What changed in this filing

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Item 9A. Controls and Procedures

2021-03-17 compared with 2020-03-27 · 30 added, 1138 removed, 86 unchanged (93% of the section changed)

32 unchanged sentences

in Internal Control Over Financial Reporting

input and oversight from the Audit Committee, management implemented a remediation plan to ensure that control deficiencies contributing

to the material weaknesses for the year ended December 31, 2018 were remediated such that these controls now operate effectively.

These remediation actions included:

the implementation of additional review procedures designed to enhance the control owner’s execution of controls activities, including entity level controls, through the implementation of improved documentation standards evidencing execution of these controls, oversight, and training;

improvement of the control activities and procedures associated with the review of complex accounting areas, including proper segregation of duties and assigning personnel with the appropriate experience as preparers and reviewers over analyses relating to such accounting areas;

educating and re-training control owners regarding internal control processes to mitigate identified risks and maintaining adequate documentation to evidence the effective design and operation of such processes;

implementing enhanced controls to monitor the effectiveness of the underlying business process controls that are dependent on the data and financial reports generated from the relevant information systems.

Other Information

TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

of Directors and Stockholders

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheets of Cocrystal Pharma, Inc.

(the “Company”) and subsidiaries

as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’

equity, and cash flows

for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the

Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity

with accounting principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an

opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered

with the Public Company Accounting Oversight Board of the United States “(“PCAOB”) and are required to be independent

with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the

Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether

due to error or fraud.

audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis,

evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the

accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the

consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Weinberg & Company

have served as the Company’s auditor since 2019.

Angeles, California

BALANCE SHEETS

thousands, except per share data)

December 31, 2019

December 31, 2018

Current assets:

Restricted cash

Accounts receivable

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets, net (including $40 to related party)

Liabilities and stockholders’

Current liabilities:

Accounts payable and accrued expenses

Current maturities of finance lease liabilities

Current maturities of operating lease liabilities (including $59 to related party)

Derivative liabilities

Total current liabilities

Long-term liabilities:

Finance lease liabilities

Operating lease liabilities (including $40 to related party)

Total long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’

Common stock, $.001 par value;

100,000 and 100,000 shares authorized as of December 31, 2019 and December 31, 2018;

35,150 and 29,938 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

accompanying notes to consolidated financial statements.

STATEMENTS OF OPERATIONS

thousands, except per share data)

Collaboration revenue

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other (expense) income:

Interest expense, net

Gain on settlement of mortgage note receivable

Loss on disposal of property and equipment

Change in fair value of derivative liabilities

Total other income, net

Loss before income taxes

Income tax benefit

Net loss per common share:

Loss per share, basic and diluted

Weighted average number of common shares outstanding, basic and diluted

accompanying notes to consolidated financial statements.

STATEMENTS OF STOCKHOLDERS’

Stockholders’

Balance as of December 31, 2017

Stock-based compensation

Exercise of common stock options

Sale of common stock, net of transaction costs

Convertible debt instruments

Balance as of December 31, 2018

Stockholders’

Balance as of December 31, 2018

Stock-based compensation

Sale of common stock, net of transaction costs

Balance as of December 31, 2019

accompanying notes to consolidated financial statements.

STATEMENTS OF CASH FLOWS

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

Amortization of right of use assets

Stock-based compensation

Interest expense, net

Loss on impairment goodwill

Loss on impairment of in process research and development

Gain on settlement of mortgage note receivable

Loss on disposal of property and equipment

Payments on operating lease liabilities

Change in fair value of derivative liabilities

Gain on mortgage note receivable

Deferred income tax benefit

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Deferred rent

Net cash used in operating activities

Investing activities:

Purchases of property and equipment

Proceeds from settlement of mortgage note receivable

Net cash (used in) provided by investing activities

Financing activities:

Payments of finance lease obligations

Proceeds from sale of common stock, net of transaction costs

Proceeds from issuance of convertible notes

Proceeds from exercise of stock options

Net cash provided by financing activities

Net increase in cash and restricted cash

Cash and restricted cash at beginning of period

Cash and restricted cash at end of period

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

Purchases of property and equipment under capital leases

Recognition of operating lease right-of-use assets and operating lease liabilities upon adoption of ASC Topic 842, Leases

Issuance of commons stock upon conversion of notes payable

accompanying notes to consolidated financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Business

(“we”, the “Company”

or “Cocrystal”), a biopharmaceutical company, has been developing

novel technologies and approaches to create first-in-class and best-in-class antiviral drug candidates since its initial funding

Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform

the treatment and prophylaxis of 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.

Company was formerly incorporated in Nevada under the name Biozone Pharmaceuticals, Inc.

(“Biozone”).

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.

in a transaction accounted for as a reverse merger.

Following the

merger, the Company assumed Cocrystal Discovery, Inc.’s business plan and operations.

On March 18, 2014, the Company reincorporated

in Delaware under the name Cocrystal Pharma, Inc.

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”).

the surviving entity of this merger as “Cocrystal”

or the “Company.”

January 18, 2018, the Company’s Board of Directors (the “Board”) filed an amendment (the “Amendment”)

with the Delaware Secretary of State to affect a one-for-thirty reverse split (the “Reverse Stock Split”) of the Company’s

class of common stock.

The Amendment took effect on January 24, 2018.

The Reverse Stock Split did not change the authorized number

of shares of common stock.

Pursuant to the terms of the Company’s then outstanding convertible notes (see Note 8 –

Convertible Notes Payable), its options and warrants have been proportionately adjusted to reflect the Reverse Stock Split.

proportionate adjustment was made to the per share exercise price, number of shares issued, and shares reserved for issuance under

all of the Company’s equity compensation plans.

per share amounts and number of shares in the consolidated financial statements and related notes presented have been retroactively

restated to reflect the Reverse Stock Split.

Company’s activities since inception have principally consisted 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, the attainment of profitable operations is dependent on future events, including, among

other things, its ability to access potential markets, secure financing, develop a customer base, attract, retain and motivate

qualified personnel, and develop strategic alliances.

Through December 31, 2018, the Company has primarily funded its operations

through equity offerings.

Company has no pharmaceutical products approved for sale, has not generated any revenues to date from pharmaceutical product sales,

and has incurred significant operating losses since inception.

The Company has never been profitable and has incurred losses from

operations of $48,406,000 and $62,924,000 in the years ended December 31, 2019 and 2018, respectively.

July 2018, the Company entered into an Equity Distribution Agreement (the “Distribution Agreement”) with Ladenburg

Thalmann & Co.

(“Ladenburg”), Barrington Research Associates, Inc.

(“Barrington”), and Alliance

Global Partners (“AGP”

and together the “Sales Agents”), pursuant to which, and at the Company’s

sole discretion, may issue and sell over time, and from time to time, to or through the Sales Agents, up to $10,000,000 worth

of shares of the Company’s common stock.

On December 14, 2018, Ladenburg terminated its engagement as a sales agent under

the Distribution Agreement.

As of December 31, 2018, we had not sold any shares of common stock under the Distribution Agreement.

March 20, 2019, the Company by written notice suspended at-the-market sales of its common stock pursuant to the Distribution Agreement.

The Company also terminated the agreement with Barrington effective March 21, 2019.

The Distribution Agreement remains in place

with respect to AGP, subject to the suspension of sales discussed above until further notice is provided by the Company to AGP.

October 30, 2019, the Company and AGP amended and restated its Distribution Agreement to reduce the amount to be raised under

the Agreement from $10,000,000 to $6,000,000 (inclusive of the $351,576 which has been raised to date).

January 29, 2020, the Company and AGP amended and restated its Distribution Agreement to reduce the amount to be raised under

the Agreement from $6,000,000 to $551,576 (inclusive of the $351,576 which has been raised to date).

the year ended December 31, 2019, the Company received an upfront non-refundable payment of $4,000,000 and employees and research

expense reimbursements of approximately $2,400,000, and anticipates future payments for employees and research expense reimbursements

over the term of our collaboration with Merck Sharp & Dohme Corp.

(“Merck”), which became effective January 2,

2019 (refer to Note 11, Licenses and Collaborations).

to December 31, 2019, the Company sold 16,990,641 shares of its common stock for net proceeds of $18.2 million

Company’s consolidated financial statements are prepared using generally accepted accounting principles in the 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.

The Company has incurred net losses and negative operating cash flows since inception.

year ended December 31, 2019, the Company recorded a net loss of approximately $48,169,000 and used approximately $1,544,000 of

cash in operating activities.

December 31, 2019, the Company had cash and cash equivalents of approximately $7.4 million.

During the first three months of 2020

we raised approximately $20.0 million, net $18.3 million after deducting placement agent fees and offering expenses.

that our current resources will be sufficient to fund our operations for the foreseeable future.

This estimate is based, in part,

upon our currently projected expenditures for 2020 and 2021.

Company will need to continue obtaining adequate capital to fund operating losses until it becomes profitable.

The Company can

give no assurances that the additional capital it is able to raise, if any, will be sufficient to meet its needs, or that any

such financing will be obtainable on acceptable terms.

If the Company is unable to obtain adequate capital, it could be forced

to cease operations or substantially curtail its drug development activities.

The Company expects to continue incurring substantial

operating losses and negative cash flows from operations over the next several years during its pre-clinical and clinical development

Basis of Presentation and Significant Accounting Policies

of Presentation

accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles

GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)

for reporting of annual financial information.

of Consolidation

consolidated financial statements include the accounts of Cocrystal Pharma, Inc.

and its wholly owned subsidiaries:

LLC, Cocrystal Discovery, Inc., Cocrystal Merger Sub, Inc., Baker Cummins Corp.

and Biozone Laboratories, Inc.

Intercompany transactions

and balances have been eliminated.

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 decision-making.

of the Company’s consolidated financial statements in conformance with U.S.

GAAP requires the Company’s management

to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, 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, estimated useful lives of fixed assets, and forecast assumptions used in the valuation

of intangible assets and goodwill.

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

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 accounts are held.

At December 31, 2019 and 2018, our primary operating account held approximately $7,418,000 and

$2,723,000, respectively, and our collateral account balance was $50,000 at a different institution.

The Company has not experienced

any losses in such accounts and believes it is not exposed to significant risks thereof.

of December 31, 2019, 100% of our revenue and receivables are

from one customer.

and Uncertainties

Company’s future results of operations involve a number of risks and uncertainties.

Factors that could affect the Company’s

future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid

technological change, ability to obtain regulatory approvals, competition from currently available treatments and therapies, competition

from larger companies, effective protection of proprietary technology, maintenance of strategic relationships, and dependence

on key individuals.

developed by the Company will require clearances from the U.S.

Food and Drug Administration (the “FDA”) and other

international regulatory agencies prior to commercial sales in their respective markets.

The Company’s products may not

receive the necessary clearances and if they are denied clearance, clearance is delayed, or the Company is unable to maintain

clearance, the Company’s business could be materially, adversely impacted.

and Restricted Cash

Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to

be cash equivalents, and the Company held no cash equivalents as of December 31, 2019 and 2018.

following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum

to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):

December 31, 2019

December 31, 2018

Restricted cash

Total cash and restricted cash shown in the statements of cash flows

cash represents amounts pledged as collateral for financing arrangements that are currently limited to the issuance of business

credit cards.

The restriction will end upon the conclusion of these financing arrangements.

and Equipment

and equipment, which consists of lab equipment (including lab equipment under capital lease), computer equipment, and office equipment,

is recorded at cost and depreciated over the estimated useful lives of the underlying assets (three to five years) using the straight-line

to January 1, 2019, the Company accounted for leases under Accounting Standards Codification (“ASC”) 840, Accounting

Effective from January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize

a right-of-use asset and a lease liability for virtually all leases.

The Company adopted ASC 842 using a modified retrospective

As a result, the comparative financial information has not been updated and the required disclosures prior to the date

of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods.

adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets and lease liabilities

of approximately $833,000 and did not result in a cumulative-effect adjustment to accumulated deficit.

Value Measurements

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value

under generally accepted accounting principles 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

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:

quoted prices in active markets for identical assets or liabilities.

other significant observable inputs for the assets or liabilities through corroboration with market data at the

measurement date.

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.

Company categorizes its cash and restricted cash as Level 1 fair value measurements.

The Company categorizes its warrants potentially

settleable in cash as Level 3 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’

The warrants are valued using the Black-Scholes option pricing

model as discussed in Note 10 –

December 31, 2019 and 2018, 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 notes payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing

market interest rates.

Company has not transferred any financial instruments into or out of Level 3 classification during the years ended December 31,

2019 and 2018.

A reconciliation of the beginning and ending Level 3 liabilities for is as follows (in thousands):

Fair Value Measurements Using

Significant Unobservable Inputs

Balance, January 1,

Change in fair value of warrants potentially settleable in cash (Note 10)

Balance at December 31,

and In-Process Research and Development

account for business combinations using the acquisition method, recording the acquisition-date fair value of total consideration

over the acquisition-date fair value of net assets acquired as goodwill.

Acquisition-related costs, including banking, legal,

accounting, valuation, and other similar costs, are expensed in the periods in which the costs are incurred and included in loss

from operations in the consolidated financial statements.

The results of operations of the acquired business are included in the

consolidated financial statements from the acquisition date.

November 2014, goodwill and intangible assets for in-process research and development were recorded in connection with the acquisition

of RFS Pharma, and have represented a series of awarded patents, filed patent applications and an in-process research program

acquired related to Hepatitis C compound development.

evaluate indefinite-lived intangible assets and goodwill for impairment annually, as of November 30, or more frequently when events

or circumstances indicate that impairment may have occurred.

As part of the impairment evaluation, we may elect to perform an

assessment of qualitative factors.

If this qualitative assessment indicates that it is more likely than not that the fair value

of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, we then would proceed

with the quantitative impairment test to compare the fair value to the carrying value and record an impairment charge if the carrying

value exceeds the fair value.

January 1, 2019, the Company early adopted ASU No.

2017-04, “Intangibles-Goodwill and Other (Topic 350):

Simplifying the

Test for Goodwill Impairment.”

The standard eliminates the second step in the goodwill impairment test which requires an

entity to determine the implied fair value of the reporting unit’s goodwill.

Instead, an entity should recognize an impairment

loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with

the impairment loss not to exceed the amount of goodwill allocated to the reporting unit.

Such early adoption did not have a material

effect on the Company’s financial statements and related disclosures.

value is typically estimated using an income approach based on the present value of future discounted cash flows.

The significant

estimates in the discounted cash flow model primarily include the discount rate, and rates of future revenue and expense growth

and/or profitability of the acquired assets.

In performing the impairment test, the Company considered, among other factors, the

Company’s intention for future use of acquired assets, analyses of historical financial performance and estimates of future

performance of Cocrystal’s product candidates.

research and development assets are accounted for as indefinite-lived intangible assets and maintained on the balance sheet until

either the underlying project is completed, or the asset becomes impaired.

If the project is completed, the carrying value of

the related intangible assets are amortized to cost of sales over the remaining estimated life of the asset(s), beginning in the

period in which the project is completed.

If the intangible asset becomes impaired or the related project is abandoned, the carrying

value of the underlying intangible asset is written down to its fair value and an impairment charge is recorded in the period

in which the impairment occurs and included in operating expenses under research and development within the relative consolidated

statement of operations.

of December 31, 2017, the Company had recorded Goodwill of $65,195,000 and In Process Research and Development costs of 53,905,000.

Company has a lead compound, CC-31244, for its Hepatitis C program, which was created at the Company’s labs in Bothell,

Washington, and not part of the acquisition from RFS Pharma.

In 2016, the Company initiated and completed a Phase 1A trial with

compound CC-31244, and began a Phase 1B trial with CC-31244 that was completed in 2017.

In 2018, the Company began a Phase 2A

clinical trial with CC-31244 and released interim results in January 2019.

In late 2018, the Company concluded that given the

success of CC-31244 in clinical trials, the Hepatitis C program would move forward solely with CC-31244 without any of the compounds

acquired from RFS Pharma.

As part of this decision, the Company abandoned all remaining in process research and development intangible

assets recognized by the Company and thereafter, terminated its license with Emory University on December 6, 2018 (see Note 11

Licenses and Collaborations).

This resulted in a $53,905,000 impairment in 2018.

December 31, 2018, the Company had goodwill of $65,195,000.

The Company completed its annual impairment test in November 2019,

and at that time determined the fair value of its reporting unit, under both the Company’s Nasdaq market capitalization

and an income approach analysis;

both methods did not exceed the carrying value as of December 31, 2019;

therefore, management

considered goodwill to be impaired.

This resulted in a $46,103,000 impairment in 2019.

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.

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.

Note Receivable

Company records its mortgage note receivable at the amount advanced to the borrower, which includes the stated principal amount

and certain loan origination and commitment fees that are recognized over the term of the mortgage note.

Interest income is accrued

as earned over the term of the mortgage note.

The Company evaluates the collectability of both interest and principal of the note

to determine whether it is impaired.

The note is considered impaired if, based on current information and events, the Company

determines that it is probable that it would be unable to collect all amounts due according to the existing contractual terms.

Upon determination that the note is impaired, the amount of loss is calculated by comparing the recorded investment to the value

determined by discounting the expected future cash flows at the note’s effective interest rate or to the fair value of the

Company’s interest in the underlying collateral, less the cost to sell.

As discussed in Note 4, the Company’s mortgage

note receivable was collected in full during 2018.

and Development Expenses

research and development costs are expensed as incurred.

Company recognizes revenue from research and development arrangements.

In accordance with Accounting Standards Codification (“ASC”)

Topic 606–

Revenue from Contracts with Customers (“Topic 606”), revenue is recognized when a customer

obtains control of promised goods or services.

The amount of revenue recognized reflects the consideration to which the Company

expects to be entitled to receive in exchange for these goods and services.

November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic

808 and Topic 606 .

This ASU provides guidance on whether certain transactions between collaborative arrangement participants

should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context

of a unit of account.

Accordingly, this amendment added unit of account guidance in Topic 606 when an entity is assessing whether

the collaborative arrangement, or a part of the arrangement, is within the scope of Topic 606.

In addition, the amendment provides

certain guidance on presenting the collaborative arrangement transaction together with Topic 606.

The Company adopted ASU 2018-18,

effective in the fourth quarter of 2018 with no impact on our consolidated financial statements and related footnote disclosures.

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.

Under the terms of the Collaboration Agreement, Merck will fund research and development for the program,

including clinical development, and will be responsible for worldwide commercialization of any products derived from the collaboration.

During the year ended December 31, 2019 the Company recognized revenue of $4,368,000 as consideration in exchange for conveyance

of intellectual property rights at the signing of the agreement, $1,838,000 for research and development activities related to

its influenza A/B program and $358,000 for program expense reimbursements.

The Company recognized revenue for the

year ended December 31, 2019 and 2018 were $6,564,000 and $0, respectively.

As of December 31, 2019, accounts receivable of $644,000

was due from Merck.

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.

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.

Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock

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.

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 Securities and Exchange Commission Staff Bulletin

107’s Simplified Method for Estimate Expected Term .

The risk-free interest rate is estimated using comparable

published federal funds rates.

Notes Payable

Company accounts for convertible notes payable (when it has determined that the embedded conversion options should not be bifurcated

from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options .

Accordingly, the Company

records, when necessary, discounts to convertible notes payable for the intrinsic value of conversion options embedded in debt

instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note

transaction and the effective conversion price embedded in the note.

Debt discounts under these arrangements are amortized over

the term of the related debt to their earliest date of redemption.

The Company determined that the embedded conversion options

in its issued convertible notes payable do not meet the definition of a derivative liability.

Stock Purchase Warrants and Other Derivative Financial Instruments

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.

Accounting Pronouncements

following are new FASB Accounting Standards Updates that have not been adopted by the Company as of December 31, 2019, and contain

detail regarding the effective dates:

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure

Requirements for Fair Value Measurement.

This ASU eliminates, adds and modifies certain disclosure requirements for fair value

measurements as part of its disclosure framework project.

The standard is effective for all entities for financial statements

issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently assessing this ASU and has not yet determined the impact ASU 2018-13 may have on its consolidated financial

recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified

Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material

impact on the Company’s consolidated financial statements and related disclosures.

Property and Equipment

and equipment as of December 31, consists of the following (in thousands):

Lab equipment (excluding equipment under finance leases)

Finance lease right-of-use lab equipment obtained in exchange for finance lease liabilities

Computer and office equipment

Total property and equipment

Less accumulated depreciation

Property and equipment, net

expense was $98,000 and $50,000 for the years ended December 31, 2019 and 2018, respectively.

Mortgage Note Receivable

June 2014, the Company acquired a mortgage note from a bank for approximately $2,626,000 which was collateralized by, among other

things, the underlying real estate and related improvements.

The property subject to the mortgage was owned by an entity managed

by Daniel Fisher, one of the founders of Biozone, the property was also under lease to MusclePharm.

The mortgage note had an original

maturity date of August 1, 2032 and bore an interest rate of 7.24%.

thereafter in 2014, Daniel Fisher and his affiliate, 580 Garcia Properties LLC (the primary obligor of the note), brought multiple

lawsuits against the Company involving its predecessors and subsidiaries.

The lawsuits were later settled and the complaints dismissed,

without the Company making any payments to either Mr.

Fisher or 580 Garcia Properties LLC.

At the time of the note’s acquisition,

580 Garcia Properties LLC was delinquent in its obligation to make monthly payments.

In December 2015, the Company proceeded in

accordance with rights of a secured real estate creditor under California law, to initiate private foreclosure proceedings.

2017, the court enjoined the Company from proceeding with the foreclosure sale pending further developments in the litigation.

February 2018, the Company, Daniel Fisher, and 580 Garcia Properties LLC resolved all outstanding claims and disputes.

of this settlement, the Company received a payment of $1,400,000 in exchange for the release of the mortgage note and deed of

trust, resulting in a net gain of $106,000 for disposal of the mortgage note receivable reflected in the consolidated statement

of operations for the year ended December 31, 2019.

Goodwill and In-Process Research and Development

reconciliation of the beginning and ending goodwill for the years ended December 31, 2019 and 2018 is as follows (in thousands):

Balance, January 1,

Impairment charges

Balance at December 31,

December 31, 2018, the Company had goodwill of 65,195,000.

On November 30, 2019 the Company performed its annual impairment test

and determined the fair value of its reporting unit, measured by the Company’s Nasdaq market capitalization and an income

approach analysis, exceeded the carrying value by $46,103;

therefore, management considered goodwill to be impaired.

reconciliation of the beginning and ending in-process research and development intangible assets for the years ended December

31, 2019 and 2018 is as follows (in thousands):

Balance, January 1,

Impairment charges

Balance at December 31,

Accounts Payable and Accrued Expenses

payable and accrued expenses consisted of the following as of December 31, (in thousands):

Accounts payable

Accrued compensation

Accrued other expenses

Total accounts payable and accrued expenses

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 year-end.

of December 31, 2019, the Company has authorized 100,000,000 shares of common stock, $0.001 par value per share.

The Company had

35,150,000 and 29,938,363 shares issued and outstanding as of December 31, 2019 and 2018, respectively.

holders of common stock are entitled to one vote for each share of common stock held.

January 18, 2018, the Board of Directors of the Company filed an amendment (the “Amendment”) with the Delaware Secretary

of State to effect a one-for-thirty reverse split of the Company’s common stock.

The Amendment took effect on January 24,

No fractional shares were issued or distributed as a result of the Amendment.

There was no change in the par value of our

common stock.

May 2018, the Company closed a public offering of 4,435,000 shares of its common stock for net proceeds after transaction costs

of approximately $7,684,000 at $1.90 per share, and issued the underwriter a warrant to purchase 84,211 shares of common stock

at $2.09 per share over a four-year period beginning October 27, 2018.

August 6, 2018, the Company held its 2018 Annual Meeting of Shareholders and voted to reduce the number of shares of common stock,

$0.001 par value per share, authorized from 800,000,000 to 100,000,000 shares.

January, March and November 2019, the Company closed a series of placements of its common stock resulting in the sale of 5,211,695

shares of its common stock for net proceeds after transaction costs of approximately $6,638,422

July 2018, the Company entered into an Equity Distribution Agreement (the “Distribution Agreement”) with Ladenburg

Thalmann & Co.

(“Ladenburg”), Barrington Research Associates, Inc.

(“Barrington”), and Alliance

Global Partners (“AGP”

and together the “Sales Agents”), pursuant to which, and at the Company’s

sole discretion, may issue and sell over time, and from time to time, to or through the Sales Agents, up to $10,000,000 worth

of shares of the Company’s common stock.

On December 14, 2018, Ladenburg terminated its engagement as a sales agent under

the Distribution Agreement.

As of December 31, 2018, we had not sold any shares of common stock under the Distribution Agreement.

In March 20, 2019, the Company by written notice suspended at-the-market sales of its common stock pursuant to the Distribution

Agreement, dated July 19, 2018 by and among the Company, Ladenburg, Barrington, and AGP.

The Company also terminated the engagement

of Barrington as a sales agent under the Distribution Agreement effective March 21, 2019.

The Distribution Agreement remains in

place with respect to AGP, subject to the suspension of sales discussed above until further notice is provided by the Company

In January 2019, we sold 80,000 shares of common stock under the Distribution Agreement and received net proceeds of approximately

$344,000 which amount was included in the proceeds discussed above.

Convertible Notes Payable

November 24, 2017 and January 31, 2018, the Company entered into securities purchase agreements with two investors, including

the Company’s former Chairman of the Board, pursuant to which the company sold an aggregate principal of $1,000,000, and

OPKO Health Inc., a related party, (collectively, the “Purchasers”), pursuant to which the Company sold an additional

$1,000,000, of its 8% convertible notes (collectively, “Convertible Notes”) due on November 24, 2019 and January 31,

2020, respectively.

On May 21, 2018, the Company issued a total of 1,085,105 shares of common stock upon conversion of all outstanding

8% convertible notes.

Convertible Notes, with accrued interest, were convertible into common stock for $8.10 per share at the option of the Purchasers.

In the event the Company completed a financing in which the Company received at least $10,000,000 in gross proceeds and issued

common stock or common stock equivalents to the investor (a “Financing”) or there is a change of control of the Company

(or sale of substantially all of the Company’s assets), the outstanding principal amount of the Convertible Notes would

automatically convert.

Upon the closing of a Financing, the conversion price of the Convertible Notes shall be the lesser of (i)

$8.10 per share or (ii) the price per share of the securities sold in the Financing.

Company evaluated the embedded conversion features within the Convertible Notes under ASC 815-15 and ASC 815-40 to determine if

they required bifurcation as a derivative instrument.

The Company determined the embedded conversion features do not meet the

definition of a derivative liability, and therefore, do not require bifurcation from the host instrument.

In addition, the down-round

provision under which the conversion price could be affected by future equity offerings, qualified for a scope exception from

derivative accounting with the Company’s early adoption of ASU 2017-11, Simplifying Accounting for Certain Financial

Instruments with Characteristics of Liabilities and Equity , during the year ended December 31, 2017.

Since the embedded conversion

features were not considered derivatives, the convertible notes were accounted for in accordance with ASC 470-20, Debt with

Conversion and Other Options.

May 2018, the Company completed a financing and issued a total of 4,435,527 shares of common stock at $1.90 per share, for net

proceeds $7,680,000.

Although the financing amount did not contractually effectuate the conversion feature of the Convertible

securities purchase agreements, the Company allowed Purchasers to convert the Convertible Notes to common stock at

the $1.90 per share price of the May 2018 financing.

All outstanding 8% convertible notes were converted to shares of common stock

in May 2018 at the aggregate amount of the principal and accrued interest of approximately $2,062,000 as of the date of conversion,

for a total of 1,085,105 common shares issued.

The conversion was approved by disinterested members of the Company’s Board

of Directors.

Stock Based Awards

Incentive Plans

Company adopted an equity incentive plan in 2007 (the “2007 Plan”) under which 1,786,635 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 2007 Plan shall be eligible to purchase shares of the Company’s common stock at an exercise price

equal to no less than the fair market value of such stock on the date of grant.

The maximum term of options granted under the

2007 Plan is ten years.

The options generally vest 25% after one year, with the remaining balance vesting monthly over the following

As of December 31, 2019, 189,894 options remain available for future grant under this plan.

Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which 1,666,667 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 an exercise

price equal to no less than the estimated fair market value of such stock on the date of grant.

The maximum term of options granted

under the 2015 Plan is ten years.

The options generally vest 25% after one year, with the remaining balance vesting monthly over

the following three years.

As of December 31, 2019, 683,333 options remain available for future grant under the 2015 Plan.

following table summarizes stock option transactions for the 2007 Plan and 2015 Plan, collectively, for the year ended December

31, 2019 and 2018 (in thousands, except per amounts):

Balance at December 31, 2017

Balance at December 31, 2018

Balance at December 31, 2019

Company did not grant any stock options during the year ended December 31, 2019.

The 925,000 options granted during the year ended

December 31, 2018 had a grant date fair value of approximately $1,949,000.

The Black-Scholes option pricing model includes the

following weighted average assumptions for grants made during the year ended December 31, 2018:

Weighted average per share grant date fair value

Risk-free interest rate

Expected dividend yield

Expected volatility

Expected terms (in years)

Company accounts for share-based awards to employees and nonemployees 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.

For the years ended December 31, 2019 and 2018, equity-based

compensation expense recorded was $351,000 and $562,000, respectively.

of December 31, 2019, there was $1,179,000 of total unrecognized compensation expense related to non-vested stock options that

is expected to be recognized over a weighted average period of 1.5 years.

For options granted and outstanding, there were 930,708

options outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $0.00, a weighted average

exercise price of $4.14, and weighted average remaining contractual term of 8 years at December 31, 2019.

For vested and exercisable

options, outstanding shares totaled 370,395, with an aggregate intrinsic value of $0.00.

These options had a weighted-average

exercise price of $6.20 per share and a weighted-average remaining contractual term of 7 years at December 31, 2019.

aggregate intrinsic value of outstanding and exercisable options at December 31, 2019 was calculated based on the closing price

of the Company’s common stock as reported on the Nasdaq Capital Market on December 31, 2019 of approximately $0.50 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.

Stock Reserved for Future Issuance

following table presents information concerning common stock available for future issuance as of December 31, (in thousands):

Stock options issued and outstanding

Shares authorized for future option grants

Convertible notes

Warrants outstanding

following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the

years ended December 31, 2019 and 2018 (in thousands):

Accounted for as:

Outstanding, December 31, 2017

Outstanding, December 31, 2018

Outstanding, December 31, 2019

Expiration date

consist of equity-classified warrants and warrants with the potential to be settled in cash, which are liability-classified warrants.

As of December 31, 2019 and 2018, 159,000 warrants are accounted for as liabilities and 84,000 warrants are accounted for as equity.

Classified as Equity

Equity-classified

warrants consist of stand-alone warrants with rights to buy shares of the Company at a pre-designated price on or before the date

of expiration, irrespective of the market price.

These purchase warrants are not attached to any debt or equity instruments, thus

considered freestanding, and there are no circumstances under ASC 815 that require the warrants to be classified as liabilities

or as derivatives.

Thus, our May 2018 warrants will be classified as equity, and their value will be carried in the additional

paid-in capital account in the stockholders’

equity section of the balance sheet.

warrants were granted to the underwriters and investment brokers for services provided related to the Company’s May 2018

equity financing, and collectively grant the right to buy 84,211 shares of our stock at $2.09 per share for up to four years until

expiration from the commencement date of October 27, 2018.

Classified as Liabilities

Liability-classified

warrants consist of warrants issued by Biozone in connection with equity financings in October 2013 and January 2014, which were

assumed by the Company in connection with its merger with Biozone in January 2014.

Warrants accounted for as liabilities have

the potential to be settled in cash or are not indexed to the Company’s own stock.

estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date.

or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the consolidated

statement of operations 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 December 31, 2019:

Expected dividend yield

Expected term (years)

Cumulative volatility

Risk-free rate

fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following

inputs as of December 31, 2018:

Expected dividend yield

Expected term (years)

Cumulative volatility

Risk-free rate

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.

life assumption is based on the remaining contractual terms of the warrants.

The risk-free rate 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.

Licenses and Collaborations

Sharp & Dohme Corp.

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.

Under the terms of the Collaboration Agreement, Merck will fund research and development for the program,

including clinical development, and will be responsible for worldwide commercialization of any products derived from the collaboration.

Cocrystal received an upfront payment of $4 million and 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.

The Company continues working with Merck under this Collaboration Agreement.

During the year ended December 31, 2019

the Company recognized revenue of $4,368,000 as consideration in exchange for conveyance of intellectual property rights at the

signing of the agreement, $1,838,000 for research and development activities related to its influenza A/B program and $358,000

for program expense reimbursements.

The company recognized revenue for the

year ended December 31, 2019 and 2018 were $6,564,000 and $0, respectively.

As of December 31, 2019, accounts receivable of $644,000

was due from Merck.

State University Research Foundation

February 18, 2020, Cocrystal Pharma, Inc.

(the “Company”) entered into a License Agreement (the “Agreement”)

with Kansas State University Research Foundation (the “Foundation”) effective February 12, 2020.

to the terms of the Agreement, the Foundation granted the Company an exclusive for human use a royalty bearing license to practice

under certain patent rights, including a patent and a patent application covering antiviral compounds against coronaviruses and

norovirus, and related know-how, to make and sell therapeutic, diagnostic and prophylactic products.

Company agreed to pay the Foundation a one-time non-refundable license initiation fee in the amount of $80,000 and an annual license

maintenance fee in the amount of $20,000 per year, and agreed to reimburse the Foundation for third party expenses associated

with the filing, prosecution and maintenance of the patent rights in question.

The Company also agreed to make certain future

milestone payments up to $3.1 million, 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.

Agreement will remain in effect until the expiration of the patent rights covered by the Agreement, unless earlier terminated

pursuant to customary terms.

Net Loss per Share

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

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.

following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

Net loss attributable to common stockholders

Weighted average number of shares outstanding used to compute net loss per share:

Basic and diluted

Net loss per share, basic and diluted

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):

Options to purchase common stock

Convertible notes

Warrants to purchase common stock

accordance with the authoritative guidance for income taxes under ASC 740, a deferred tax asset or liability is determined based

on the difference between the financial statement and the tax basis of assets and liabilities as measured by the enacted tax rates,

which will be in effect when these differences reverse.

The Company provides a valuation allowance against net deferred tax assets

unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

Company recognizes the impact of a tax position in the consolidated financial statements only if that position is more likely

than not of being sustained upon examination by taxing authorities, based on the technical merits of the position.

The Company’s

practice is to recognize interest and/or penalties related to income tax matters as income tax expense.

Company is subject to taxation and files income tax returns in the United States and various state jurisdictions.

All tax years

from inception to date are subject to examination by the U.S.

and state tax authorities due to the carry-forward of unutilized

net operating losses and research and development credits.

Currently, no years are under examination.

reconciliation of income tax expense (benefit) for the years ended December 31, 2019 and 2018 is as follows (in thousands):

Total current income tax expense

Total deferred income tax benefit

Total income tax benefit

components of the Company’s deferred income taxes at December 31, 2019 and 2018 are shown below (in thousands):

Deferred tax assets:

Net operating loss carryforwards (i)(ii)

Research and development tax credits (iii)

Property and equipment

Total deferred tax assets, gross

Deferred tax liabilities:

Acquired in-process research and development

Total deferred taxes, net

Valuation allowance

Deferred tax liability, net

of deferred tax assets as of December 31, 2019 and 2018, include the following, respectively:

net operating loss carryforwards of $0 and $1,190,000,

net operating loss carry forwards of $0 and $543,000,

research and development tax credits of $0 and $203,000.

net operating loss carryforwards of $35,000 and $28,000.

Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be

The Company periodically evaluates the recoverability of the deferred tax assets.

At such time as it is determined that

it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced.

December 31, 2019, the Company has federal and state net operating losses, or NOL, carryforwards of approximately $72,100,000

and $1,000,000, respectively.

The federal and Florida loss generated after 2017 of $10,500,000 and $1,000,000, respectively, will

carryforward indefinitely and be available to offset up to 80% of future taxable income each year.

The federal NOL carryforwards

begin to expire in 2026.

December 31, 2019, the Company had federal and state capital loss carryforwards of approximately $2,000,000 that expire in 2028.

December 31, 2019, the Company had federal and state capital loss carryforwards of approximately $1,070,000 that expire in 2023.

above NOL carryforward and the3 research tax credit carryforward may be subject to an annual limitation under the Section 382

and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes,

which would limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax,

respectively.

In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership

of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period.

The Company has not completed an IRC Section 382/382 analysis.

If a change in ownership were to have occurred, NOL and tax credits

carryforwards could be eliminated or restricted.

If eliminated, the related asset would be removed from the deferred tax asset

schedule with a corresponding reduction in the valuation allowance.

reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Statutory federal income tax rate

Goodwill impairment

Change in valuation allowance

Other tax, credit and adjustments

Effective income tax rate

December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted.

The 2017 Tax Act includes a number of changes

to existing U.S.

tax laws that impact the Company, most notably a reduction of the U.S.

corporate income tax rate from 35 percent

to 21 percent for tax years beginning after December 31, 2017.

The 2017 Tax Act also provides for the acceleration of depreciation

for certain assets placed in service after September 27, 2017, as well as prospective changes beginning in 2018, including additional

limitations on executive compensation, on the deductibility of interest, and on capitalization of research and development expenditures.

December 2017, the SEC issued Staff Accounting Bulletin No.

118 (“SAB 118”), which provides guidance on accounting

for the income tax effects of the 2017 Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from

the 2017 Tax Act enactment date for companies to complete the accounting relating to the 2017 Tax Act under Accounting Standards

Codification Topic 740, Income Taxes (“ASC 740”).

In accordance with SAB 118, an entity must reflect the income

tax effects of those aspects of the 2017 Tax Act for which the accounting under ASC 740 is complete.

To the extent that an entity’s

accounting for 2017 Tax Act related income tax effects is incomplete, but the entity is able to determine a reasonable estimate,

it must record a provisional estimate in its financial statements.

Lease Commitment

Company leases office space in Miami, Florida and laboratory space in Bothell, Washington under operating leases that expire on

August 31, 2021 and January 31, 2024, respectively.

The lease for our Miami office is with a related party (see below).

lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of

lease payments over the lease term.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities

represent our obligation to make lease payments arising from the lease.

Generally, the implicit rate of interest in arrangements

is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease

The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit

rating would be.

The operating lease ROU asset includes any lease payments made and excludes lease incentives.

to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases.

Effective January 1, 2019, the Company

adopted the guidance of ASC 842, Leases (“ASC 842”), which requires an entity to recognize a right-of-use asset and

a lease liability for certain leases.

The Company adopted ASC 842 using a modified retrospective approach.

As a result, the comparative

financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and

continue to be reported under the accounting standards in effect for those periods.

The adoption of ASC 842 on January 1, 2019,

resulted in the recognition of operating lease right-of-use assets of $833,000 and corresponding lease liabilities of approximately

the same amount.

There was no cumulative-effect adjustment to accumulated deficit.

As of December 31, 2019, the unamortized right

of use asset was $677,000 and total lease liabilities were $700,000, of which $177,000 was current.

components of rent expense and supplemental cash flow information related to leases for the period are as follows (in thousands):

December 31, 2019

Operating lease cost (included in operating expenses in the Company’s consolidated statement of operations)

were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange

Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

Other Information

Cash paid for amounts included in the measurement of lease liabilities

Weighted average remaining lease term –

operating leases (in years)

Average discount rate –

operating leases

supplemental balance sheet information related to leases for the period is as follows (in thousands):

At December 31, 2019

Operating leases

Long-term right-of-use assets of which $40 relates to related party, net of amortization of $156

Short-term operating lease liabilities, of which $59 relates to related party

Long-term operating lease liabilities, of which $40 relates to related party

Total operating lease liabilities

Year ending December 31,

(in thousands)

2023 and thereafter

Total minimum operating lease payments

present value discount

Total operating lease liabilities

minimum lease payments above do not include common area maintenance (CAM) charges, which are contractual obligations under the

Company’s Bothell, Washington lease, but are not fixed and can fluctuate from year to year.

CAM charges for the Bothell,

Washington facility are calculated and billed based on total common expenses for the building incurred by the lessor and apportioned

to tenants based on square footage.

In 2019 and 2018, approximately $80,000 and $71,000 of CAM charges for the Bothell, Washington

lease were included in operating expenses in the consolidated statements of operations, respectively.

September 1, 2018, the Company entered into a lease agreement with a limited liability company controlled by Dr.

Phillip Frost,

a director and a principal shareholder of the Company for the lease of its Miami office (see Note 16 –

Transactions with

Related Parties).

The lease term is three years with an optional three-year extension.

Monthly lease payments under this lease

total $254,000 through September 2021.The minimum lease payments above do not include taxes and fees, which are expected to be

approximately $9,000 annually.

As of December 31, 2019, the remaining right of use asset relating to this lease was $677,000 and

the remaining lease obligation was $700,000.

expense, excluding capital leases and CAM charges, for 2019 and 2018 totaled $226,000 and $187,000, respectively.

November 2018, the Company entered into two lease agreements to acquire equipment with 18 monthly payments of $18,000 payable

through May 27, 2020 and 36 monthly payments of $1,000 payable through November 21, 2021.

The lease agreements have an effective

interest rate of 8.01%.

minimum finance lease payments, by year and in aggregate, are as follows:

Year ending December 31,

(in thousands)

Total minimum capital lease payments

leased lab equipment is included under property and equipment and depreciable over five years.

Total assets and accumulated depreciation

recognized, net, under finance leases was $347,000 and $75,000 as of December 31, 2019, respectively.

Total assets and accumulated

depreciation recognized, net, under finance leases was $347,000 and $6,000 as of December 31, 2018

Commitments and Contingencies

Contingencies

time to time, the Company is a party to, or otherwise involved in, legal proceedings 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.

September 20, 2018, Anthony Pepe, individually and on behalf of a class, filed with the United States District Court for the District

of New Jersey a complaint against the Company, certain current and former executive officers and directors of the Company and

the other defendants named therein for violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

class consists of the persons and entities who purchased the Company’s common stock during the period from September 23,

2013 through September 7, 2018.

Pepe also alleges violation of other sections of the Exchange Act by the defendants named in the

complaint other than the Company.

Pepe seeks damages, pre-judgment and post-judgment interest, reasonable attorneys’

expert fees and other costs.

January 16, 2019, Ms.

Susan Church, a stockholder of the Company, filed with the United States District Court for the Western

District of Washington a derivative suit against certain current and former executive officers and directors of the Company alleging

breach of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the rules governing proxy solicitation.

Church seeks, among other things, money damages, disgorgement of profits from alleged wrongful conduct, including cash bonuses,

pre-judgment and post-judgment interest, reasonable attorneys’

fees, expert fees and other costs.

September 7, 2018, the SEC filed with the United States District Court for the Southern District of New York a complaint against

Philip Frost, a director and principal stockholder of the Company, a trust Dr.

Frost controls and OPKO Health, Inc., a stockholder

of the Company, of which Dr.

Frost is the Chief Executive Officer, as well as other defendants named therein.

On January 10, 2019,

the District Court entered final judgments against these defendants on their consent without admitting or denying the allegations

set forth in the complaint.

Frost was permanently enjoined from violating a certain anti-fraud provision of the Securities

Act of 1933, future violations of Section 13(d) of the Exchange Act and Rule 13d-1(a) thereunder, and participating in penny stock

offerings subject to certain exceptions.

November 2017, Lee Pederson, a former Biozone lawyer, filed a lawsuit in Minnesota against co-defendants the Company, Dr.

Frost, OPKO Heath, Inc.

and Brian Keller for various allegations.

On September 13, 2018, the United States District Court granted

the Company and its co-defendants’

motion to dismiss Pederson’s amended complaint.

Subsequent to September 30, 2018,

Pederson has filed a notice of appeal with the United States Court of Appeals for the Eighth Circuit on October 11, 2018.

Court of Appeals recently affirmed the lower court.

the Company intends to defend itself vigorously from the claims in the aforementioned disputes, it is unable to predict the outcome

of these legal proceedings.

Any potential loss as a result of these legal proceedings cannot be reasonably estimated.

the Company has not recorded a loss contingency for any of the aforementioned claims.

Transactions with Related Parties

September 2018, the Company leased administrative offices from a limited liability company owned by one of the Company’s

directors and principal shareholder, Dr.

Phillip Frost.

The lease term is three years with an optional three-year extension.

an annualized basis, rent expense, including taxes and fees, for this location would be approximately $62,000.

The Company paid

a lease deposit of $4,000 and total rent and other expenses paid in connection with this lease was $57,000 and $19,000 for the

years ended December 31, 2019 and 2018, respectively.

offices and laboratory space in Tucker, Georgia were leased from a limited liability company owned by one of Cocrystal’s

former directors, Dr.

Raymond Schinazi and previously leased on a month to month basis.

The Company closed its office in Tucker,

Georgia, and the last lease payment was made in October 2018.

Payments during the year ended December 31, 2018 under this lease

were $77,000.

further explained in Note 8 –

Convertible Notes Payable, on November 24, 2017, the Company entered into a securities purchase

agreement with a company significantly owned by the Company’s former Chairman of the Board, Dr.

Schinazi, pursuant to which

the Company sold a principal amount of $500,000 of 8% convertible notes due November 24, 2019.

On January 31, 2018, the Company

entered into a securities purchase agreement with OPKO Health, Inc.

(the “Purchaser”), a Company affiliated with Dr.

Frost, pursuant to which the Company borrowed $1,000,000 from the Purchaser in exchange for issuing the Purchaser an 8% convertible

note due January 31, 2020.

8% convertible notes, including accrued interest, were converted to common stock shares in May 2018 at $1.90 per share.

Schinazi’s

affiliated Company received 273,367 shares for its 8% convertible notes balance of approximately $519,000, and OPKO Health, Inc.,

affiliated with Dr.

Frost, received 538,544 shares for its 8% convertible notes balance of approximately $1,023,000 upon conversion.

In the consolidated balance sheets, as of December 31, 2019 there were no amounts due in convertible notes payable to related

Subsequent Events