NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
Organization and Business
Cocrystal
Pharma, Inc. (“we”, the “Company” or “Cocrystal”), a clinical stage biopharmaceutical company incorporated
in Delaware, has been developing novel technologies and approaches to create first-in-class or 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.
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 March 31, 2021, the Company has primarily funded its operations through equity offerings.
2.
Basis of Presentation and Significant Accounting Policies
Basis
of Presentation
The
accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X
set forth by the Securities and Exchange Commission (“SEC”). They do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the interim
periods presented are not necessarily indicative of the results of operations for the entire fiscal year. For further information, refer
to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year
ended December 31, 2020 filed on March 17, 2021 (“Annual Report”).
Principles
of Consolidation
The consolidated financial statements
include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: RFS Pharma, LLC, Cocrystal Discovery, Inc. and
Cocrystal Merger Sub, Inc. Intercompany transactions and balances have been eliminated.
Segments
The
Company operates in only one segment. Management uses cash flows as the primary measure to manage its business and does not segment its
business for internal reporting or decision-making.
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 valuation of intangible assets and
goodwill. The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes
to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results
may differ from estimates made under different assumptions or conditions.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited
in accounts held at two U.S. financial institutions, which may, at times, exceed federally insured limits of $250,000 for each
institution where accounts are held. At March 31, 2021 and December 31, 2020, our primary operating account held approximately
$33,278,000 and $33,010,000, respectively, and our collateral account balance was $50,000 at a different institution. The
Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof.
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.
|
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 2 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 7 – Warrants.
At
March 31, 2021 and December 31, 2020, the carrying amounts of financial assets and liabilities, such as cash, accounts receivable, other
assets, and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The carrying values of
notes payable approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market
interest rates.
The
Company’s derivative liabilities are considered Level 2 measurements.
Goodwill
In
November 2014, goodwill was recorded in connection with the acquisition of RFS Pharma.
We
evaluate 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 reporting unit’s
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 the impairment test, the Company considered, among other factors, the Company’s intention
for future use of acquired assets, analyses of historical financial performance and estimates of future performance of Cocrystal’s
product candidates.
At
March 31, 2021, the Company had goodwill of $19,092,000. The Company completed its annual impairment test in November 2020, and at that
time determined the fair value of its reporting unit, under both the Company’s Nasdaq market capitalization and an income approach
analysis; both methods were less than the carrying value as of December 31, 2020; therefore, management did not consider goodwill to
be impaired.
Based
on management’s assessment at March 31, 2021, no further impairment of Goodwill is required.
Long-Lived
Assets
The
Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine
whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used
for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and
positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should
an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.
Research
and Development Expenses
All
research and development costs are expensed as incurred.
Revenue
Recognition
The
Company recognizes revenue from research and development arrangements. In accordance with Accounting Standards Codification (“ASC”)
Topic 606–Revenue from Contracts with Customers (“Topic 606”), revenue is recognized when a customer obtains
control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be
entitled to receive in exchange for these goods and services.
In
November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic
808 and Topic 606. This ASU provides guidance on whether certain transactions between collaborative arrangement participants
should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context
of a unit of account. Accordingly, this amendment added unit of account guidance in Topic 606 when an entity is assessing whether
the collaborative arrangement, or a part of the arrangement, is within the scope of Topic 606. In addition, the amendment provides
certain guidance on presenting the collaborative arrangement transaction together with Topic 606.
On
January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”)
with Merck to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement,
Merck will fund research and development for the program, including clinical development, and will be responsible for worldwide commercialization
of any products derived from the collaboration.
The
Company recognized revenue for the three months ended March 31, 2020 of $461,000. There was no such revenue during the period
ended March 31, 2021. As of December 31, 2020, there was a receivable of $556,000 from Merck, which was collected during the quarter ended March 31, 2021.
As of March 31, 2021, accounts receivable of $0 was due from Merck.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and
laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets
is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of
a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company
recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be
sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will
measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely
than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change
in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties
related to income taxes as part of its income tax expense.
As
of March 31, 2021, the Company assessed its income tax expense based on its projected future taxable income for the year ended December
31, 2021 and therefore recorded no amount for income tax expense for the three months ended March 31, 2021. In addition, the Company
has significant deferred tax assets available to offset income tax expense due to net operating loss carry forwards which are currently
subject to a full valuation allowance based on the Company’s assessment of future taxable income. Refer to our Annual Report on
Form 10-K for the year ended December 31, 2020 for more information.
Stock-Based
Compensation
The
Company recognizes compensation expense using a fair value-based method for costs related to stock-based payments, including stock options.
The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized
as expense over the requisite service period on a straight-line basis.
Use
of the Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term,
and a risk-free interest rate. The Company estimates volatility using a blend of its own historical stock price volatility as well as
that of market comparable entities since the Company’s common stock has limited trading history and limited observable volatility
of its own. The expected term of the options is estimated by using the Securities and Exchange Commission Staff Bulletin No. 107’s
Simplified Method for Estimate Expected Term. The risk-free interest rate is estimated using comparable published federal funds
rates.
Share
Issuance Costs
The
Company accounts for direct and incremental costs related to the issuance of its capital stock as a reduction in the proceeds from such
issuances.
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
We
classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement
or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock
as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify as assets or liabilities any contracts that require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control)
or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess
classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a
change in classification between assets and liabilities is required.
Net
Income (Loss) per Share
The
Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share.
Basic income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable
to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the
issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon
the exercise of stock options and warrants and the conversion of convertible notes payable.
The
following table 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):
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Outstanding options to purchase common stock
|
|
|
1,773
|
|
|
|
923
|
|
Warrants to purchase common stock
|
|
|
243
|
|
|
|
243
|
|
Total
|
|
|
2,016
|
|
|
|
1,166
|
|
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables.
The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is
effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of ASU 2016-13 is not expected to
have a material impact on the Company’s financial position, results of operations, and cash flows.
Other
recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on
the Company’s consolidated financial statements and related disclosures.
3.
Property and Equipment
Property
and equipment are recorded at cost and depreciated over the estimated useful lives of the underlying assets (three to five years) using
the straight-line method. As of March 31, 2021, and December 31, 2020, property and equipment consists of (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Lab equipment (excluding equipment under finance leases)
|
|
$
|
1,517
|
|
|
$
|
1,498
|
|
Finance lease right-of-use lab equipment, net
|
|
|
86
|
|
|
|
92
|
|
Computer and office equipment
|
|
|
127
|
|
|
|
120
|
|
Total property and equipment
|
|
|
1,730
|
|
|
|
1,710
|
|
Less: accumulated depreciation and amortization
|
|
|
1,159
|
|
|
|
1,119
|
|
Property and equipment, net
|
|
$
|
571
|
|
|
$
|
591
|
|
Total
depreciation and amortization expense were approximately $45,000 and $30,000 for the three months ended March 31, 2021 and 2020
respectively, which includes amortization expense of $6,000 and $17,000 for the three months ended March 31, 2021 and 2020,
respectively, related to assets under finance lease. For additional finance leases information, refer to Note 9 – Commitments
and Contingencies.
4.
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following (in thousands) as of:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Accounts payable
|
|
$
|
748
|
|
|
$
|
657
|
|
Accrued compensation
|
|
|
142
|
|
|
|
126
|
|
Accrued other expenses
|
|
|
304
|
|
|
|
297
|
|
Total accounts payable and accrued expenses
|
|
$
|
1,194
|
|
|
$
|
1,080
|
|
Accounts
payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that
have been billed and estimated unbilled, respectively, as of period-end.
5.
Common Stock
As
of March 31, 2021, the Company has authorized 100,000,000 shares of common stock, $0.001 par value per share. The Company had 71,469,000
and 70,439,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
The
holders of common stock are entitled to one vote for each share of common stock held.
On
January 31, 2020, the Company closed on a registered direct public
offering of its common stock totaling, 3,492,063 shares of common stock at a purchase price per share of $0.63 for
aggregate net proceeds to the Company of approximately $1.5 million, after deducting fees payable to the
placement agent and other estimated offering expenses payable by the Company.
On
February 28, 2020, the Company closed on a registered direct public
offering of its common stock totaling 8,461,540 shares of common stock at a purchase price per share of $1.30 for
aggregate net proceeds to the Company of approximately $10.1 million, after deducting fees payable to the
placement agent and other estimated offering expenses payable by the Company.
On
March 10, 2020, the Company closed on a registered direct public
offering of its common stock totaling 5,037,038 shares of common stock at a purchase price per share of $1.35 for
aggregate net proceeds to the Company of approximately $5.0 million, after deducting fees payable to the
placement agent, lock-up settlement fee and other estimated offering expenses payable by the Company.
On
July 1, 2020, the Company entered into an At-The-Market Offering Agreement (“ATM Agreement”) with H.C. Wainwright
& Co., LLC (“Wainwright”), pursuant to which the Company may issue and sell over time and from time to time, to
or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. During January 2021, the Company
sold 1,030,000 shares of common stock under the ATM Agreement and received net proceeds of approximately $2,072,000.
6.
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 March 31, 2021, there are 65,456 of outstanding incentive stock options granted under the 2007
Plan that are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the fair market
value of such stock on the date of grant. The maximum term of options granted under the 2007 Plan was ten years.
The
Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which 5,000,000 shares of common stock have
been reserved for issuance to employees, and nonemployee directors and consultants of the Company. Recipients of incentive stock options
granted under the 2015 Plan shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no
less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 Plan
is ten years. As of March 31, 2021, 2,263,000 options remain available for future grants under the 2015 Plan.
The
following table summarizes stock option transactions for the 2007 Plan and 2015 Plan, collectively, for the three months ended March
31, 2021 (in thousands, except per share amounts):
|
|
Number of
Shares
Available
for Grant
|
|
|
Total
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 31, 2020
|
|
|
2,263
|
|
|
|
1,780
|
|
|
$
|
2.53
|
|
|
$
|
29
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
(7
|
)
|
|
$
|
4.50
|
|
|
|
-
|
|
Balance at March 31, 2021
|
|
|
2,263
|
|
|
|
1,773
|
|
|
$
|
2.52
|
|
|
|
57
|
|
The
Company did not grant any options during the three months ended March 31, 2021, nor the three months ended March 31, 2020.
The
Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of
ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement,
ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under
ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized
over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and
accounts for forfeitures when they occur. For the three months ended March 31, 2021 and 2020, equity-based compensation expense recorded
was $219,000 and $107,000, respectively.
As
of March 31, 2021, there was approximately $1,219,000 of total unrecognized compensation expense related to non-vested stock options
that is expected to be recognized over a weighted average period of 1.1 years. For options granted and outstanding, there were 1,773,000
options outstanding which were fully vested or expected to vest, with an aggregate intrinsic value of $57,000, a weighted average exercise
price of $2.52 and weighted average remaining contractual term of 8.12 years at March 31, 2021. For vested and exercisable options, outstanding
shares totaled 583,000, with an aggregate intrinsic value of $906. These options had a weighted average exercise price of $4.25 per share
and a weighted-average remaining contractual term of 6.68 years at March 31, 2021.
The
aggregate intrinsic value of outstanding and exercisable options at March 31, 2021 was calculated based on the closing price of the Company’s
common stock as reported on The Nasdaq Capital Market on March 31, 2021 of $1.39 per share less the exercise price of the options. The
aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s
common stock and the exercise price of the underlying options.
Common
Stock Reserved for Future Issuance
The
following table presents information concerning common stock available for future issuance (in thousands) as of:
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Stock options issued and outstanding
|
|
|
1,773
|
|
|
|
923
|
|
Shares authorized for future option grants
|
|
|
2,263
|
|
|
|
3,596
|
|
Convertible notes
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding
|
|
|
243
|
|
|
|
243
|
|
Total
|
|
|
4,279
|
|
|
|
4,762
|
|
7.
Warrants
The
following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the three months
ended March 31, 2021 (in thousands):
|
|
Warrants
Accounted for as:
Equity
|
|
|
Warrants
Accounted for as:
Liabilities
|
|
|
|
|
|
|
May 2018
Warrants
|
|
|
October 2013 Warrants
|
|
|
January 2014 Warrants
|
|
|
Total
|
|
Outstanding, December 31, 2020
|
|
|
84
|
|
|
|
26
|
|
|
|
133
|
|
|
|
243
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2021
|
|
|
84
|
|
|
|
26
|
|
|
|
133
|
|
|
|
243
|
|
Expiration date:
|
|
|
October 27, 2022
|
|
|
|
October 24, 2023
|
|
|
|
January 16, 2024
|
|
|
|
|
|
Warrants
Classified as Liabilities
Liability-classified
warrants consist of warrants issued by Biozone in connection with equity financings in October 2013 and January 2014, which were assumed
by the Company in connection with its merger with Biozone in January 2014. Warrants accounted for as liabilities have the potential to
be settled in cash or are not indexed to the Company’s own stock.
The
estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase
in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated
statement of 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 March 31, 2021:
|
|
October 2013
Warrants
|
|
|
January 2014
Warrants
|
|
|
|
|
|
|
|
|
Strike price
|
|
$
|
15.00
|
|
|
$
|
15.00
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Contractual term (years)
|
|
|
2.6
|
|
|
|
2.8
|
|
Cumulative volatility
|
|
|
124.57
|
%
|
|
|
121.00
|
%
|
Risk-free rate
|
|
|
0.14
|
%
|
|
|
0.16
|
%
|
Value
|
|
$
|
0.37
|
|
|
$
|
0.39
|
|
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, 2020:
|
|
October 2013
Warrants
|
|
|
January 2014
Warrants
|
|
|
|
|
|
|
|
|
Strike price
|
|
$
|
15.00
|
|
|
$
|
15.00
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Contractual term (years)
|
|
|
2.8
|
|
|
|
3.0
|
|
Cumulative volatility
|
|
|
119.18
|
%
|
|
|
116.65
|
%
|
Risk-free rate
|
|
|
0.16
|
%
|
|
|
0.18
|
%
|
Value
|
|
$
|
0.36
|
|
|
$
|
0.38
|
|
The
Company estimates volatility using a blend of its own historical stock price volatility as well as that of market comparable entities
since the Company’s common stock has limited trading history and limited observable volatility of its own. The expected 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.
8.
Licenses and Collaborations
Merck
Sharp & Dohme Corp.
On
January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”)
with Merck to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement,
Merck funds research and development for the program, including clinical development, and will be responsible for worldwide commercialization
of any products derived from the collaboration. Cocrystal is eligible to receive payments related to designated development, regulatory
and sales milestones with the potential to earn up to $156,000,000, as well as royalties on product sales. Merck can terminate the Collaboration
Agreement at any time prior to the first commercial sale of the first product developed under the Collaboration Agreement, in its sole
discretion, without cause.
Kansas
State University Research Foundation
Cocrystal
entered into a License Agreement with Kansas State University Research Foundation (the “Foundation”) on February 18, 2020
to further develop certain proprietary broad-spectrum antiviral compounds for the treatment of Norovirus and Coronavirus infections.
Pursuant
to the terms of the License Agreement, the Foundation granted the Company an exclusive royalty bearing license to practice under certain
patent rights, under patent applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how,
including to make and sell therapeutic, diagnostic and prophylactic products.
The
Company agreed to pay the Foundation a one-time non-refundable license initiation fee of $80,000 under the License Agreement,
and annual license maintenance fees. The Company also agreed to make certain future milestone payments, dependent upon the progress
of clinical trials, regulatory approvals, and initiation of commercial sales in the United States and certain countries outside
the United States.
9.
Commitments and Contingencies
Commitments
In
the ordinary course of business, the Company enters into non-cancelable leases to purchase equipment and for its facilities, including
related party leases (see Note 10 – Transactions with Related Parties). Leases are accounted for as operating leases or finance
leases, in accordance with ASC 842, Leases.
Operating
Leases
The
Company leases office space in Miami, Florida and research and development laboratory space in Bothell, Washington under
operating leases that expire on August 31, 2021 and January 31, 2024, respectively. For operating leases, the weighted average discount rate is 8.0% and the weighted average remaining lease term is 2.7 years.
The
following table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of March 31, 2021
(in thousands):
2021 (excluding the three months ended March 31, 2021)
|
|
$
|
155
|
|
2022
|
|
|
178
|
|
2023
|
|
|
183
|
|
Thereafter
|
|
|
15
|
|
Total operating lease payments
|
|
|
531
|
|
Less: present value discount
|
|
|
(56
|
)
|
|
|
|
|
|
Total operating lease liabilities
|
|
$
|
475
|
|
The
operating lease liabilities summarized above do not include variable common area maintenance (CAM) charges, which are contractual liabilities
under the Company’s Bothell, Washington lease. CAM charges for the Bothell, Washington facility are calculated annually based on
actual common expenses for the building incurred by the lessor and proportionately billed to tenants based on leased square footage.
For the three months ended March 31, 2021 and 2020, approximately $19,000 and $20,000 of variable lease expense (CAM) was included in
general and administrative operating expenses on the condensed consolidated statements of operations, respectively.
The
minimum lease payments above include the amounts that would be paid if the Company maintains its Bothell lease for the five-year term,
starting February 2019. The Company has the right to terminate this lease after three years on January 31, 2022, by giving prior notice
at least nine months before the early termination date and by paying a termination fee equal to the sum of unamortized leasing commissions
and reimbursement for tenant improvements provided by the landlord amortized at 8.0% over the extended term.
On
September 1, 2018, the Company entered into a lease agreement with a limited liability company controlled by Dr. Phillip Frost, a director
and a principal shareholder of the Company (see Note 10 – Transactions with Related Parties). The lease term is three years with
an optional three-year extension. On an annualized basis, straight-line rent expense is approximately $58,000, including fixed and estimable
fees and taxes.
For
the three months ended March 31, 2021 and 2020, operating lease expense, excluding short-term leases, finance leases and CAM charges,
totaled approximately $57,000 and $44,000, respectively.
Finance
Leases
In
November 2018, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $1,000 payable through
November 21, 2021. In April, 2020, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $2,000
payable through March 31, 2023. For finance leases, the weighted average discount rate is 8.0% and the weighted average remaining lease
term is 1.8 years.
The
following table summarizes the Company’s maturities of finance lease liabilities, by year and in aggregate, as of March 31, 2021
(in thousands):
2021 (excluding the three months ended March 31, 2021)
|
|
$
|
32
|
|
2022
|
|
|
29
|
|
2023
|
|
|
7
|
|
Total finance lease payments
|
|
|
68
|
|
Less: present value discount
|
|
|
(4
|
)
|
Total finance lease liabilities
|
|
$
|
64
|
|
The
leased lab equipment is depreciable over five years and is presented net of accumulated depreciation on the condensed consolidated balance
sheets under property and equipment. As of March 31, 2021, total right-of-use lab equipment and accumulated depreciation recognized under
finance leases is $211,000 and $125,000, respectively, and depreciation expense for the three months ended March 31, 2021 was $6,000.
As of December 31, 2020, total right-of-use assets lab equipment exchanged for finance lease liabilities was $211,000 and accumulated
depreciation for lab equipment under finance leases was $119,000.
At
March 31, 2021, the aggregate outstanding balance of finance lease liabilities, current and long-term, is $64,000 and the Company
expects to pay future interest charges of $4,000 over the remaining finance lease terms. For the three months ended March
31, 2021, the Company paid $9,000 and $1,000 in principal and interest, respectively, totaling financing cash out flows of $9,000,
net of interest expense, for amount included in the measurement of lease liabilities for finance leases. At December 31, 2020,
the aggregate outstanding balance of finance lease liabilities, current and long-term, was $74,000 and the Company expects to
pay future interest charges of $7,000 over the remaining finance lease terms. For the three months ended March 31, 2020, the Company
paid $57,000 and $2,000 in principal and interest, respectively, totaling financing cash out flows of $57,000, net of interest
expense, for amount included in the measurement of lease liabilities for finance leases.
Contingencies
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. We have retained counsel to defend us which has 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. The case has been set for trial in July, 2022.
In November 2017, Lee Pederson, a former
Biozone lawyer, filed a lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Phillip Frost,
OPKO Health, Inc. and Brian Keller alleging that defendants engaged in wrongful conduct related to Biozone, including causing
Biozone to enter into an allegedly improper licensing agreement and engaged in alleged market manipulation (“Pederson I”).
On September 13, 2018, the United States District Court granted the Company and its co-defendants’ motion to dismiss Pederson’s
amended complaint in Pederson I for lack of personal jurisdiction in Minnesota. On October 11, 2018, Pederson filed a notice of
appeal with the United States Court of Appeals for the Eighth Circuit. The plaintiff’s appeal was denied and the dismissal
of Pederson I affirmed in March 2020. Meanwhile, in July 2019, Lee Pederson had filed another lawsuit in the U.S. District Court
in Minnesota against co-defendants the Company, Dr. Frost, and Daniel Fisher (“Pederson II”). In his complaint in
Pederson II, Pederson alleges tortious interference by the Company and Dr. Frost with an alleged collaboration agreement between
Mr. Pederson and Mr. Fisher. In Pederson II, Mr. Pederson seeks damages in the amount of $800,000 or such other amount as may
be determined at trial. Pederson II had previously been stayed by the court, pending disposition of Pederson I. With that first
lawsuit having been dismissed and appeal denied, the stay was lifted in Pederson II, and the Company and all other defendants
in that case filed Motions to Dismiss the (then amended) complaint. On November 19, 2020 the Magistrate Judge recommended dismissal
of Pederson II, and further recommended that Pederson be restricted from filing any other actions in the District of Minnesota
against defendants on the same or similar allegations as those in Pederson II, and on January 4, 2021 the District Court Judge
adopted those recommendations and ordered dismissal of Pederson II. On February 1, 2021 Pederson filed a Notice of Appeal from
the order of dismissal of Pederson II in the Eighth Circuit, and that appeal remains pending.
On May 19, 2020, A.G.P./Alliance Global
Partners (“AGP”), which had previously acted as the Company’s underwriter, placement agent and sales agent in
connection with the Company’s registered and exempt equity offerings, filed a lawsuit against the Company in the United
States District Court for the Southern District of New York alleging violation of a lock-up provision under the Placement Agent
Agreement, dated January 28, 2020 (the “Placement Agent Agreement”), by and between the Company and AGP. AGP seeks
(i) damages estimated in the complaint to be in excess of $1 million and attorneys’ fees, and (ii) declaratory relief. The
Company has answered the complaint and discovery has been initiated.
While the Company intends to defend
itself vigorously from the claims in the aforementioned disputes, it is unable to predict the outcome of these legal proceedings.
Any potential loss as a result of these legal proceedings cannot be reasonably estimated. As a result, the Company has not recorded
a loss contingency for any of the aforementioned claims.
COVID-19
Our
administrative and finance activities are fully functional out of our Miami, Florida location and our research laboratory in Bothell,
Washington remains open for essential operations while meeting COVID-19 quarantine challenges. Our scientists are also able to continue
working remotely and we remain committed to meeting our corporate and development milestones throughout the year. We have experienced
delays in our supply chain and with service partners as a result of the COVID-19 pandemic. Also because of the unknown impact from the
COVID-19 pandemic, it may have unanticipated material adverse effects on us in a number of ways including:
|
●
|
If
our scientists and other personnel (or their family members) are infected with the virus, it may hamper our ability to engage in
ongoing research activities;
|
|
●
|
Similarly,
we rely on third parties who can be similarly impacted;
|
|
●
|
If
these third parties are affected by COVID-19, they may focus on other activities which they may devote their limited time to other
priorities rather than to our joint research;
|
|
●
|
We
may experience a shortage of laboratory materials which would impact our research activities;
|
|
●
|
As
a result of the continuing impact of the virus, we may fail to get access to third party laboratories which would impact our research
activities; and
|
|
●
|
We
may sustain problems due to the serious short-term and possible longer term serious economic disruptions as our economy faces unprecedented
uncertainty.
|
10.
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 shareholder, Dr. Phillip Frost. The operating lease term is three years with an optional three-year extension. On an annualized
basis, straight-line lease expense, including taxes and fees, for this location is approximately $58,000. In September 2018, the Company
paid a lease deposit of $4,000 and total amounts paid in connection with this operating lease were $15,000 and $14,000 for the three
months ended March 31, 2021 and 2020, respectively.
11.
Subsequent Events
On
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 Company received approximately $36.4 million in net proceeds from the Offering,
after deducting underwriting discounts and offering expenses. The Offering closed on May 7, 2021.