Cocrystal Pharma, Inc. 10-K

Item 8. Financial Statements The consolidated financial statements of Cocrystal Pharma, Inc. required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1. 46 COCRYSTAL PHARMA, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Certified Public Accounting Firm (PCAOB ID No. 572 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Cocrystal Pharma, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Cocrystal Pharma, Inc. (the “Company”) and subsidiaries as of December 31, 2023 and 2022, 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, 2023 and 2022, 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. Basis for Opinion These 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. We 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our 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. Critical Audit Matter Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. We have served as the Company’s auditor since 2019. Weinberg & Company, P.A. Weinberg & Company , P.A Los Angeles, California March 28, 2024 F- 2 COCRYSTAL PHARMA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, 2023 December 31, 2022 Assets Current assets: Cash $ 26,353 $ 37,144 Restricted cash 75 75 Tax credit receivable 890 716 Prepaid expenses and other current assets 1,773 2,243 Total current assets 29,091 40,178 Property and equipment, net 271 342 Deposits 46 46 Operating lease right-of-use assets, net (including $ 42 and $ 99 to related party) 1,851 274 Total assets $ 31,259 $ 40,840 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 3,022 $ 976 Current maturities of finance lease liabilities - 7 Current maturities of operating lease liabilities (including $ 42 and $ 59 to related party) 240 233 Total current liabilities 3,262 1,216 Long-term liabilities: Operating lease liabilities (including $ 0 and $ 42 to related party) 1,613 57 Total long-term liabilities 1,613 57 Total liabilities 4,875 1,273 Commitments and contingencies - - Stockholders’ equity: Common stock $ 0.001 par value; 150,000 shares authorized as of December 31, 2023 and December 31, 2022, respectively; 10,174 and 8,143 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 10 8 Additional paid-in capital 342,288 337,489 Accumulated deficit ( 315,914 ) ( 297,930 ) Total stockholders’ equity 26,384 39,567 Total liabilities and stockholders’ equity $ 31,259 $ 40,840 See accompanying notes to consolidated financial statements. F- 3 COCRYSTAL PHARMA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2023 2022 December 31, 2023 2022 Operating expenses: Research and development $ 15,169 $ 12,392 General and administrative 5,990 5,745 Legal settlement ( 2,600 ) 1,600 Impairments - 19,092 Total operating expenses 18,559 38,829 Loss from operations ( 18,559 ) ( 38,829 ) Other (expense) income: Interest income (expense), net 640 ( 2 ) Change in fair value of derivative liabilities - 12 Foreign exchange loss ( 65 ) ( 18 ) Total other income (expense), net 575 ( 8 ) Net loss $ ( 17,984 ) $ ( 38,837 ) Net loss per common share: Loss per share, basic and diluted $ ( 1.87 ) $ ( 4.77 ) Weighted average number of common shares outstanding, basic and diluted 9,651 8,143 See accompanying notes to consolidated financial statements. F- 4 COCRYSTAL PHARMA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Shares Amount Capital Deficit Equity Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance as of December 31, 2021 8,143 $ 8 $ 336,634 $ ( 259,093 ) $ 77,549 Stock-based compensation - - 855 - 855 Net loss - - - ( 38,837 ) ( 38,837 ) Balance as of December 31, 2022 8,143 $ 8 $ 337,489 $ ( 297,930 ) $ 39,567 Balance 8,143 $ 8 $ 337,489 $ ( 297,930 ) $ 39,567 Stock-based compensation - - 801 - 801 Sale of common stock to related entities, net of transaction costs 2,031 2 3,998 - 4,000 Net loss - - - ( 17,984 ) ( 17,984 ) Balance as of December 31, 2023 10,174 $ 10 $ 342,288 $ ( 315,914 ) $ 26,384 Balance 10,174 $ 10 $ 342,288 $ ( 315,914 ) $ 26,384 See accompanying notes to consolidated financial statements. F- 5 COCRYSTAL PHARMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2023 2022 December 31, 2023 2022 Operating activities: Net loss $ ( 17,984 ) $ ( 38,837 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation-and-amortization expense 189 185 Right of use assets ( 1,577 ) 203 Loss on impairment of goodwill - 19,092 Stock-based compensation 801 855 Change in operating lease liabilities 1,563 ( 209 ) Change in fair value of derivative liabilities - ( 12 ) Changes in operating assets and liabilities: Tax credit receivable ( 174 ) ( 716 ) Prepaid expenses and other current assets 470 ( 1,675 ) Accounts payable and accrued expenses 2,046 ( 321 ) Net cash used in operating activities ( 14,666 ) ( 21,435 ) Investing activities: Purchases of property and equipment ( 118 ) ( 74 ) Net cash used in investing activities ( 118 ) ( 74 ) Financing activities: Payments of finance lease obligations ( 7 ) ( 27 ) Proceeds from sale of common stock, net of transaction costs 4,000 - Net cash provided by (used in) financing activities 3,993 ( 27 ) Net decrease in cash and restricted cash ( 10,791 ) ( 21,536 ) Cash and restricted cash at beginning of period 37,219 58,755 Cash and restricted cash at end of period $ 26,428 $ 37,219 See accompanying notes to consolidated financial statements. F- 6 COCRYSTAL PHARMA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2023 and 2022 1. Organization and Business Cocrystal Pharma, Inc. (“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 in 2008. 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. In September 2021, the Company opened a wholly owned foreign subsidiary in Australia named Cocrystal Pharma Australia, Ltd (“Cocrystal Australia”) with the objective of operating clinical trials in Australia. On September 27, 2022, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “Amendment”) with the Delaware Secretary of State to effect a reverse stock split of all outstanding shares of the Company’s common stock at a ratio of one-for-12. At the Company’s 2022 Annual Meeting of Stockholders, holders of a majority of the outstanding voting power approved an amendment to the Certificate of Incorporation of the Company to effect a reverse stock split of all outstanding shares of our common stock at a ratio to be determined by the Board of Directors within a range of one-for-four through one-for-12. Following such approval, The Board of Directors determined to effect the reverse stock split at the ratio of one-for-12. The Amendment became effective October 11, 2022 and the effect of the reverse stock split was reflected on the Nasdaq Stock Market. All share and per share amounts have been retroactively restated to reflect the one-for-12 stock split as if it occurred at the beginning of the earliest period presented. Liquidity The 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, 2023, the Company recorded a net loss of approximately $ 17,984,000 and used approximately $ 14,666,000 of cash in operating activities. On December 31, 2023, the Company had cash and cash equivalents of approximately $ 26,353,000 . We believe that our current resources will be sufficient to fund our operations beyond the next 12 months. This estimate is based, in part, upon our currently projected expenditures. The 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, 2023, the Company has primarily funded its operations through equity offerings. The 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. Our future cash requirements, and the timing of those requirements, will depend on a number of factors, including economic conditions, the approval and success of our products in development, the continued progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, our success in developing markets for our product candidates and legal proceedings that may arise. We have historically not generated sustained positive cash flow and if we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs. 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 phases. Additionally, the rapid development and fluidity of the COVID-19 pandemic and new variants of the virus makes it very difficult to predict its ultimate impact on our business, results of operations and liquidity. We will continue to monitor and assess the impact COVID-19 and new variants of the virus may have on our business and financial results. F- 7 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting of annual financial information. Principles of Consolidation The consolidated financial statements include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: Cocrystal Pharma Australia Pty, Ltd., Cocrystal Discovery, Inc., Cocrystal Merger Sub, Inc., Baker Cummins Corp. and Biozone Laboratories, Inc. Intercompany transactions and balances have been eliminated. Segments The Company operates in one segment. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision makers have been identified as the Co-Chief Executive Officers, who review operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying consolidated financial statements. Use of Estimates Preparation 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 impairment testing of 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 Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $ 250,000 for each institution accounts are held. At December 31, 2023 and 2022, our primary operating account held approximately $ 16,327,000 and $ 37,144,000 , respectively, and our collateral account balance of $ 75,000 as of December 31, 2023 and other cash accounts are maintained at different institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof. F- 8 Risks and Uncertainties The 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. Products 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. Cash and Restricted Cash The 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, 2023 and 2022. The 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): Schedule of Reconciliation of Cash and Restricted Cash December 31, 2023 December 31, 2022 Cash $ 26,353 $ 37,144 Restricted cash 75 75 Total cash and restricted cash shown in the statements of cash flows $ 26,428 $ 37,219 Restricted 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. Property and Equipment Property 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 method. Fair Value Measurements FASB 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 date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1 — quoted prices in active markets for identical assets or liabilities. Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date. F- 9 The 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’ equity. The warrants are valued using the Black-Scholes option pricing model as discussed in Note 9 – Warrants. At December 31, 2023 and 2022, the carrying amounts of financial assets and liabilities, such as cash, other assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The Company has not transferred any financial instruments into or out of Level 3 classification during the years ended December 31, 2023 and 2022. A reconciliation of the beginning and ending Level 3 liabilities for is as follows (in thousands): Schedule of Reconciliation of Beginning and Ending Level 3 Liabilities Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 2023 2022 Balance, January 1, $ - $ 12 Beginning balance $ - $ 12 Change in fair value of warrants potentially settleable in cash (Note 9) - ( 12 ) Balance at December 31, $ - $ - Ending balance $ - $ - Goodwill In November 2014, goodwill was recorded in connection with the acquisition of RFS Pharma. We 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. Fair 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. Long-Lived Assets The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value. F- 10 Patent and Licensing Related Legal and Filing Costs Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and related patent applications, all patent-related legal and filing fees and licensing-related legal fees are charged to operations as incurred. Patent and licensing-related legal and filing costs were $ 396,000 and $ 506,000 for the years ended December 31, 2023 and 2022, respectively. Patent and licensing related legal and filing costs are included in general and administrative costs in the Company’s consolidated statements of operations. Research and Development Expenses Research and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the acquisition, design, development and testing of the Company’s clinical products. All research and development costs are expensed as incurred. Research and development costs are presented net of tax credits. The Company’s Australian subsidiary is entitled to receive government assistance in the form of refundable and non-refundable research and development tax credits from the federal and provincial taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are from the provincial taxation authorities and are not dependent on its ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records refundable tax credits as a reduction of research and development expenses when the Company can reasonably estimate the amounts and it is more likely than not, they will be received. During the year ended December 31, 2023, the Company recorded tax credits receivable of $ 890,000 , of which approximately $ 823,000 was recorded as a reduction of research and development expense. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense. Stock-Based Compensation The Company periodically issues stock-based compensation to officers, directors, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date. Stock-based payments to employees, directors, and for acquiring goods and services from nonemployees, which include grants of employee stock options, are recognized in the financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation. Stock option grants to employees, which are generally time vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods. F- 11 Common Stock Purchase Warrants and Other Derivative Financial Instruments We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity . We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess the classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. Net Income (Loss) per Share The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share . Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants. The following table sets forth the number of potential common shares excluded from the calculations of net loss per diluted share because their inclusion would be anti-dilutive (in thousands): Schedule of Antidilutive Securities Excluded from Calculations of Net Loss Per Share December 31, 2023 2022 Outstanding options to purchase common stock 558 350 Warrants to purchase common stock 11 13 Total 569 363 Recent Accounting Pronouncements The Company’s management has evaluated all the recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position and results of operations. 3. Foreign Currency Remeasurement The U.S. dollar has been determined to be the functional currency for the net assets of Cocrystal Australia operations. The transactions are recorded in the local currencies and are remeasured at each reporting date using the historical rates for nonmonetary assets and liabilities and current exchange rates for monetary assets and liabilities at the balance sheet date. Exchange gains and losses from the remeasurement of monetary assets and liabilities are recognized in other income (loss). The Company recognized an loss of approximately $ 65,000 and $ 18,000 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company’s cash balances consisted of the following (in thousands): Schedule of Cash Balance 2023 2022 U.S. Dollars $ 26,402 $ 37,177 Australian Dollars – in US $ 26 42 Cash Balance $ 26,428 $ 37,219 F- 12 4. Property and Equipment Property and equipment as of December 31, consists of the following (table in thousands): Schedule of Property and Equipment 2023 2022 Lab equipment (excluding equipment under finance leases) $ 1,757 $ 1,631 Finance lease right-of-use lab equipment obtained in exchange for finance lease liabilities, net 162 194 Computer and office equipment 155 131 Total property and equipment 2,074 1,956 Less accumulated depreciation ( 1,803 ) ( 1,614 ) Property and equipment, net $ 271 $ 342 Depreciation expense was $ 189,000 and $ 185,000 for the years ended December 31, 2023 and 2022, respectively. 5. Goodwill The Company completed its annual impairment test in November 2021, and at that time determined the fair value of its reporting unit, as determined utilizing both the Company’s Nasdaq market capitalization and an income approach analysis; exceeded the carrying value of the reporting unit as of December 31, 2021; therefore, management did not consider the $ 19,092,000 of goodwill to be impaired. 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 tests. 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 management concluded that goodwill was impaired in its entirety and recorded a $ 19,092,000 non-cash impairment. As of December 31, 2023, the Company had no remaining goodwill. F- 13 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following as of December 31, (table in thousands): Schedule of Accounts Payable and Accrued Expenses 2023 2022 Accounts payable $ 1,222 $ 614 Accrued compensation 109 130 Accrued other expenses 1,691 232 Total accounts payable and accrued expenses $ 3,022 $ 976 Accounts payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that have been billed and estimated unbilled, respectively, as of year-end. 7. Common Stock As of December 31, 2023, the Company has authorized 150,000,000 shares of common stock, $ 0.001 par value per share. The Company had approximately 10,174,000 and 8,143,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively. The holders of common stock are entitled to one vote for each share of common stock held. On April 4, 2023, the Company entered into a Securities Purchase Agreement with two accredited investors (the “Purchasers”) whereby the Purchasers agreed to purchase a total of 2,030,458 shares of unregistered common stock at a price of $ 1.97 per share for a total purchase price of $ 4,000,000 in two equal $ 2,000,000 investments. The Purchasers were an entity controlled by a director and another investor who subsequently joined the Company’s Board of Directors. The Company was a party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $ 10,000,000 of shares of the Company’s common stock. During January 2021, the Company sold 85,834 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $ 2.1 million. There have been no sales under the ATM Agreement since then. 8. Stock Based Awards Equity Incentive Plans The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan has expired, and the Company no longer issues any awards under the 2007 Plan. As of December 31, 2022, there are 424 outstanding incentive stock options granted under the 2007 Plan that are eligible to purchase shares of the Company’s common stock. The maximum term of options granted under the 2007 Plan was ten years. The Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which 833,333 shares of common stock have been reserved for issuance to employees, and non-employee 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, 2023, approximately 276 million options remain available for future grant under the 2015 Plan. F- 14 The following table summarizes stock option transactions for the 2007 Plan and 2015 Plan, collectively, for the years ended December 31, 2023 and 2022 (table in thousands, except per share amounts): Schedule of Share-based Compensation, Stock Options, Activity Number of Shares Available for Grant Total Options Outstanding Weighted Average Exercise Price Aggregate Intrinsic Value Balance at December 31, 2021 629 205 $ 23.76 $ - Granted ( 158 ) 158 5.04 - Expired 12 ( 12 ) 33.24 - Cancelled 1 ( 1 ) 15.36 9 Balance at December 31, 2022 484 350 $ 15.36 $ 9 Granted ( 209 ) 209 2.67 - Expired - ( 1 ) 22.89 - Balance at December 31, 2023 275 558 10.57 - During the year ended December 31, 2023 the Company granted stock options to officers, directors, employees and consultants to purchase a total of 209,216 shares of common stock. The options have an exercise price of $ 2.67 per share, expire in ten years , and vest as follows: one half vests on the one-year anniversary of the grant date and the remainder will vest in eight equal quarterly increments with the first such quarterly increment vesting on September 30, 2023. The total fair value of these options at the grant date was approximately $ 470,000 using the Black-Scholes Option pricing model. The Black-Scholes option pricing model includes the following weighted average assumptions for grants made during the year ended December 31, 2023: Schedule of Weighted Average Assumptions Used for Grants Assumptions: Weighted average per share grant date fair value $ 2.67 Risk-free interest rate 3.96 % Expected dividend yield 0.00 % Expected volatility 112.02 % Expected terms (in years) 5.77 During the year ended December 31, 2022 the Company granted stock options to officers, directors, employees and consultants to purchase a total of 158,012 shares of common stock. The options have an exercise price of $ 5.04 per share, expire in ten years , and vest as follows: one half vests on the one-year anniversary of the grant date and the remainder will vest in eight equal quarterly increments with the first such quarterly increment vesting on September 30, 2022. The total fair value of these options at the grant date was approximately $ 633,000 using the Black-Scholes Option pricing model. The Black-Scholes option pricing model includes the following weighted average assumptions for grants made during the year ended December 31, 2022: Assumptions: Weighted average per share grant date fair value $ 12.01 Risk-free interest rate 2.89 % Expected dividend yield 0.00 % Expected volatility 111.96 % Expected terms (in years) 5.83 F- 15 For the years ended December 31, 2023 and 2022, equity-based compensation expense for options vesting during the period was $ 801,000 and $ 855,000 , respectively. As of December 31, 2023, there was $ 717,000 of total unrecognized compensation expense related to non-vested stock options that is expected to be recognized over a weighted average period of 1 years. For options granted and outstanding, there were 558,000 options outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $ 0.0 , a weighted average exercise price of $ 10.38 , and weighted average remaining contractual term of 8.2 years at December 31, 2023. For vested and exercisable options, outstanding shares totaled 279,000 , with an aggregate intrinsic value of $ 0.0 . These options had a weighted-average exercise price of $ 17.17 per share and a weighted-average remaining contractual term of 7.2 years at December 31, 2023. The aggregate intrinsic value of outstanding and exercisable options at December 31, 2023 was calculated based on the closing price of the Company’s common stock as reported on the Nasdaq Capital Market on December 31, 2023 of approximately $ 1.72 per share (less the exercise price of the options). The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options. Common Stock Reserved for Future Issuance The following table presents information concerning common stock available for future issuance as of December 31, (in thousands): Schedule of Common Stock Reserved for Future Issuance 2023 2022 Stock options issued and outstanding 558 350 Shares authorized for future option grants 275 484 Warrants outstanding 11 20 Total 844 854 9. Warrants The 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, 2023 and 2022 (table in thousands): Schedule of Warrants Activity Warrants Accounted for as: Equity Warrants Accounted for as: Liabilities May 2018 Warrants October 2013 Warrants January 2014 Warrants Total Outstanding, December 31, 2021 7 2 11 20 Exercised - - - - Granted - - - - Expired ( 7 ) - - ( 7 ) Outstanding, December 31, 2022 - 2 11 13 Exercised - - - - Granted - - - - Expired - ( 2 ) - ( 2 ) Outstanding, December 31, 2023 - - 11 11 Expiration date Oct 27, 2022 Oct 24, 2023 Jan 16, 2024 F- 16 Warrants outstanding as of December 31, 2023 and 2022 included warrants with the potential to be settled in cash, which are liability-classified warrants. During the year ended December 31, 2022, the 6,732 warrants accounted as equity expired and the 13,268 warrants accounted for as liabilities remained outstanding as of December 31, 2022.During the year ended December 31, 2023, the 2,000 warrants accounted as liabilities expired and the 11,000 warrants accounted for as liabilities remained outstanding as of December 31, 2023. As of December 31, 2023, outstanding warrants had no intrinsic value. Warrants Classified as Liabilities Liability-classified warrants consist of warrants issued 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. The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the 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, 2023: Schedule of Fair Value of Warrants Classified as Liabilities October 2013 Warrants (expired October 24, 2023) January 2014 Warrants Strike price $ - $ 180.00 Expected dividend yield - 0.00 % Expected term (years) - 0.0 Cumulative volatility - 132.17 % Risk-free rate - 4.37 % Fair value (in thousands) $ - $ - 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, 2022: October 2013 Warrants January 2014 Warrants Strike price $ 180.00 $ 180.00 Expected dividend yield 0.00 % 0.00 % Expected term (years) 0.8 1.0 Cumulative volatility 143.06 % 145.00 % Risk-free rate 4.42 % 4.40 % Fair value (in thousands) $ - $ - The Company estimates volatility using its own historical stock price volatility based upon the range of periods consistent with the expected life of the warrants. The expected 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. F- 17 10. Licenses and Collaborations Merck Sharp & Dohme Corp. On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement, Merck agreed to 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 was 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. On December 15, 2023, the Company received written notice from Merck of Merck’s election to terminate the Exclusive License and Collaboration Agreement. The termination of the Agreement is effective on March 14, 2024. According to Merck’s termination notice, Merck determined there were no existing conditions to continue the collaboration. The termination resulted from the inability to develop the compounds to meet a specific aspect of Merck’s program. The pending patent applications on compounds covered by the Agreement and previously filed by Merck on behalf of both companies remain in place. Kansas State University Research Foundation On February 18, 2020, the Company entered into a License Agreement (the “Agreement”) with Kansas State University Research Foundation (the “Foundation”) effective February 12, 2020. Pursuant 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. The 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. On April 17, 2020, the Company entered into an Agreement with Foundation effective April 1, 2020. Pursuant 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. The Company agreed to pay the Foundation a one-time non-refundable license initiation fee in the amount of $ 110,000 and an annual license maintenance fee in the amount of $ 20,000 per year for the first seven (7) years and $ 50,000 per year thereafter 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 $ 4,150,000 , 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. As of December 31, 2023, no milestone payments to the Foundation were due under the agreement. On February 28, 2024, the Company provided notice to the Foundation of the Company’s election to terminate both License Agreements. The terminations, which were made due to the Company’s determination that further development efforts under the License Agreements would be futile, are effective on March 29, 2024. The Company continues to clinically progress its fully owned compound CDI-988 for coronaviruses and norovirus. Phase 2a Clinical Trial In August, 2022, the Company engaged hVIVO, a subsidiary of London-based Open Orphan plc (AIM: ORPH), a rapidly growing specialist contract research organization (CRO), to conduct a Phase 2a clinical trial (the “Study”) with the Company’s novel, broad-spectrum, orally administered antiviral influenza candidate. The Company paid a reservation fee of $ 1.7 million upon execution of the Start-Up Agreement (the “Agreement”) for the Study. The Company recognized the reservation fee as prepaid asset on its balance sheet at December 31, 2022. In September 2023, the Clinical Trial Agreement (“CTA”) was executed by the Company and hVIVO, which supersedes the Agreement, including the terms attributable to the reservation fee. Under the terms of the CTA, total budget of the Study was approximately $ 6.8 million, which consisted of the reservation fee of $ 1.7 million and additional milestone payments totaling approximately $ 5.1 million. The reduction of the reservation fee and the milestone payments will become due during the length of the CTA as milestones are realized. During the year ended December 31, 2023, upon achievement of certain milestones, the reservation fee was reduced by approximately $ 440,000 , which was recognized as expense during the year then ended. As a result, the balance of the reservation fee was approximately $ 1.28 million which is included in prepaid expenses as of December 31, 2023. Pursuant to the CTA, additional milestones payments totaling approximately $ 2.61 million became due during the year ended December 31, 2023, resulting in the recognition during the year of aggregate expenses of $ 3.05 million incurred on the CTA. As of December 31, 2023, $ 1.9 million was due on the CTA which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet. F- 18 11. Income Taxes In 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. The 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. The Company is subject to taxation and files income tax returns in the United States, Australia 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. Significant components of the Company’s deferred income taxes at December 31, 2023 and 2022 are shown below (table in thousands): Schedule of Deferred Tax Assets and Liabilities 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 22,005 $ 21,368 Compensation 583 474 Research and development tax credits 3,196 2,710 Capitalized and Research Expenditures 5,288 2,595 Other 848 487 Total deferred tax assets 31,920 27,633 Deferred tax liabilities: Property and equipment ( 29 ) ( 27 ) Other ( 410 ) ( 60 ) Total deferred tax liabilities ( 439 ) ( 87 ) Total deferred taxes, net 31,481 27,546 Valuation allowance ( 31,481 ) ( 27,546 ) Deferred tax liability, net $ - $ - The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. 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. On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are the extension of the carryback period of certain losses to five years, and increasing the ability to deduct interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also provides for a credit against employee wages, the opportunity to defer payment of a portion of federal payroll taxes to December 2022 and December 2023 and enhanced small business loans to assist business impacted by the pandemic. The Company’s tax provision and financial position was not materially impacted by the CARES Act. On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended and modified many of the tax related provisions of the CARES Act. The Company does not anticipate a material impact of the Consolidated Appropriations Act on its tax provision or financial position. F- 19 At December 31, 2023, the Company has federal and state net operating losses (“NOL”) carryforwards of approximately $ 103.0 million and $ 6.8 million, respectively. The federal and Florida NOL generated after 2017 of $ 41.4 million and $ 6.8 million, respectively, will carryforward indefinitely. Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous income, or can be carried forward indefinitely to offset 100% of the taxable income for the tax year 2020 and 80% of the taxable income for the tax years 2021 and thereafter. The federal NOL carryforwards begin to expire in 2026. At December 31, 2023, the Company had federal research credit carryforwards of approximately $ 3.2 million that expire in 2028. At December 31, 2023, the Company did not have any federal and state capital loss carryforwards. The above NOL carryforward and the research tax credit carryforward are 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. A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Schedule of Reconciliation of Federal Statutory Income Tax Rate 2023 2022 Statutory federal income tax rate 21.0 % 21.0 % Goodwill impairment 0.0 % ( 10.3 )% Research credits 2.8 % 0.7 % Change in valuation allowance ( 21.9 )% ( 10.2 )% Equity ( 0.4 )% ( 1.4 )% Other tax, credit and adjustments ( 1.5 )% 0.2 % Effective income tax rate 0.0 % 0.0 % 12. Lease Commitments Operating Leases The Company leases office space in Miami, Florida and laboratory space in Bothell, Washington under operating leases that expire on August 31, 2024 and January 31, 2031 , respectively. The lease for our Miami office is with a related party (see below). Operating 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 payments. 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. F- 20 The components of rent expense and supplemental cash flow information related to leases for the period are as follows (tables in thousands): Schedule of Components of Rent Expense and Supplemental Cash Flow Information Year Ended December 31, 2023 Lease Cost Operating lease cost (included in operating expenses in the Company’s consolidated statement of operations) $ 233 Other Information Cash paid for amounts included in the measurement of lease liabilities $ 233 Weighted average remaining lease term – operating leases (in years) 0.8 Average discount rate – operating leases 6.2 % The supplemental balance sheet information related to leases for the period is as follows (tables in thousands): Schedule of Supplemental Balance Sheet Information At December 31, 2023 At December 31, 2022 Operating leases Long-term right-of-use assets of which $ 42 and $ 99 relates to related party, net of accumulated amortization of $ 950 and $ 592 $ 1,851 $ 274 Short-term operating lease liabilities, of which $ 42 and $ 59 relates to related party 240 233 Long-term operating lease liabilities, of which $ 0 and $ 42 relates to related party 1,613 57 Total operating lease liabilities $ 1,853 $ 290 Schedule of Maturities of Lease Liabilities Year ending December 31, (in thousands) 2024 264 2025 344 2026 355 2027 365 2028 376 2029 and thereafter 513 Total minimum operating lease payments $ 2,217 Less: present value discount ( 364 ) Total operating lease liabilities $ 1,853 The 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 is calculated and billed based on total common expenses for the building incurred by the lessor and apportioned to tenants based on square footage. In 2023 and 2022, approximately $ 98,000 and $ 98,000 of CAM charges for the Bothell, Washington lease was included in operating expenses in the consolidated statements of operations, respectively. On 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 stockholder of the Company for the lease of its Miami office (see Note 13 – Transactions with Related Parties). On September 1, 2021, the Company extended this lease agreement into an additional three -year with m onthly lease payments under this lease total $ 186,000 through September 2024. The minimum lease payments above include taxes and fees, which are expected to be approximately $ 9,000 annually. As of December 31, 2023, the remaining right of use asset relating to this lease was $ 42,000 and the remaining lease obligation was $ 42,000 . On September 21, 2018, the Company amended the lease agreement with a North Creek Tec LLC, to expand its laboratory facility in Bothell – WA, with additional 6,000 sq ft for a period of 5 years that expires on January 31, 2029, with monthly lease payments under this lease total $ 660,000 . In addition, the Company amended the lease agreement to extend the original laboratory facility for an additional 7 years with monthly lease payments under this lease total $ 1,498,000 Through January 2031. The minimum lease payment combined totals approximately $ 380,000 annually. Rent expense, excluding capital leases and CAM charges, for 2023 and 2022 totaled $ 233,000 and $ 233,000 , respectively. F- 21 Finance Leases In April 2020, the Company entered into a lease agreements to acquire equipment with 36 monthly payments of $ 2,420 payable through March 31, 2023. The lease agreement have an effective interest rate of 8.01 %. The 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 $ 162,000 and $ 162,000 as of December 31, 2023, respectively. Total assets and accumulated depreciation recognized, net, under finance leases was $ 194,000 and $ 158,000 as of December 31, 2022. 13. Commitments and Contingencies From 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. Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $ 1 million it paid to the Company in connection with the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. We had retained counsel to defend us which had filed an answer to the complaint denying its material allegations, as well as a counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the Company’s claims for coverage of the class and derivative litigations, and seeking money damages. Liberty Insurance Underwriters Inc. filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $ 1 million it paid to the Company in connection with the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. On June 7, 2022, the court filed a Stipulation and Order for Entry of Judgment in the amount of $ 1,359,064 in favor of Liberty (the “Judgment”) following summary judgment granted by the court to Liberty on all but one of the matters at issue in the case. The Company filed an appeal in July 2022. On March 29, 2023, the Third Circuit ruled in favor of the Company on the appeal, thereby vacating the trial court’s prior grant of summary judgment in favor of Liberty. As a result of this ruling, the case has been remanded to the District Court for trial on the merits of the Company’s coverage claims for defense and settlement costs. The Court had ordered the return of the $ 1.6 million. On August 8, 2023, the Company received $ 1.6 million as refunded by the registry of the court. On November 16, 2023, prior to commencement of a new trial which had been scheduled for December 4, 2023, the parties entered into a settlement agreement pursuant to which Liberty paid the Company an additional $ 1 million and each party released the other from its respective claims and rights arising from the matter. There is no further litigation with Liberty following this settlement. 14. Transactions with Related Parties In September 2018, the Company leased administrative offices from a limited liability company owned by one of the Company’s directors and principal stockholder, Dr. Phillip Frost. The lease term is three years with an optional three-year extension. On 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 were $ 63,000 and $ 61,000 for the years ended December 31, 2023 and 2022 respectively. 15. Subsequent Events On February 28, 2024, the Company provided notice to KSURF of the Company’s election to terminate the License Agreements. The terminations, which were made due to the Company’s determination that further development efforts under the License Agreements would be futile, are effective on March 29, 2024. F- 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable.