What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-29 compared with 2022-03-23 · 179 added, 120 removed, 80 unchanged (79% of the section changed)

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fiscal year ended December 31, 2022, the following key aspects of our business advanced:

raised a total of $38,505,000 in net proceeds from common-stock only public financings.

announced the completion of our research obligations under the Merck Collaboration Agreement.

We applied for and were granted a license to conduct

a phase 1 clinical trial in Australia on CC-42344, our influenza A lead product candidate.

COVID-19 programs entered the preclinical

phase, after reporting encouraging preliminary efficacy data.

and Seasonal Influenza A

novel oral PB2 inhibitor, CC-42344, has shown excellent antiviral activity against

influenza A strains including pandemic and seasonal strains, as well as strains resistant

to Tamiflu® and Xofluza®.

initiated enrollment in our randomized, double-controlled, dose-escalating Phase 1 study

to evaluate the safety, tolerability and pharmacokinetics of orally administered CC-42344

in healthy adults.

April 2022 we announced preliminary Phase 1 study data, demonstrating a favorable safety

and PK profile in the first two cohorts in the single-ascending dose portion of the study.

July 2022 we reported PK results from the single-ascending dose of the study supporting once-daily

December 2022 we reported favorable safety and tolerability results from the Phase 1 study

with CC-42344 for influenza A.

entered into an agreement with a United Kingdom-based clinical research organization to conduct

a human challenge Phase 2a study evaluating safety, viral and clinical measures of orally

administered CC-42344 in influenza A-infected subjects.

Under the human challenge

model, healthy adults will be infected with the influenza A virus under carefully controlled

conditions, which we believe will hasten trial enrollment.

● Preparations

made to apply with the United Kingdom Medicines and Healthcare Products Regulatory Agency

in the first half of 2023 to conduct a human challenge Phase 2a study.

Pending clearance

by the agency, we expect to initiate the study in the second half of 2023.

● Preclinical

development is underway with an inhaled formulation of CC-42344 as a treatment and

prophylaxis for influenza A.

and Seasonal Influenza A/B Program

Sharp & Dohme Corp.

notified the Company that they continue development activities with

the compounds discovered under a collaborative Exclusive License and Research Collaboration

Agreement to discover and develop certain proprietary influenza antiviral agents that are

effective against both influenza A and B strains.

This agreement includes milestone payments

of up to $156 million plus royalties on sales of products discovered under the agreement.

Protease Inhibitor CDI-988

selected CDI-988 as our lead candidate for development as a potential oral treatment

for SARS-CoV-2.

CDI-988 , which was designed and developed using our proprietary structure-based

drug discovery platform technology, targets a highly conserved region in the active site

of SARS-CoV-2 3CL (main) protease required for viral RNA replication.

are currently conducting good laboratory practice (GLP) toxicology studies in preparation

for a Phase 1 study.

● Preparations

are underway to submit an application to the Australian regulatory authority for a planned

randomized, double-blind, placebo-controlled Phase 1 study.

Pending regulatory clearance,

we expect to initiate the study in the first half of 2023.

Intranasal/Pulmonary

Protease Inhibitor CDI-45205

IND-enabling study is ongoing with CDI-45205, our novel SARS-CoV-2 3CL (main) protease

inhibitor being developed as a potential treatment for COVID-19 and its variants.

are using our proprietary structure-based drug discovery platform technology to discover

replication inhibitors for orally administered therapeutic and prophylactic treatments for

Replication inhibitors hold potential to work with protease inhibitors in a combination

therapy regimen.

are developing certain proprietary broad-spectrum, non-nucleoside polymerases for the treatment

of human norovirus infections using our proprietary structure-based drug design technology

We also hold exclusive rights to norovirus protease inhibitors for use in humans

under the KSURF license.

of Operations

Operating Loss and Net Loss

stated above, we are focused on research and development of novel medicines for use in the treatment of human viral diseases.

revenue of $0 and $2,014,000 for the years ended December 31, 2021 and 2020, respectively.

The decrease is due completion in 2020

of our research obligations under our Collaboration Agreement with Merck and resulting lack of further payments to us thereunder, as

any remaining revenue will be dependent upon Merck’s efforts and to date no milestones have been reached and no royalty-bearing

products have been developed since the Collaboration Agreement was executed in January 2019.

For the year ended December 31, 2020

our revenues consisted of collaboration revenue, including payments for research and development activities related to our influenza

A/B program and program expense reimbursements, under the Collaboration Agreement with Merck.

We do not expect to generate any

revenues in 2022, except to the extent we receive any milestone payments under our Collaboration Agreement.

We had a net loss of $14,185,000

for the year ended December 31, 2021, compared to a net loss of $9,648,000 for the year ended December 31, 2020.

The increase was primarily

due to discovery costs related to COVID-19 and manufacturing costs related to the Influenza-A clinical trial.

operating loss for the year ended December 31, 2021 was $14,221,000 compared to an operating loss of $9,586,000 in 2020.

and Development Expense

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activities and for our Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs.

research and development expenses were $8,794,000 for the year ended December 31, 2021, compared with $6,034,000 for the year ended December

The increase of $2,760,000 was primarily due to increases in COVID-19 and influenza programs

advancements, including in connection with the identification of preclinical leads for our COVID-19 programs, the preparation and

submission of a pre-IND submission for CDI-45205, our lead COVID-19 product candidate, and the design, application and preparation for

clinical trials including our Influenza A lead product candidate in Australia which trial commenced in the first quarter of 2022.

We expect research and development expenses to increase in 2022 as we advance our seasonal influenza

A (CC-42344) into clinical trials and progress our preclinical COVID-19 programs towards clinical development.

research and development expenses were $12,392,000 for the year ended December 31, 2022, compared with $8,794,000 for the year ended

December 31, 2021.

The increase of $3,598,000 was primarily due to advancing our influenza lead

candidate CC-42344 through a Phase 1 trial and preparation for a Phase 2a clinical trial planned for 2023, as well as advancing our lead

COVID-19 clinical oral candidate CDI-988 in preparation for a Phase 1 clinical trial planned for 2023.

and Administrative Expense

and administrative expense includes compensation-related costs for our employees dedicated to general and administrative activities,

and administrative expenses 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.

and administrative expenses were $5,745,000 for the year ended December 31, 2022, compared with $5,427,000 for the year ended December

This decrease of $139,000 was primarily due to reduced professional fees resulting from

the conclusion of certain previously reported legal matters .

This increase of $318,000 was primarily due professional fees and litigation.

the ordinary course of business, the Company entered into non-cancellable related party leases for its facilities (see Note 13 –

Transactions with Related Parties in the following Consolidated Financial Statements).

the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction

in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022.

Pre-impairment, the

carrying value of the reporting unit exceeded the market capitalization of the Company at June 30, 2022 and concluded that goodwill was

impaired in its entirety and recorded during the second quarter ended June 30, 2022 a $19,092,000 non-cash impairment.

As of December

31, 2022, the Company had no remaining goodwill.

July 2022, the Company filed a legal appeal and deposited $1,600,000 with the United State District Court for the District of Delaware

as security during pending our appeal.

During the second quarter ended June 30, 2022, the Company recorded a legal judgement for this

amount inclusive of estimated costs.

Income/Expense

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Income/Expense

income (expense), net, was $36,000 for the year ended December 31, 2021 compared with ($62,000) for the year ended December 31, 2020.

Other income (expense), net for the year ended December 31, 2021 and 2020 primarily consisted of a gain of $49,000 and a loss of $54,000,

respectively, recognized non-cash from increases and decreases in the fair value of our derivative liabilities as our stock price

Under accounting principles generally accepted in the United States, we record other income or expense for the change in

fair value of our outstanding warrants that are accounted for as liabilities during each reporting period.

If the value of the warrants

increases during a period, which occurred during the year ended December 31, 2021, we record other income.

The fair value of our outstanding

warrants is inversely related to the fair value of the underlying common stock;

as such, a decrease in the fair value of our common stock

during a given period generally results in other income while an increase in the fair value of our common stock generally results in

other expense.

income/expense, net, was an expense of $8,000 for the year ended December 31, 2022 compared with income of $36,000 for the year ended

December 31, 2021.

This year-over-year change primarily consisted of recognized non-cash changes in the fair value of our derivative

liabilities as our stock price fluctuated.

Under accounting principles generally accepted in the United States, we record other income

or expense for the change in fair value of our outstanding warrants that are accounted for as liabilities during each reporting period.

If the value of the warrants increases during a period, which occurred during the year ended December 31, 2022, we record other income.

The fair value of our outstanding warrants is inversely related to the fair value of the underlying common stock;

as such, a decrease

in the fair value of our common stock during a given period generally results in other income while an increase in the fair value of

our common stock generally results in other expense.

had a net loss of $38,837,000 for the year ended December 31, 2022, compared to a net loss of $14,185,000 for the year ended December

This increase of $24,652,000 was primarily due to a $19,092,000 non-cash impairment-loss

of goodwill and increased research and development expenses as we continue in our efforts to advance CC-42344, CDI-988 and other product

and Capital Resources

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The increase in cash used in operating activities in 2022 as compared to 2021 was

attributable to the reduction of revenue flow from our influenza A/B Collaboration Agreement with Merck by $2,014,000 and to the increase

of operating costs related to applications and preparation for COVID-19 and Influenza-A clinical trials.

attributable to the increase of operating costs related to our COVID-19 and influenza-A clinical trials.

the year ended December 31, 2022, net cash used in investing activities netted to $74,000, which consisted of capital expenditures for

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used in investing activities consisted of $52,000.

the year ended December 31, 2021, net cash provided by financing activities was $38,466,000, compared to net cash provided by financing

activities of $35,662,000 for the year ended December 31, 2020.

Net cash generated by financing activities in 2021 and 2020 was the result

of issuance common stock, net of finance lease payments.

the year ended December 31, 2022, net cash used by financing activities was $27,000, compared to net cash provided by financing activities

of $38,466,000 for the year ended December 31, 2021.

Net cash used by financing activities in 2022 was result of finance lease payments,

and 2021 net cash generated was the result of issuance common stock, net of finance lease payments.

Company had approximately $35 million cash on hand on March 21, 2023.

We expect that this cash balance will be sufficient

to support the Company’s working capital needs through 2023.

We expect that this cash balance will be sufficient to support

the Company’s working capital needs for the 12 months following the filing of this Report.

pharmaceutical products, including conducting preclinical studies and clinical trials, is capital-intensive.

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development expenses increase substantially as a company advances a product candidate toward clinical programs.

Historically, we financed

our operations with the proceeds from public and private equity and debt offerings, including additional investments by certain existing

stockholders, and entered into strategic partnerships and collaborations for the research, development and commercialization of product

We currently have one hepatitis C product candidate that has completed a Phase 2a clinical trial and have secured funding

of the research and development of influenza A/B product candidates under our Collaboration Agreement with Merck.

Additionally, we expect

that in the long term in case of successful development and commercialization of one or more influenza A/B antiviral agents under the

Collaboration Agreement we will be eligible to receive certain milestone payments up to a total of $156 million, including payments associated

with the successful product development and attainment of certain U.S.

and EU regulatory approvals for the developed products and sales

volume and royalties on net sales of the products.

See “Item 1 – Business – Collaborations – Merck Collaboration.”

However, in order to conduct research and development of our other product candidates, including our potential COVID-19 therapy, we may

need to raise additional capital to support our operations or form partnerships, in addition to our existing collaborative alliances.

Such funding or partnerships may not be available to us on acceptable terms, or at all.

addition, as we advance our coronavirus program, we expect that we will be required to make certain milestone payments

of up to approximately $7.3 million to KSURF under our two license agreements with KSURF.

See “Item 1 – Business –

Collaborations – Kansas State University Research Foundation” for more information about these license agreements.

We raised a total of $38,505,000 in net proceeds from common-stock only public financings during the year ended December 31, 2021.

Set forth below is a brief summary of each such financing.

Historically, we have

financed our operations with the proceeds from public and private equity and debt offerings, including additional investments by certain

existing stockholders, and entered into strategic partnerships and collaborations for the research, development and commercialization

of product candidates.

We have one hepatitis C product candidate that has completed a Phase 2a clinical trial and one influenza A product

candidate that has completed a Phase 1 trial and is expected to proceed to Phase 2a in 2023, as well as other influenza A/B product candidates

under our Collaboration Agreement with Merck.

Additionally, we expect that in the long term in case of successful development and commercialization

of one or more influenza A/B antiviral agents under the Collaboration Agreement we will be eligible to receive certain milestone payments

up to a total of $156 million, including payments associated with the successful product development and attainment of certain U.S.

EU regulatory approvals for the developed products and sales volume and royalties on net sales of the products.

See “Item 1 –

Business – Collaborations – Merck Collaboration.” However, in order to conduct research and development of our other

product candidates, including our potential COVID-19 therapy, we may need to raise additional capital to support our operations or form

partnerships, in addition to our existing collaborative alliances.

Such funding or partnerships may not be available to us on acceptable

terms, or at all.

did not raise any proceeds from the sale of common stock during the year ended December 31, 2022.

Set forth below is a summary of financings

which occurred since 2020.

Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C.

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Wainwright, up to $10,000,000 of shares of the Company’s common stock.

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 sales under the ATM

Agreement for the remainder of 2021.

May 4, 2021, the Company entered into an underwriting agreement with Wainwright pursuant to which the Company agreed

to issue and sell 26,000,000 shares of the Company’s common stock at a public offering price of $1.54 per share, less underwriting

discounts and commissions (the “Offering”).

The Company received approximately $36.4 million in net proceeds from the Offering,

after deducting underwriting discounts and estimated offering expenses.

January 2021, the Company sold 1,030,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2.1

There were no sales under the ATM Agreement for the remainder of 2021 or 2022.

May 4, 2021, the Company entered into an underwriting agreement with Wainwright pursuant to which the Company agreed to issue and sell

26,000,000 shares of the Company’s common stock at a public offering price of $1.54 per share, less underwriting discounts and

commissions (the “Offering”).

The Company received approximately $36.4 million in net proceeds from the Offering, after deducting

underwriting discounts and estimated offering expenses.

The Offering closed on May 7, 2021.

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.

For the year ended December

31, 2021, the Company recorded a net loss of approximately $14,185,000 and used approximately $12,719,000 of cash in operating activities.

Note Regarding Forward Looking Statements

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characteristics of the product candidates we develop, the expected time of achieving certain value driving milestones in our programs,

including, preparation and commencement of clinical studies for certain product candidates in 2022, the anticipated completion

of proof-of-concept animal study in our norovirus program, our expectations with respect to HCV market opportunity and our plans regarding

further clinical development of CC-31244, the expected future results of our collaboration with Merck pursuant to the Collaboration Agreement,

including potential receipt of milestone payments and royalties, our expectations related to our collaborations with KSURF, HitGen and

InterX, our expectations regarding future operating results, statement regarding the suitability and adequacy of our properties and

capital resources, anticipated payments under the license agreements with KSURF, and our future liquidity.

including, preparation, commencement and advancement of clinical studies for certain product candidates in 2023, our expectations with

respect to HCV market opportunity and our plans regarding further clinical development of CC-31244, the potential future results of our

collaboration with Merck pursuant to the Collaboration Agreement, including potential receipt of milestone payments and royalties, our

expectations related to our collaborations with KSURF, our expectations regarding future operating results, statement

regarding the suitability and adequacy of our properties and capital resources, anticipated payments under the license agreements with

KSURF, and our future liquidity.

words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,”

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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, uncertainties and risks that may cause actual results to differ materially

from these forward-looking statements include the risks and uncertainties arising from the impact of the COVID-19 pandemic on our Company,

our collaboration partners, CROs, CMOs, and on the national and global economy, including manufacturing and research delays arising from

raw materials and labor shortages, supply chain disruptions and other business interruptions, the ability of our CROs to recruit volunteers

for, and to proceed with, clinical trials, possible delays resulting from future lockdowns in Australia, our ability to proceed with

our programs, our continued collaboration with Merck and achievement by Merck of certain milestones under the Collaboration Agreement,

our ability to successfully identify, enter into and maintain additional strategic collaborations for further development of our product

candidates, our and our collaboration partners’ technology and software performing as expected, financial difficulties experienced

by certain partners, future results of planned research and, if successful, clinical trials, general risks arising from clinical trials,

receipt of regulatory approvals, development of effective treatments and/or vaccines by competitors, including as part of the programs

financed by the U.S.

government, potential mutations in a virus we are targeting which may result in variants that are resistant to a

product candidate we develop, and any additional costs related to unfavorable future outcome of pending litigation or any unanticipated

Further information on such uncertainties and risks is contained in the “Risk Factors” in Item 1A of this this Annual

We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information,

future events or otherwise.

For more information regarding some of the ongoing risks and uncertainties of our business, see “Item

1A – Risk Factors” and our other filings with the SEC.

results anticipated by any or all of these forward-looking statements might not occur.

Important factors, uncertainties and risks that

may cause actual results to differ materially from these forward-looking statements include the risks and uncertainties arising from

the risks arising from the impact of COVID-19 (including long-term and pervasive effects of the virus), inflation, interest rate increases

and the Ukraine war on our Company, our collaboration partners, and on the U.S., U.K.

and global economy, including manufacturing and

research delays arising from raw materials and labor shortages, supply chain disruptions and other business interruptions including any

adverse impacts on our ability to obtain raw materials and test animals as well as similar problems with our vendors and our current

and any future CROs and CMOs, the results of the studies for CC-42344 and CDI-988, 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 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 the U.S.

government, potential mutations in a virus we are targeting which may result in variants that are resistant

to a product candidate we develop, and the outcome of our appeal of the summary judgment.

Further information on such uncertainties and

risks is contained in the “Risk Factors” in Item 1A of this this Annual Report.

We undertake no obligation to publicly update

or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

For more information

regarding some of the ongoing risks and uncertainties of our business, see “Item 1A – Risk Factors” and our other filings

with the SEC.

Accounting Policies and Estimates

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with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions.

recorded goodwill in the RFS Pharma acquisition in 2014 that is subject to impairment testing.

Impairment tests of goodwill are done

annually on November 30 requiring substantial judgment and estimates.

At December 31, 2021, the Company had goodwill of approximately

$19,092,000 and determined that there was no impairment of goodwill based on our testing on November 30, 2021.

November 2014, goodwill was recorded in connection with the acquisition of RFS Pharma.

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.

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 an impairment test, the Company considers, 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.

The Company uses judgement

in assessing whether assets may have become impaired between annual impairment tests.

The occurrence of a change in circumstances, such

as a continued decline in the market capitalization of the Company, would determine the need for impairment testing between annual impairment

During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an

overall reduction in market capitalization and our recorded net book value exceeded our market capitalization as of June 30, 2022.

Pre-impairment,

the carrying value of the reporting unit exceeded the market capitalization of the Company at June 30, 2022 and concluded that goodwill

was impaired in its entirety and recorded a $19,092,000 non-cash impairment.

On December 31, 2022, the Company had no goodwill.

Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis