UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended SeptemberJune 30, 20172023

OR

For the transition period from to

Commission file number: 000-55158001-38418

COCRYSTAL PHARMA, INC.

(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)

Registrant’s telephone number, including area code: (678)-892-8800877-262-7123

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[  ] ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule 12b212b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ No [X] ☒

Securities registered pursuant to Section 12(b) of the Act:

As of November 4, 2017,August 14, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 728,238,508.approximately 10,173,790.

COCRYSTAL PHARMA, INC.

FORM 10-Q FOR THE QUARTER ENDED SeptemberJUNE 30, 20172023

INDEX

Part I – FINANCIAL INFORMATION

Cocrystal Pharma, Inc.

COCRYSTAL PHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)thousands, except per share data)

TheSee accompanying notes are an integral part of these Condensed Consolidated Financial Statements.to condensed consolidated financial statements.

Cocrystal Pharma, Inc.COCRYSTAL PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSOPERATIONS

(unaudited)

(in thousands)thousands, except per share data)

TheSee accompanying notes are an integral part of these Condensed Consolidated Financial Statements.to condensed consolidated financial statements.

Cocrystal Pharma, Inc.COCRYSTAL PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

TheSee accompanying notes are an integral part of these Condensed Consolidated Financial Statements.to condensed consolidated financial statements.

Cocrystal Pharma, Inc.COCRYSTAL PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

TheSee accompanying notes are an integral part of these Condensed Consolidated Financial Statements.to condensed consolidated financial statements.

Cocrystal Pharma, Inc.COCRYSTAL PHARMA, INC.

Notes to the Condensed Consolidated Financial Statements

September 30, 2017NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1- 1. Organization and Significant Accounting PoliciesBusiness

The Company

Cocrystal Pharma, Inc. (“we”, the Company”“Company” or “Cocrystal”) is, a biotechnologyclinical stage biopharmaceutical company that developsincorporated in Delaware, has been developing novel medicines for use in the treatment of human viral diseases. Cocrystal has developed proprietary structure-based drug design technologytechnologies and antiviral nucleoside chemistryapproaches to create first-in-class or best-in-class antiviral drug candidates.candidates since its initial funding in 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates designed tothat will transform the treatment and/orand prophylaxis of hepatitis C virus, influenza virus and norovirus.viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors, we plan to leverage our infrastructure and expertise in these areas.

Cocrystal Pharma, Inc. was formerly incorporated in Nevada under the name Biozone Pharmaceuticals, Inc. On January 2, 2014, Biozone Pharmaceuticals, Inc. sold substantially all of its assets to MusclePharm Corporation (“MusclePharm”), and, on the same day, merged with Cocrystal Discovery, Inc. (“Discovery”) in a transaction accounted for as a reverse merger. Following the merger, the Company assumed Discovery’s business plan and operations. On March 18, 2014, the Company reincorporated in Delaware under the name Cocrystal Pharma, Inc.

Effective November 25, 2014, Cocrystal Pharma, Inc. and affiliated entities completed a series of merger transactions as a result of which Cocrystal Pharma, Inc. merged with RFS Pharma, LLC, a Georgia limited liability company (“RFS Pharma”). We refer to the surviving entity of this merger as “Cocrystal” or the “Company.”

The Company operates in only one segment. Management uses cash flow as the primary measure to manage its business and does not segment its business for internal reporting or decision-making.

The Company’s activities since inception have principally consisted principally of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s development programs, obtaining regulatory approvals of its products and, ultimately, achievingthe attainment of profitable operations areis dependent on future events, including, among other things, its ability to access potential markets, securingsecure financing, attracting, retainingdevelop a customer base, attract, retain and motivatingmotivate qualified personnel, and developingdevelop strategic alliances. Through SeptemberJune 30, 2017,2023, the Company has primarily funded its operations through equity offerings.

As ofIn September 30, 2017,2021, the Company had an accumulated deficitopened a wholly owned foreign subsidiary in Australia named Cocrystal Pharma Australia, Ltd (“Cocrystal Australia”) with the objective of $143.2 million. During the three and nine month periods endedoperating clinical trials in Australia.

On September 30, 2017,27, 2022, the Company had losses from operationsfiled a Certificate of $2.1 million and $6.4 million, respectively. Cash used in operating activities was approximately $5.3 million forAmendment to the nine months ended September 30, 2017. The Company has not yet establishedCertificate of Incorporation (the “Amendment”) with the Delaware Secretary of State to effect a reverse stock split of all outstanding shares of the Company’s common stock at a ratio of one-for-12. At the Company’s 2022 Annual Meeting of Stockholders, holders of a majority of the outstanding voting power approved an ongoing sourceamendment to the Certificate of revenue sufficient to cover its operating costs. The abilityIncorporation of the Company to continue aseffect a going concern is dependentreverse stock split of all outstanding shares of our common stock at a ratio to be determined by the Board of Directors within a range of one-for-four through one-for-12. Following such approval, the Board of Directors determined to effect the reverse stock split at the ratio of one-for-12. The Amendment became effective October 11, 2022 and the effect of the reverse stock split was reflected on the Company obtaining adequate capitalNasdaq Stock Market.

All share and per share amounts have been retroactively restated to fund operating losses untilreflect the one-for-12 stock split as if it becomes profitable. The Company can give no assurances that any additional capital that it is able to obtain, if any, will be sufficient to meet its needs, or that any such financing will be obtainable on acceptable terms. Ifoccurred at the Company is unable to obtain adequate capital, it could be forced to cease operations or substantially curtail its drug development activities. These conditions raise substantial doubt as tobeginning of the Company’s ability to continue as a going concern. The Company expects to continue to incur substantial operating losses and negative cash flows from operations over the next several years during its pre-clinical and clinical development phases.earliest period presented.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, theyS-X set forth by the Securities and Exchange Commission (“SEC”). They do not include all of the information and footnotesnotes required by U.S. GAAP for complete financial statement presentation.statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments)accruals) considered necessary for a fair presentation of the financial position,have been included. The results of operations and cash flows for the interim periods presented. Operating results for the nine month period ended September 30, 2017presented are not necessarily indicative of the results that may be expectedof operations for the year ending December 31, 2017 or any future interim periods. All intercompany accounts and transactions have been eliminated in consolidation.

These unaudited condensed financial statements should be read in conjunction withentire fiscal year. For further information, refer to the auditedconsolidated financial statements and footnotes thereto included in the Cocrystal Pharma, Inc. Annual ReportCompany’s annual report on Form 10-K for the year ended December 31, 2016 as2022 filed with the U.S. Securities and Exchange Commissionon March 29, 2023 (“SEC”Annual Report”). The accompanying condensed consolidated balance sheet as

Principles of September 30, 2017 has been derived from the audited financial statements as of that date, but does not include all of the information and notes required by GAAP.  Consolidation

The Company has evaluated subsequent events after the balance sheet date of September 30, 2017 through the date it has filed these unaudited condensed consolidated financial statements withinclude the SECaccounts of Cocrystal Pharma, Inc. and has disclosed all eventsits wholly owned subsidiaries: Cocrystal Discovery, Inc., Cocrystal Pharma Australia Pty Ltd., RFS Pharma, LLC and Cocrystal Merger Sub, Inc. Intercompany transactions and balances have been eliminated.

Segments

The Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its business for internal reporting or transactions that would require recognition or disclosures in these unaudited condensed consolidated financial statements.decision-making.

Our significant accounting policies and practices are presented in Note 2 to the financial statements included in the Form 10-K.

Use of Estimates

The preparationPreparation of the Company’s consolidated financial statements in conformityconformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that affectimpact the reported amounts of assets, liabilities, revenues and liabilitiesexpenses, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The significant estimates in the Company’s consolidated financial statements relate to the valuation of equity awards and derivative liabilities, recoverability of deferred tax assets, and estimated useful lives of fixed assets. The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $250,000 for each institution where accounts are held. At June 30, 2023 and December 31, 2022, our primary operating accounts held approximately $32,419,000 and $37,144,000, respectively, and our collateral account balance was $75,000 and $75,000 at a different institution. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof.

Foreign Currency Transactions

The Company and its subsidiaries use the U.S. dollar as functional currency. Foreign currency transactions are initially measured and recorded in the functional currency using the exchange rate on the date of the financial statementstransaction. Foreign exchange gains and losses arising from settlement of foreign currency transactions are recognized in profit and loss.

Cocrystal Australia maintains its records in Australian dollars. The monetary assets and liabilities of Cocrystal Australia are remeasured into the reported amountsfunctional currency using the closing rate at the end of expenses during theevery reporting period. Actual results could differAll nonmonetary assets and liabilities and related profit and loss accounts are remeasured into the functional currency using the historical exchange rates. Profit and loss accounts, other than those that are remeasured using the historical exchange rates, are remeasured into the functional currency using the average exchange rate for the period. Foreign exchange gains and losses arising from those estimates.the remeasurement into the functional currency is recognized in profit and loss.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,Leases(Topic 842). ASU 2016-02 impacts any entity that enters into a lease with some specified scope exceptions. This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The guidance updates and supersedes Topic 840,Leases. For public entities, ASU 2016-02 is effective for fiscal years, and interim periods with those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has not yet implemented this guidance. However, based on the Company’s current operating lease arrangements, the Company does not expect the adoption of this standard to have a material impact on its financial statements based upon current obligations.

In March 2016, the FASB issued ASU No. 2016-09,Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The Company adopted this standard as of January 1, 2017. The Company has elected to adopt the provisions of ASU No. 2016-09 that allow for stock option forfeitures to be recorded as they occur; however, adoption of this provision had no impact on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230). This standard addresses the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04,Intangibles - Goodwill and Other (Topic 350). This standard simplifies how an entity is required to test for goodwill impairment. ASU 2017-04 will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted after January 1, 2017. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.

In July 2017, the FASB issued ASU 2017-11,Accounting for Certain Financial Instruments with Down Round Features and Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of future equity offerings. Current accounting guidance requires financial instruments with down round features to be accounted for at fair value. Part II of the Update applies only to nonpublic companies and is therefore not applicable to the Company. The amendments in Part I of the Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. This Update is effective for public entities for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company has not yet determined when it will adopt the provisions of this Update and has not yet determined the impact on its consolidated financial statements upon adoption.

Note 2 – Fair Value Measurements

FASB Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principlesU.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

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

Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The Company categorizedcategorizes its cash equivalentsand restricted cash as Level 1 fair value measurements. The Company categorizedcategorizes its warrants potentially settleable in cash as Level 32 fair value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option-pricingoption pricing model as discussed in Note 4 below.7 – Warrants.

At June 30, 2023 and December 31, 2022, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, other assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The carrying values of leases payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

The Company’s derivative liabilities are considered Level 3 measurements.

Long-Lived Assets

The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.

Research and Development Expenses

Research and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the acquisition, design, development and testing of the Company’s clinical products. All research and development costs are expensed as incurred. Research and development costs are presented net of tax credits.

The Company’s Australian subsidiary is entitled to receive government assistance in the form of refundable and non-refundable research and development tax credits from the federal and provincial taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are from the provincial taxation authorities and are not dependent on its ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records refundable tax credits as a reduction of research and development expenses when the Company can reasonably estimate the amounts and it is more likely than not, they will be received. During the year ended December 31, 2022, the Company recorded tax credits of $805,000 as a reduction of research and development expense, of which approximately $716,000 was recorded as tax credit receivable as of the year then ended. The Company recorded an accrued tax credit receivable of $491,000 for the six months ended June 30, 2023, resulting in a tax credit receivable of $1,207,000 at June 30, 2023.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.

As of June 30, 2023, the Company assessed its income tax expense based on its projected future taxable income for the year ending December 31, 2023 and therefore recorded no amount for income tax expense for the six months ended June 30, 2023. In addition, the Company has significant deferred tax assets available to offset income tax expense due to net operating loss carry forwards which are currently subject to a full valuation allowance based on the Company’s assessment of future taxable income. Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for more information.

Stock-Based Compensation

The Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock options. The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized as expense over the requisite service period on a straight-line basis.

Use of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free interest rate. The Company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities since the Company’s common stock has limited trading history and limited observable volatility of its own. The expected term of the options is estimated by using the SEC Staff Bulletin No. 107’s Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds rates.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Net Income (Loss) per Share

The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants and the conversion of convertible notes payable.

The following table presentssets forth the number of potential common shares excluded from the calculations of net loss per diluted share because their inclusion would be anti-dilutive (in thousands):

Schedule of Antidilutive Securities Excluded from Calculations of Net Loss Per Share

Recent Accounting Pronouncements

Authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a summarymaterial impact on the Company’s consolidated financial statements and related disclosures.

3. Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated useful lives of fair valuesthe underlying assets (three to five years) using the straight-line method. As of assets and liabilities that are re-measured at fair value at each balance sheet date as of SeptemberJune 30, 20172023, and December 31, 2016,2022, property and their placement within the fair value hierarchy as discussed aboveequipment consists of (in thousands):

Schedule of Property and Equipment

Total depreciation and amortization expense were approximately $96,000 and $90,000 for the six months ended June 30, 2023 and 2022, which includes amortization expense of $7,164 and $7,716 for the six months ended June 30, 2023 and 2022, respectively, related to assets under finance lease. For additional finance leases information, refer to Note 9 – Commitments and Contingencies.

4. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands) as of:

Schedule of Accounts Payable and Accrued Expenses

Accounts payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that have been billed and estimated unbilled, respectively, as of period-end.

5. Common Stock

The Company has not transferred any financial instruments into or out of Level 3 classification during the nine months ended September 30, 2017 or 2016. A reconciliation of the beginning and ending Level 3 liabilities for the nine months ended September 30, 2017 and 2016 is as follows:

Note 3 – Stockholders’ equity

Common Stock — The Company has authorized up to 800,000,000150,000,000 shares of common stock, $0.001$0.001 par value per share, authorized as of June 30, 2023, and December 31, 2022. The Company had 728,238,50710,174 and 8,143 shares issued and outstanding as of SeptemberJune 30, 2017.2023, and December 31, 2022. The holders of common stock are entitled to one vote for each share of common stock held.

On April 20, 2017,4, 2023, the Company closed on proceedsentered into a Securities Purchase Agreement with two accredited investors (the “Purchasers”) pursuant to which the Purchasers purchased a total of $3,000,0002,030,458 shares of common stock at a price of $1.97 per share for a total purchase price of $4,000,000 in a private placement two equal $2,000,000 investments in an unregisteredoffering exempt from registration pursuant to Section 4(a)(2) of 12,500,000the Securities Act of 1933 and Rule 506(b) promulgated thereunder.

6. Stock Based Awards

Equity Incentive Plans

The Company adopted an equity incentive plan in 2015 (the “2015 Plan”) under which 833,333 shares of common stock have been reserved for issuance to employees, and nonemployee directors and consultants of the Company. Recipients of incentive stock options granted under the 2015 Plan shall be eligible to purchase shares of the Company’s common stock at a purchasean exercise price equal to no less than the estimated fair market value of $0.24 per share to three accredited investors, which included Chairman Dr. Raymond F. Schinazi and OPKO Health, Inc.,such stock on the date of whichgrant. The maximum term of options granted under the 2015 Plan is ten years. On June 16, 2021, the Company’s director Dr. Phillip Frost is Chairman and Chief Executive Officer.stockholders voted to approve an amendment to the 2015 Plan to increase the number of shares of common stock authorized for issuance under the 2015 Plan from 416,667 to 833,333 shares. As of June 30, 2023, 483,815 shares remain available for future grants under the 2015 Plan.

In July 2022, the Compensation Committee of the Company’s Board of Directors granted a total of 158,012 stock options with a fair value of $633,000 effective as of July 26, 2022. The Company granted the stock options to directors, executives, employees, and consultants. The options are ten-year incentive stock options exercisable at $0.42 per share and vesting as follows: one-half vested on the one-year anniversary of the grant date and the remainder vest in eight equal quarterly instalments on the last day of March, June, September and December, with the first such quarterly instalment having vested on June 30, 2023.

SharesThe following table summarizes stock option transactions for the 2015 Plan, collectively, for the six months ended June 30, 2023 (in thousands, except per share amounts):

Schedule of Share-based Compensation, Stock Options, Activity

The Company accounts for share-based awards to employees and nonemployee directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur. During the period ended June 30, 2023, the Company did not grant any stock options. For the three and six months ended June 30, 2023 and 2022, equity-based compensation expense recorded was $179,000 and $470,000 and $241,000 and $480,000 respectively.

The fair value of share option award is estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:

Schedule of Share-based Compensation, Stock Options, Assumption

As of June 30, 2023, there was approximately $582,000 of total unrecognized compensation expense related to non-vested stock options that is expected to be recognized over a weighted average period of 0.9 years. For options granted and outstanding, there were 350,000 options outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $0.00, a weighted average exercise price of $14.98 and weighted average remaining contractual term of 7.9 years at June 30, 2023. For vested and exercisable options, outstanding shares totaled 170,000, with an aggregate intrinsic value of $0.00. These options had a weighted average exercise price of $24.45 per share and a weighted-average remaining contractual term of 6.8 years at June 30, 2023.

The aggregate intrinsic value of outstanding and exercisable options at June 30, 2023 was calculated based on the closing price of the Company’s common stock authorizedas reported on The Nasdaq Capital Market on June 30, 2023 of $2.39 per share less the exercise price of the options. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.

Common Stock Reserved for Future Issuance

The following table presents information concerning common stock available for future issuance as follows as of September 30, 2017 (in thousands): as of:

The common stock authorizedSchedule of Common Stock Reserved for future option grants was not reserved by the Company. The Company currently does not have enough common stock authorized to issue all the options authorized by the Company for future grants.Future Issuance

7. Warrants

Note 4 – Warrants

The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the ninesix months ended SeptemberJune 30, 20172023 (in thousands):

Warrants consistSummary of warrants potentially settleable in cash, which are liability-classified warrants, and equity-classified warrants.Warrant Activity

Warrants classifiedClassified as liabilitiesLiabilities

Liability-classified warrants consist of warrants issued by Biozone Pharmaceuticals, Inc. (“Biozone”), the company’s predecessor, in connection with an equity financingsfinancing in October 2013 andwhich were assumed by the Company in connection with its merger with Biozone in January 2014 and potentially settleablewarrants issued by the Company in January 2014. Warrants accounted for as liabilities have the potential to be settled in cash and were determinedor are not to be indexed to the Company’s own stock and are therefore accounted for as liabilities.stock.

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of comprehensive lossoperations as changes in fair value of derivative liabilities.

The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of June 30, 2023:

Schedule of Fair Value of Warrants Classified as Liabilities

The Company’s expectedfair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2022:

The Company estimates volatility is based on a combination of implied volatilities of similar publicly traded entities given that the Company has limited history ofusing its own observablehistorical stock price.price volatility. The expected life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero couponzero-coupon rates in effect at the balance sheet date. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.

8. Licenses and Collaborations

Merck Sharp & Dohme Corp.

On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement, Merck funds research and development for the program, including clinical development, and will be responsible for worldwide commercialization of any products derived from the collaboration. Cocrystal is eligible to receive payments related to designated development, regulatory and sales milestones with the potential to earn up to $156,000,000, as well as royalties on product sales. Merck can terminate the Collaboration Agreement at any time prior to the first commercial sale of the first product developed under the Collaboration Agreement, in its sole discretion, without cause.

Kansas State University Research Foundation

Cocrystal entered into a License Agreement with Kansas State University Research Foundation (the “Foundation”) on February 18, 2020 to further develop certain proprietary broad-spectrum antiviral compounds for the treatment of norovirus and coronavirus infections.

Pursuant to the terms of the License Agreement, the Foundation granted the Company an exclusive royalty bearing license to practice under certain patent rights, under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how, including to make and sell therapeutic, diagnostic and prophylactic products.

The Company agreed to pay the Foundation a one-time non-refundable license initiation fee of $80,000 under the License Agreement, and annual license maintenance fees. The Company also agreed to make certain future milestone payments, dependent upon the progress of clinical trials, regulatory approvals, and initiation of commercial sales in the United States and certain countries outside the United States.

9. Commitments and Contingencies

Commitments

In the ordinary course of business, the Company enters into non-cancellable leases to purchase equipment and for its facilities, including related party leases (see Note 10 – Transactions with Related Parties). Leases are accounted for as operating leases or finance leases, in accordance with ASC 842, Leases.

Operating Leases

The Company leases office space in Miami, Florida and research and development laboratory space in Bothell, Washington under operating leases that expire on August 31, 2024 and January 31, 2024, respectively. For operating leases, the weighted average discount rate is 7.0% and the weighted average remaining lease term is 0.9 years.

The fair valuefollowing table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of June 30, 2023 (in thousands):

Schedule of Maturities of Operating Lease Liabilities

As of June 30, 2023, the total operating lease liability of $176,000 is classified as $166,000 current operating lease liabilities and $10,000 long term operating lease liabilities.

The operating lease liabilities summarized above do not include variable common area maintenance (the “CAM”) charges, which are contractual liabilities under the Company’s Bothell, Washington lease. CAM charges for the Bothell, Washington facility are calculated annually based on actual common expenses for the building incurred by the lessor and proportionately billed to tenants based on leased square footage. For the six months ended June 30, 2023 and 2022, approximately $54,000 and $47,000 of CAM was included in general and administrative operating expenses on the condensed consolidated statements of operations, respectively.

The minimum lease payments above include the amounts that would be paid if the Company maintains its Bothell lease for the five-year term, starting February 2019. The Company had the right to terminate this lease after three years on January 31, 2022, by giving prior notice at least three months before the early termination date and by paying a termination fee equal to the sum of unamortized leasing commissions and reimbursement for tenant improvements provided by the landlord amortized at 8.0% over the extended term.

On September 1, 2021, the Company entered into a three-year lease extension with a limited liability company controlled by Dr. Phillip Frost, a director and a principal stockholder of the warrants classified as liabilitiesCompany. On an annualized basis, straight-line rent expense is estimated usingapproximately $62,000, including fixed and estimable fees and taxes.

For the Black-Scholes option-pricing modelsix months ended June 30, 2023 and 2022, operating lease expense, excluding short-term leases, finance leases and CAM charges, totaled approximately $116,000 and $116,000, respectively, of which $26,000 for each period was to a related party.

Finance Leases

In April 2020, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $2,000 payable through March 31, 2023. The final payment under the lease agreement was made in March 2023. The Company is in contact with the following inputs aslessor to transfer title of September 30, 2017:the equipment to the Company.

The Company’s expected volatilityleased lab equipment is based on a combinationdepreciable over five years and is presented net of implied volatilities of similar publicly traded entities as well as including the Company's own common stock volatility, given that the Company has limited history of its own observable stock price. The expected life assumption is basedaccumulated depreciation on the remaining contractual termscondensed consolidated balance sheets under property and equipment. As of the warrants. The risk-free rateJune 30, 2023, total right-of-use lab equipment net of depreciation recognized under finance leases is based on the zero coupon rates in effect at the balance sheet date. The dividend yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.

Warrants classified as equity

Warrants that were recorded in equity at fair value upon issuance,$162,000 and are not reported as liabilities on the balance sheet, are included in the above table which shows all warrants.

Note 5 – Stock-based compensation

The Company recorded approximately $142,000 and $409,000 of stock-based compensation related to employee stock options for the three and nine months ended September 30, 2017. For the three and nine months ended September 30, 2016, stock option expense was a ($1,138,000) and $297,000, respectively. During the third quarter of 2016, the Company reversed $1,392,000 in stock option expenses related to non-vested options issued to two executives that left the organization. Expense for the remaining employees were only $254,000, resulting in the negative stock optiondepreciation expense for the threeSix months ended SeptemberJune 30, 2016.

2023 was $162,000. As of September 30, 2017, thereDecember 31, 2022, total right-of-use assets lab equipment exchanged for finance lease liabilities was $643,000$194,000 and accumulated depreciation for lab equipment under finance leases was $158,000. The remaining lab equipment under the finance lease terminated on March 31, 2023, and due to the leased equipment’s remaining 25 months of unrecognized compensation cost relateduseful life, it was transferred to outstanding options that is expectedfixed assets at book value of $32,000, and continues to be recognized asdepreciate.

Phase 2a Clinical Trial

On August 3, 2022 the Company engaged hVIVO, a componentsubsidiary of London-based Open Orphan plc (AIM: ORPH), a rapidly growing specialist contract research organization (“CRO”), to conduct a Phase 2a clinical trial with the Company’s novel, broad-spectrum, orally administered antiviral influenza candidate. The Company paid a reservation fee of $1.7 million upon execution of the Company’s operatingagreement, which is scheduled to begin in 2023 and has been included in prepaid and other expenses over a weighted average periodas of 1.50 years.

June 30, 2023 and December 31, 2022. The administratortotal estimated cost of the Company’s stock option plans determinesagreement (including the times when an option may become exercisable at the time of grant. Vesting periods of options granted to date have not exceeded five years. The options generally will expire, unless previously exercised, no later than ten years from the grant date. The Companyreservation fee) is using unissued shares for all shares issued for options and restricted share awards.approximately $7.2 million.

The following schedule presents activity in the Company’s outstanding stock options for the nine months ended September 30, 2017 (in thousands, except per share amounts):Contingencies

As of September 30, 2017, options to purchase 21,344,222 shares of common stock, with an aggregate intrinsic value of $2,874,000, were outstanding that were fully vested or expected to vest with a weighted average remaining contractual term of 4.1 years. As of September 30, 2017, options to purchase 20,464,222 shares of common stock with a weighted average exercise price of $0.24 per share and a weighted average remaining contractual term of 3.6 years were fully vested with an intrinsic value of $2,874,000.

The aggregate intrinsic value of outstanding and exercisable options at September 30, 2017 was calculated based on the closing price of the Company’s common stock as reported on the OTCQB market on September 29, 2017 of $0.27 per share less the exercise price of the options. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.

Note 6 – Net Loss per Share

The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260,Earnings Per Share. Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants. 

The following table sets forth the number of potential common shares excluded from the calculations of net loss per diluted share because their inclusion would be anti-dilutive (in thousands):

Note 7 - Mortgage Note Receivable

In June 2014, the Company acquired a mortgage note from a bank for $2,626,290 which is collateralized by, among other things, the underlying real estate and related improvements. The property subject to the mortgage is owned by an entity managed by Daniel Fisher, one of the founders of Biozone, and to the Company’s knowledge, is currently being occupied by Flavor Producers, Inc. in an instance where that company is not currently making rent payments. At September 30, 2017, the carrying amount of the mortgage note receivable was $1,294,000, consisting entirely of principal. The mortgage note has a maturity date of August 1, 2032 and bears an interest rate of 7.24%.

In 2014, Daniel Fisher and his affiliate, 580 Garcia Properties LLC, brought multiple lawsuits against the Company involving its predecessors and subsidiaries. The lawsuits have been settled and the complaints initiating them dismissed, without the Company making any payments to either Mr. Fisher or 580 Garcia Properties LLC. In addition, the mortgage note discussed above is a promissory note secured by a deed of trust under which 580 Garcia Properties LLC is the primary obligor. As of the time of the acquisition by the Company of the promissory note, 580 Garcia Properties LLC, was delinquent in its obligation to make certain monthly payments thereunder. Consequently, in December 2015, the Company issued notice of default letters to 580 Garcia Properties LLC, Daniel Fisher, and Sharon Fisher for said delinquencies, and proceeded in accordance with rights of a secured real estate creditor under California law, to initiate private foreclosure proceedings respecting the property, to foreclose under the promissory note secured by the deed of trust. A foreclosure sale was set in accordance with California law for January 27, 2017. Prior to the date of this foreclosure sale, Mr. Fisher filed a motion where he sought among other things an order of the court enjoining the foreclosure sale, alleging wrongdoing by the Company and Biozone Pharmaceuticals, Inc. and others that Mr. Fisher claims the Company has direct responsibility over. The court in the Fisher/Biozone Lawsuit heard oral argument on Mr. Fisher’s motion on March 2, 2017. On March 23, 2017, the court ordered further briefing by March 30, 2017 on the issue of whether to enjoin the foreclosure sale. On April 5, 2017, the court in the Fisher/Biozone Lawsuit entered a preliminary injunction barring the foreclosure sale until further order, and since that time the Company has engaged in settlement discussions with Mr. Fisher and 580 Garcia Properties LLC and others, to discuss an overall resolution of Fisher/Biozone claims of money damages allegedly caused to it by the transfer of occupants at the property, and Company efforts to either bring the promissory note to a performing status or to otherwise monetize the Company’s rights under the promissory note. The Company cannot offer any assurances as to when, or if, any settlement will be achieved, and the court has scheduled case management conferences to consider further proceedings, with the next case management conference set for November 30, 2017.

Because the Company intended to foreclose on the property and foreclosure was probable, in December 2016 the Company recognized an impairment on the mortgage note receivable of $1,176,000 to adjust the carrying value of the note to its fair value. The fair value of the note was determined by reference to the estimated fair value of the underlying property, which was determined based on analysis of comparable properties and recent market data. Furthermore, as a result of the Company’s plan to divest of this asset within the next twelve months, we are no longer recording interest income and the asset was reclassified from long-term to current at December 31, 2016.

Note 8 – Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate. The Company has recorded a net deferred tax liability of $20,462,000 as of September 30, 2017 and December 31, 2016 as it has not considered the deferred tax liability, which is related to acquired in-process research and development, to be a future source of taxable income in evaluating the need for a valuation allowance against its deferred tax assets due to the in-process research and development asset being considered an indefinite-lived intangible asset.

FASB ASC Topic 740,Income Taxes (“ASC 740”), prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes. As of September 30, 2017 and December 31, 2016, the Company had no unrecognized tax benefits.

The Company currently files income tax returns in the United States federal and various state jurisdictions. The Company is not currently under examination in any jurisdiction.

Note 9 - Contingencies

As a publicly traded company, fromFrom time to time, the Company may beis a party to, or otherwise involved in, legal proceedings and inquiries from regulators arising in the normal course of business. As of the date of this report, except as described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.

In June 2014,Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company acquiredin connection with the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. We retained counsel to defend us which has filed an answer to the complaint denying its material allegations, as well as a mortgage note from a bank, which is collateralized by,counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the underlying real estateCompany’s claims for coverage of the class and related improvements. At September 30, 2017,derivative litigations, and seeking money damages. On June 7, 2022, the carryingcourt filed a Stipulation and Order for Entry of Judgment in the amount of $1,359,064 in favor of Liberty (the “Judgment”) following summary judgment granted by the mortgage note receivable was $1,294,000, consisting entirelycourt to Liberty on all but one of principal.the matters at issue in the case. The Company is currentlyfiled an appeal in legal proceedings regardingJuly 2022 and paid $1.6 million into the mortgage note receivableregistry of the court (the “Deposit”) which stayed execution of the Judgment. On March 29, 2023, the Third Circuit ruled in favor of the Company on the appeal, thereby vacating the trial court’s prior grant of summary judgment in favor of Liberty. As a result of this ruling, the case has been remanded to the District Court for trial on the merits of the Company’s coverage claims for defense and collateralized real estate (see Note 7).settlement costs. On July 18, 2023 the District Court issued an order establishing deadlines for certain pre-trial matters and setting a trial date of December 4, 2023 for the new trial. The Court has ordered the return of the $1.6 million Deposit to Cocrystal. In July 2023, the Company filed the appropriate administrative forms with the court registry for the return of the Deposit and anticipates receipt of the $1.6 million Deposit in the third quarter of 2023.

Note 10 - 10. Transactions with Related Parties

Since November 2014,On September 1, 2021, the Company has leased its Tucker, Georgia facility fromentered into a three-year lease extension with a limited liability company ownedcontrolled by oneDr. Phillip Frost, a director and a principal stockholder of Cocrystal’s directors and principal shareholder, Dr. Raymond Schinazi. The annual expense for this lease is estimated to be $233,000. The present lease expired June 30, 2017 and the Company is currently on a month-to-month term. The totalCompany. On an annualized basis, straight-line rent expense was $51,000is approximately $62,000, including fixed and $162,000 for the threeestimable fees and nine months ended September 30, 2017 and $59,000 and $177,000 for the three and nine months ended 2016, respectively.taxes.

Emory University: The Company has an exclusive license from Emory University for use of certain inventions and technology related to inhibitors of HCV that were jointly developed by Emory and Company employees. The License Agreement is dated March 7, 2013 wherein Emory agrees to add to the Licensed Patents and Licensed Technology Emory’s rights to any patent, patent application, invention, or technology application that is based on technology disclosed within three (3) years of March 7, 2013. The agreement includes payments due to Emory ranging from $40,000 to $500,000 based on successful achievement of certain drug development milestones. Additionally, the Company may have royalty payments at 3.5% of net sales due to Emory with a minimum in year one of $25,000 and increase to $400,000 in year five upon product commercialization. One of the Company’s Directors, Dr. Raymond Schinazi, is also a faculty member at Emory University and may share in these royalty payments with Emory.

On February 2, 2016,April 4, 2023, the Company entered into a Securities Purchase Agreement with two accredited investors (the “Purchasers”) whereby the Purchasers agreed to purchase a total of 2,030,458 shares of unregistered common stock at a price of $1.97 per share for a total purchase price of $4,000,000 in two equal $2,000,000 investments. The Purchasers were an agreement with Duke Universityentity controlled by a director and Emory University to license various patents and know-how to use CRISPR/Cas9 technologies for developing a possible cure for hepatitis B virus (HBV) and human papilloma virus (HPV). another investor who subsequently joined the Company’s Board of Directors.

11. Subsequent Event

On September 25, 2017 (“Termination Date”),August 8, 2023, the Company mutually terminatedreceived $1.6 million refunded by the agreement with Duke University and there are no further rights or obligations under this license agreement afterregistry of the Termination Date.court in regard to the Liberty matter (See Note 9 - Contingencies).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Cocrystal Pharma, Inc. (the “Company” or “Cocrystal”) is a clinical-stage biotechnology company workingseeking to discover and develop novel medicinesantiviral therapeutics as treatments for use in the treatment of humanserious and/or chronic viral diseases. Cocrystal has developed proprietaryWe employ unique structure-based drug design technologytechnologies and antiviral nucleoside chemistryNobel Prize winning expertise to create first-in-classfirst- and best-in-class antiviral drug candidates. Our focus isdrugs. These technologies are designed to pursue the developmentefficiently deliver small molecule therapeutics that are safe, effective and commercialization of broad-spectrumconvenient to administer. We have identified promising preclinical and clinical-stage antiviral drug candidates that will transform the treatment and/or prophylaxis ofcompounds for unmet medical needs including influenza virus, coronavirus, norovirus and hepatitis C virus norovirus,(“HCV”).

Impact of Inflation

The Company does not believe that inflation has had a material effect on its operations to date, other than the impact of inflation on the general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary pressures in the future, which could have a material effect on increasing the Company’s operating costs, and influenza virus. By concentrating our researchwhich would put additional stress on the Company’s working capital resources.

Research and development efforts on viral replication inhibitors, we plan to leverage our infrastructure and expertise in these areas.Development Update

Highlights

During the last ninesix months ended June 30, 2023 the Company focusedcontinued to focus its research and development efforts primarily in three areas:areas.

Influenza infections

We have several candidates under development for the treatment of influenza infection. CC-42344, a novel oral PB2 inhibitor, was selected as a preclinical lead for the treatment of pandemic and seasonal influenza A, and was advanced to a Phase 1 clinical trial in 2022 as described in more detail below. This candidate binds to a highly conserved PB2 site of influenza polymerase complex (PB1: PB2: PA) and exhibits a novel mechanism of action. CC-42344 showed excellent antiviral activity against influenza A strains, including avian pandemic strains and Tamiflu and Xofluza resistant strains, and has favorable pharmacokinetic and drug resistance profiles.

In March 2022 enrollment was initiated in a randomized, double-blind, placebo-controlled Phase 1 study of CC-42344, which was conducted in Australia. In April 2022 we announced preliminary results from the first two cohorts of the single-ascending dose portion of the study in which CC-42344 demonstrated a favorable safety and pharmacokinetic profile. In December 2022, we reported favorable safety and tolerability results from a Phase 1 study of CC-42344 for the treatment of both pandemic and seasonal influenza A. Preparations are underway to initiate a Phase 2a human challenge clinical trial with CC-42344 as an oral treatment for influenza A.

In addition, novel inhibitors effective against both influenza strains A and B have been identified and are in the preclinical stage. Several of these have potencies approaching single-digit nanomolar. On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) to discover and develop certain proprietary influenza A/B antiviral agents. See “Note 8. Licenses and Collaborations-Merck Sharp & Dohme Corp.” in the footnotes accompanying the financial statements contained in this report for more information.

In January 2021, we announced that we completed all research obligations under the Merck exclusive worldwide license and collaboration agreement, and that Merck would be solely responsible for further development of the influenza A/B antiviral compounds that were discovered using Cocrystal’s unique structure-based technologies and Nobel Prize-winning expertise. In early 2023, Merck reported that it is continuing development of the influenza A/B antiviral compounds under the terms of our Collaboration Agreement and is legally protecting the intellectual property for both companies of the compounds covered under the collaboration.

Coronavirus infections

In October 2022, we announced the selection of a novel, broad-spectrum antiviral drug candidate CDI-988 for clinical development as an oral treatment for SARS-CoV-2, the virus that causes COVID-19. CDI-988 targets a highly conserved region in the active site of SARS-CoV-2 main (3CL) protease required for viral replication and was specifically designed and developed as an oral antiviral candidate for COVID-19 using Cocrystal’s proprietary structure-based drug discovery platform technology.

In January 2022, we announced the selection of two investigational novel antiviral drug candidates, CDI-988 and CDI-873, for further development as oral treatments for coronaviruses, including SARS-CoV-2, the virus that causes COVID-19. Both compounds exhibited superior in vitro potency against SARS-CoV-2 with activity maintained against variants of concern. In preclinical studies, both candidates demonstrated a favorable safety profile and pharmacokinetic properties supportive of daily oral dosing. We are preparing for a randomized, double-blind, placebo-controlled Phase 1 study of CDI-988 later this year.

Norovirus Infections

We have developed CDI-988 as a dual broad-spectrum antiviral inhibitor that targets a highly conserved region in the active site of coronavirus, norovirus, and other 3CL viral proteases. In August 2023, we announced the selection of CDI-988 as our lead norovirus infection oral candidate. Our planned randomized, double-blind, placebo-controlled Phase 1 study of CDI-988 for coronavirus is also expected to serve our requirements of a norovirus Phase 1 study.

Results of Operations for the Three and Nine monthsSix Months Ended SeptemberJune 30, 20172023 compared to the Three and Nine monthsSix Months Ended SeptemberJune 30, 20162022

Research and Development Expense

Research and development expense consists primarily of compensation-related costs for our employees dedicated to research and development activities and for our Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs. We expectcosts related to our research and development expenses to increase in future periods as we expand our clinical and pre-clinical development activities.programs.

Total research and development expenses were approximately $1,393,000 for the three months ended SeptemberJune 30, 2017, compared with $2,093,000 for the three months ended September 30, 2016.2023, and 2022 were $2,801,000 and $2,361,000, respectively. The decreaseincrease of $700,000, or 33%,$440,000 was primarily due to our Influenza CC-42344 product candidate moving from a Phase 1 to Phase 2a clinical trial. In addition, the reductionpreparation of CDI -988 Covid 19 and norovirus programs moving into clinical trial resulted in phase I clinical trials as these costs were primarily incurred during 2016.higher research and development expenses in the 2023 period.

Total research and development expenses were approximately $4,718,000 for the ninesix months ended SeptemberJune 30, 2017, compared with $7,803,0002023 and 2022 were $6,708,000 and $5,233,000, respectively. The increase of $1,475,000 was primarily due to preparations for the nine months ended September 30, 2016. The decrease of $3,085,000 or 40%, was predominately due to the conclusion of phase I ofCC-42344 Phase 2a clinical trial for pandemic and seasonal influenza A, and our oral CDI-988 Covid-19 and norovirus clinical lead moving toward clinical trials in 2016.and reduced by tax credits of $491,000 for research and development expenses.

General and Administrative Expense

General and administrative expense includesexpenses include compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses.

General and administrative expenses were $717,000 for the three months ended SeptemberJune 30, 2017, compared with negative expense 2023, and 2022 were $1,538,000 and $1,375,000, respectively. The increase of $199,000$163,000 was primarily due professional fees and general corporate cost increases.

General and administrative expenses for the six months ended June 30, 2023 and 2022 were $2,742,000 and $2,708,000, respectively. The increase of $34,000 was primarily due to professional fees and general corporate cost increases.

There was no impairment for six months ended June 30, 2023. On June 30, 2022, the carrying value of the reporting unit exceeded the market capitalization of the Company resulting in goodwill impaired in its entirety and the Company recorded a $19,092,000 non-cash impairment.

During the three and six months ended June 30, 2022 the Company paid $1.6 million into the registry of the court that was expensed as legal settlement. See “Note 9. Commitments and Contingencies” in the footnotes accompanying the financial statements contained in this report for more information on this litigation.

Interest Income (Expense), Net

Interest income (expense) for the three months ended SeptemberJune 30, 2016. This increase of $916,000,2023 and 2022 was $140,000 and $0, respectively, and for the six months ended June 30, 2023 and 2022 was $140,000 and ($1,000), respectively. The interest income was primarily the result of the negative general and administrative expense for the three months ended September 30, 2016. This negative expense was due to reversal of stock-based compensation expense associated with options that were forfeited by two of the Company’s executives that left the organization during the quarter which had not vested. Because we assumed a zero forfeiture rate and none of these options had vested prior to forfeiture, expense associated with these options that had been recorded in previous periods was reversed during the three months ended September 30, 2016.

General and administrative expenses were approximately $1,712,000 for the nine months ended September 30, 2017, compared with $3,630,000 for the nine months ended September 30, 2016. The decrease of $1,918,000, or 53%, was due to an insurance reimbursement of prior legal costs, a non-cash reversal of stock compensation expense related to unvested options for the former General Council and Interim CFO that left the Company during 2017, a decrease in compensation costs due to staffing turnover, and a general decrease in legal costs.

Interest Income/Expense

For the three months and nine months ended September 30, 2017, the Company had interest expense of $2,000 and $1,000, respectively. Conversely, for the three months and nine months ended September 30, 2016, the Company had interest income of $51,000 and $141,000, respectively. These amounts representfrom interest earned on the mortgage note the Company acquiredcash in June 2014. The key objectives of our investment policy are to preserve principal and ensure sufficient liquidity, so our invested cash may not earn as high a level of income as longer-term or higher risk securities, which generally have less liquidity and more volatility.bank.

Other Income (Expense)

Other Income/Expense

For the three months ended September 30, 2017 and 2016, the Company had total other income (expense), net, of ($150,000) and $13,000, respectively. For the nine months ended September 30, 2017 and 2016, the Company had other income, net, totaling $620,000 and $2,313,000, respectively. Other income (expense) consists primarily of the change in fair value of the outstanding warrants to purchase our common stock that are accounted for as liabilities. Under accounting principles generally accepted in the United States,In accordance with U.S. GAAP, we record other income or expense forbased upon the computed change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period. If the fair value of the warrants decreases during the period, we record other income.liabilities. The fair value of our outstanding warrants is inversely related to the fair value of the underlying common stock; as such, a decreasean increase in the fair valueprice of our common stock during a given period generally results in other income while an increaseexpense. Conversely, a decrease in the price of our common stock generally results in other income. The change in the fair value of our common stock resultsderivative liabilities for the six months ended June 30, 2023 and 2022 was $0 and $12,000, respectively.

In 2022, the Company established a wholly owned subsidiary in other expense. This otherAustralia, making it subject to foreign exchange rate fluctuations. Foreign exchange loss during the six months ended June 30, 2023 and 2022 was $45,000 and $14,000, respectively.

Income Taxes

No income tax benefit or expense is non-cash. We believe investors should focus on our operating loss rather than net losswas recognized for the periods presented. Our operating lossthree and six months ended June 30, 2023 and 2022. The Company’s effective income tax rate was 0.00% for the three and ninesix months ended SeptemberJune 30, 2017 was $2,110,0002023 and $6,430,000, respectively, compared to $1,894,000 and $11,433,000 for the same periods in 2016, respectively.

Income Taxes

2022. As a result of ourthe Company’s cumulative losses, we havemanagement has concluded that a full valuation allowance against ourthe Company’s net deferred tax assets is appropriate. We have recorded a net deferred tax liability of $20,462,000 as of September 30, 2017 and December 31, 2016 as we have not considered the deferred tax liability, which is related to acquired in-process research and development, to be a future source of taxable income in evaluating the need for a valuation allowance against our deferred tax assets due to the in-process research and development asset being considered an indefinite-lived intangible asset.

Net Loss

As a result of the above factors, net loss for the three and ninesix months ended SeptemberJune 30, 2017, we had2023 was $4,166,000 and $9,355,000, respectively, compared with a net loss for the three and six months ended June 30, 2022 was $24,428,000 and $28,636,000, respectively, as a result of $2,260,000developments related to our expenses described above. In addition, in the three and $5,810,000 comparedsix months ended June 30, 2022 the Company recorded a $19,092,000 impairment of goodwill related to a significant decrease in our stock price during those periods, resulting in an overall reduction in market capitalization and our recorded net lossbook value exceeding our market capitalization as of $1,881,000 and $9,120,000 forJune 30, 2022, with no similar charge in the same periods in 2016.corresponding 2023 periods.

Liquidity and Capital Resources

Net cash used in operating activities was $5,323,000$8,659,000 for the ninesix months ended SeptemberJune 30, 2017 2023 compared to $12,354,000 with net cash used in operating activities of $7,634,000 for the same period in 2016. For2022. This increase was primarily due to completion of our Influenza A Phase 1 clinical trial and preparation for our anticipated Influenza A Phase 2a clinical trial and COVID-19 Phase 1 clinical trial in 2023.

We used $59,000 net cash for investing activities during the ninesix months ended SeptemberJune 30, 2016,2023 compared with no net cash used by operating activities consisted primarily of $5,810,000 in operating expenses net of changes in operating assets and liabilities.

Net cash used in investing activities was $52,000 for the nine months ended September 30, 2017 compared to $32,000 for the same period in 2016.2022. For the ninesix months ended SeptemberJune 30, 2017, net cash used for investing activities consisted primarily2023 the level of investments increased compared with June 30, 2022 due to capital spending of $40,000 and the payment of long-term deposits of $12,000. For the nine months ended September 30, 2016, net cash used for investing activities of $32,000 consisted mostly of capital spending totaling $49,000 and payment of long-term deposits of $23,000, net of $40,000 in principal payments received on our mortgage note receivable.expenditure to replace laboratory equipment require to due age.

Net cash provided by financing activities was $3,080,000totaled $3,993,000 for the ninesix months ended SeptemberJune 30, 2016 2023 compared towith net cash provided byused in financing activities of $9,016,000 $13,000 for the same period in 2016. For2022. On April 4, 2023, the nine months ended September 30, 2017, cash provided by financing activities resulted from ourCompany raised $4,000,000 in a private placement sale of common stock, which resulted in proceeds of $3,000,000 and $80,000 from the exercising of stock options. Net cash provided by financing activities for the nine months ended September 30, 2016 amounted to approximately $9,013,000 in proceeds from sale2,030,458 shares of our common stock and $3,000stock.

The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs. The Company had $32,419,000 unrestricted cash on June 30, 2023. The Company believes it has sufficient cash to maintain planned operations for more than the exercise of stock options.next 12 months.

We have a history of operating losses as we have focused our efforts on raising capital and research and development activities. activities, including through collaborations with suitable partners. We have been profitable on a quarterly basis but have never been profitable on an annual basis. We have no products approved for sale and have incurred operating losses and negative operating cash flows on an annual basis since inception.

The Company’s interim consolidated financial statements are prepared using generally accepted accounting principles in the U.S.United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Historically, public and private equity offerings have been our principal source of liquidity.

The Company has never been profitable, hasis party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. During January 2021, the Company sold 1,030,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2,072,000. There were no products approved for sale, has not generated any revenues to date from product sales and has incurred significant operating losses and negative operating cash flows since inception. Forunder the nineATM Agreement during the six months ended SeptemberJune 30, 2017,2023.

On April 4, 2023, the Company recordedentered into a net lossSecurities Purchase Agreement with two accredited investors (the “Purchasers”) pursuant to which the Purchasers purchased a total of approximately $5.8 million and used approximately $5.3 million2,030,458 shares of cashcommon stock at a price of $1.97 per share for operating activities.

Asa total purchase price of September 30, 2017, the Company had $1.3 million$4,000,000 in cashtwo equal $2,000,000 investments in an unregisteredoffering exempt from registration pursuant to fund its operations. The Company does not believe its current cash balances will be sufficient to allow the Company to fund its operating plan for the next twelve months. The abilitySection 4(a)(2) of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations or substantially curtail its drug development activities. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverabilitySecurities Act of 1933 and classification of recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern.Rule 506(b) promulgated thereunder.

As the Company continues to incur losses, achieving profitability is dependent upon the successful development, approval and commercialization of its product candidates, and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional private or public equity offerings. The Company continues to engage in preliminary discussionsofferings and through arrangements with potential investors and broker-dealers but no terms have been agreed upon.strategic partners or from other sources. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all. Anyall, and any equity financing may be very dilutive to existing shareholders.stockholders.

Tabular Disclosure of Contractual Obligations

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the future effectiveness of our product candidates, our plans for the future development of preclinical and clinical drug candidates, the expected time of achieving certain value driving milestones in our programs, including reporting the results of the Phase 1 study and commencing the Phase 2a clinical study for our Influenza A program, and progressing our COVID-19 and norovirus programs towards clinical development, activities,our expectations regarding future equity offering, cash flow deficitoperating results and liquidity. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include the continued strengthrisks and uncertainties arising from the risks arising from inflation, interest rate increases, the recent banking crisis, the possibility of a recession and the market for bio pharma equity offerings, unanticipated events which adversely affectUkraine war on our Company, our collaboration partners, and on the timingU.S., U.K., Australia and success of our regulatory filings, failure to develop products which are deemed safeglobal economies, including manufacturing and effectiveresearch delays arising from raw materials and labor shortages, supply chain disruptions and other issues which affectbusiness interruptions including any adverse impacts on our ability to commercializeobtain raw materials and test animals as well as similar problems with our vendors and our current and any future CROs and contract manufacturing organizations (CMOs), the ability of our CROs to recruit volunteers for, and to proceed with, clinical studies, our reliance on Merck for further development in the influenza A/B program under the license and collaboration agreement, our and our collaboration partners’ technology and software performing as expected, financial difficulties experienced by certain partners, the results of any current and future preclinical and clinical trials, general risks arising from clinical trials, receipt of regulatory approvals, regulatory changes, development of effective treatments and/or vaccines by competitors, including as part of the programs financed by governmental authorities, potential mutations in a virus we are targeting which may result in variants that are resistant to a product candidates.candidate we develop, and the outcome of the ongoing litigation with Liberty. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2016.2022. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Critical Accounting Policies and Estimates

In our Annual Report on Form 10-K for the year ended December 31, 2016,2022, we disclosed our critical accounting policies and estimates upon which our financial statements are derived. There have been no changes

Accounting estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from these policies since December 31, 2016. estimates.

Readers are encouraged to review these disclosures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 in conjunction with the review of this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK

There has been no material change in our assessment of sensitivity to market risk since our presentation set forth in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management,We carried out an evaluation, under the supervision and with the participation of our Chiefmanagement, including our Co-Chief Executive OfficerOfficers and our Chief Financial Officer, have evaluatedof the effectiveness of the Company’sour disclosure controls and procedures, (asas defined in Rules 13a-15(e) and 15d-15(e) underof the Securities Exchange Act of 1934 as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Reportreport. Based on Form 10-Q. Ourthat evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures are designedas of June 30, 2023 were effective to provide reasonable assuranceensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controlsCommission’s rules and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a companyforms.