Cocrystal Pharma, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Report. Company Overview We develop novel medicines for use in the treatment of human viral diseases. Cocrystal has been developing novel technologies and approaches with the goal of creating viable antiviral drug candidates. 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. The following provides a summary overview of certain advancements in key aspects of our business: Pandemic and Seasonal Influenza A ● An initial oral CC-42344 Phase 2a study for CC-42344 resulted insufficient data as to efficacy, however the product candidate did demonstrate favorable safety and tolerability profile, with no serious adverse events (SAEs) and no drug-related discontinuations by study participants. ● We plan to continue development of oral CC-42344 as a treatment for pandemic and seasonal influenza A including by conducting a new Phase 2a trial to obtain scientifically viable efficacy results, which among other conditions will require us to raise additional capital, as described elsewhere in this Report. ● Preclinical development is progressing with an inhaled formulation of CC-42344 as a treatment and prophylaxis for influenza A. Pandemic and Seasonal Influenza A/B Program ● Novel inhibitors effective against both influenza strains A and B have been identified and are in the preclinical stage. 39 Oral Protease Inhibitor CDI-988 ● A novel, broad-spectrum pan-viral 3CL protease inhibitor antiviral drug candidate CDI-988 for clinical development as an oral treatment for coronaviruses (including SARS-CoV-2) and norovirus. ● In January 2025 we announced topline favorable safety and tolerability from a Phase 1 study dosing up to 800 mg per day for 10 consecutive days. We also announced that an additional cohort with a higher dose of 1,200 mg and a shorter treatment duration of five consecutive days would be conducted to further assess CDI-988’s safety, tolerability and pharmacokinetics. ● In August 2025 we presented favorable safety and tolerability Phase 1 data from all CDI-988 doses, including the high-dose 1200 mg cohort, at the 2025 Military Health System Research Symposium (MHSRS). ● In September 2025 we received a Study May Proceed Letter from the FDA to conduct a Phase 1b challenge study in the U.S. evaluating CDI-988 as a norovirus preventive and treatment. ● In December 2025, we received Institutional Review Board approval from Emory University School of Medicine, the clinical study site for the Phase 1b trial, and announced that subject screening for the study was underway. Replication Inhibitors ○ We are using our proprietary structure-based drug discovery platform technology to discover replication inhibitors for orally administered therapeutic and prophylactic treatments for SARS-CoV-2. Replication inhibitors hold potential to work with protease inhibitors in a combination therapy regimen. Results of Operations Research and Development Expense Research and development expenses consist primarily of compensation-related costs for our employees dedicated to clinical advancement and research and development activities and for our Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs. Total research and development expenses were $5,055,000 for the year ended December 31, 2025, compared with $12,537,000 for the year ended December 31, 2024. The decrease of $7,482,000 was primarily due to the winding down of clinical study costs for our drug candidates, particularly in connection with an initial Phase 2a study for our CC-42344 influenza a product candidate, and reductions in employee related expenses. We expect to incur additional expenses in future periods to pursue a new Phase 2a study for CC-42344 following unexpectedly low infection rates in the initial study as described above under “Risk Factors.” For the Twelve Months Ended December 31, 2025 2024 Influenza Program $ 1,083 $ 6,861 Norovirus and Coronavirus Programs 2,545 3,245 Other discoveries 388 563 Total External cost 4,016 10,669 Indirect allocations: Salaries, Stock based compensation and other employee expenses 974 1,751 Depreciation and other cost 65 117 Total R&D expense $ 5,055 $ 12,537 General and Administrative Expense General 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. General and administrative expenses were $3,964,000 for the year ended December 31, 2025, compared with $5,341,000 for the year ended December 31, 2024. This decrease of $1,377,000 was primarily due to reduction of insurance, compensation and other general administrative expenses. December 31,2025 December 31, 2024 Salaries and Wages $ 869 $ 1,791 Professional/outside services 540 810 Legal Consultants 587 588 Rental Expense 697 669 Investor and Public relations 330 414 Business Insurance 241 286 Public Company expenses 195 371 Travel and other Expense 505 412 Total G&A expense $ 3,964 $ 5,341 40 Total other Income/Expense Total other income, net was $188,000 for the year ended December 31, 2025, compared to total other income, net of $374,000 for the year ended December 31, 2024. This decrease of $186,000 was primarily due to a decrease in interest income. Interest income was $134,000 for the year ended December 31, 2025, compared to interest income of $537,000 for the year ended December 31, 2023. The interest income was primarily earned on cash held in interest bearing bank accounts. We also had foreign exchange gain (loss) of $54,000 and ($163,000) for the years ended December 31, 2025 and 2024, respectively, related to currency exchange rate measurements with regards to our Australian operations. Net Loss As a result of the above factors, net loss for the years ended December 31, 2025 and 2024 was $8,831,000 and $17,504,000, respectively. Liquidity and Capital Resources For the year ended December 31, 2025, net cash used in operating activities was $8,192,000, compared to net cash used in operating activities of $16,485,000 for the year ended December 31, 2024. This decrease was primarily related to the prior period expenses of our Influenza A Phase 2a clinical trial and completion of our Norovirus/Coronaviruses Phase 1 clinical trial. For the year ended December 31, 2025, net cash used in investing activities netted to $12,000, compared to net cash used in investing activities of $8,000 for the year ended December 31, 2024. Investing activities consisted of capital expenditures for lab equipment, software, and networking for our Lab located in Bothell, Washington. For the year ended December 31, 2025, net cash provided by financing activities was $5,369,000, compared to $0 for the year ended December 31, 2024. Net cash provided by financing activities in 2025 was result of capital raises by the sale of equity. We expect that our reported cash balance is not be sufficient to support the Company’s working capital needs for the 12 months following the filing of this Report, taking into account our intended research and development efforts in 2025. As a result, we need to raise additional capital to support our ongoing and anticipated working capital needs. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is capital-intensive. As a rule, research and development expenses increase substantially as a company advances a product candidate toward clinical programs. 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. The Company is 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. The Company sold 85,076 shares at an average price of $1.88 under the ATM agreement during the three and nine months ended September 30, 2025. As of the date of this Report, the Company has sold a total 1,200,152 shares of its common stock for total net proceeds of approximately $2,380,000 pursuant to the ATM Agreement. On September 12, 2025, the Company and Wainwright agreed to terminate the sales of shares under the ATM Agreement and the Company filed a prospectus supplement with the SEC to that effect. As a result of this, the at-the-market offering under the ATM Agreement is no longer ongoing as of September 12, 2025, and the Company will not make any sales of common stock pursuant to the ATM Agreement unless and until a new prospectus supplement is filed with the SEC; however, the ATM Agreement remains in full force and effect. On September 12, 2025, the Company, entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company sold to the investors (i) in a registered direct offering, an aggregate of 2,764,710 shares of the Company’s common stock, at a price of $1.70 per share (and (ii) in a concurrent private placement, warrants to purchase up to an aggregate of 5,529,420 shares of common stock (“the Investor Warrants”), at an initial exercise price of $1.50 per share. The Investor Warrants are exercisable upon issuance and will expire on September 27, 2027. Wainwright acted as the Company’s placement agent in connection with offering. The Company paid Wainwright consideration consisting of (i) a cash fee equal to 7.0% of the aggregate gross proceeds in the offering, (ii) a management fee equal to 1.0% of the aggregate gross proceeds in the offering, (iii) reimbursement of certain expenses and (iv) warrants to acquire up to an aggregate of 207,353 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants are similar to the Investor Warrants, except that the initial exercise price of the Placement Agent Warrants is $2.125 per share. The Company received net proceeds of $4.18 million from the sale of its common shares and warrants in the direct offering. On October 28, 2025, the Company entered into a securities purchase agreement with four accredited inside the Company investors (under which the investors purchased a total of 743,024 units of the Company’s securities. The units were priced at-the-market under the rules of the Nasdaq Stock Market at a purchase price of $1.39 per unit. Each unit consisted of one share of common stock and one warrant to purchase two shares of common stock at an exercise price of $1.24 per share over a 27-month period. The investors did not receive registration rights. The gross proceeds were $1.03 million. As the Company continues to incur losses, achieving profitability is dependent upon the successful development, approval and commercialization of its product candidates, and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional private or public equity offerings and through arrangements with strategic partners or from other sources. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all, and any equity financing may be very dilutive to existing stockholders. Cautionary Note Regarding Forward Looking Statements This Annual Report includes forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, including statements regarding our plans for the future development of preclinical and clinical drug candidates, our expectations regarding future characteristics of the product candidates we develop, the expected time of achieving certain value driving milestones in our programs, including, preparation, commencement and advancement of clinical studies for certain product candidates in 2025, our expectations with respect to market opportunities for certain product candidates and our plans regarding further clinical development of such product candidates, our search for collaboration partners, our expectations regarding future operating results, the suitability and adequacy of our properties and capital resources, expectations with respect to our intellectual property rights, and our future liquidity and efforts to raise additional capital. 41 The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include inflation, affordability, a deteriorating labor market, the possibility of recession, increases or other developments with respect to interest rates, uncertainty surrounding the impacts arising from imposed and threatened tariffs and developments with respect thereto, and wars and geopolitical conflicts including those in the Middle East and Ukraine on our Company, our collaboration partners, and on the U.S. and global economies, 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 progress and results of the studies for CC-42344 and CDI-988 including issues with the initial Phase 2a study for CC-42344 which will prolong the development timeline of such product candidate, the ability of our CROs to recruit volunteers for, and to proceed with, clinical studies, 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 including based on initiatives and actions taken by the Trump Administration which could, among other things, result in delays in regulatory approvals or limit access to federal funding for our programs, development of effective treatments and/or vaccines by competitors, including as part of the programs financed by the U.S. government, and potential mutations in a virus we are targeting which may result in variants that are resistant to a product candidate we develop. Further information on such uncertainties and risks is contained in the “Risk Factors” in Item 1A of 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. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. While our significant accounting policies are more fully described in the accompanying notes to the consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2025, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements. Stock-Based Compensation We account for stock options related to our equity incentive plans under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718 which requires the recognition of the fair value of stock-based compensation. The fair value of stock options is estimated using a Black-Scholes option valuation model. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. The fair value of equity-based awards is amortized over the requisite service period of the award. Due to the limited amount of historical data available to us, particularly with respect to stock-price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions. Recently Issued Accounting Standards See discussion in Note 2 to the consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.