, each non-employee director annually receives a stock option award to purchase a number of shares of common stock equal to 0.114% of our shares of common stock outstanding on the grant date, vesting in equal monthly installments over one year, unless otherwise provided by the Compensation Committee.

All option awards granted to our non-employee directors have a ten-year term and an exercise price equal to the fair market value of our common stock on the grant date. 

Summary Director Compensation Table for Fiscal 2021

The table below provides summary information concerning the compensation of each individual who served as a non-employee director of the Company during the year ended December 31, 2021:

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Based on information available to us and filings with the SEC, the following table sets forth certain information regarding the beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) of our outstanding common stock as of the Record Date for (i) each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock, if any, (ii) each of our current directors;directors and nominees for director; (iii) each of our current named executive officers (as defined in Item 402(a)(3) of Regulation S-K under the Exchange Act); and (iv) all of our current directors, nominees for director, and named executive officers as a group. As of the date of this Proxy Statement,Record Date, no beneficial owner owned 5% or more of the shares of common stock then outstanding.

Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC and include voting or investment power with respect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares of common stock issuable under shares of preferred stock, stock options or warrants that are exercisable or convertible within 60 days of the Record Date are deemed outstanding for the purpose of computing the beneficial ownership percentage of the holder thereof, but are not deemed outstanding for the purpose of computing the beneficial ownership percentage of any other person. Ownership is based upon information provided by each respective director and officer and public documents filed with the SEC, including Forms 3 and 4, Schedules 13D and 13G and certain other documents, which information may not be accurate as of the Record Date.

Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over their shares of common stock, except for those jointly owned with that person’s spouse. Unless otherwise indicated below, the address of each person listed on the table is c/o Diffusion Pharmaceuticals Inc. 300 East Main Street, Suite 201, Charlottesville, Virginia 22902.

* Indicates less than 0.1%1.0%