SEC Form 10-Q filed by Dyadic International Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____ to ______
Commission File Number:
DYADIC INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
| State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. |
| Address of Principal Executive Offices | Zip Code |
(
| Registrant’s Telephone Number, Including Area Code | ||||
| N/A | ||||
| Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||||||||||
| | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The number of shares outstanding of the registrant’s Common Stock as of November 11, 2024 was
TABLE OF CONTENTS
| Page |
||||||||
| Item 1. |
3 | |||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||||||
| Item 3. |
22 | |||||||
| Item 4. |
22 | |||||||
| Item 1. |
23 | |||||||
| Item 1A. |
23 | |||||||
| Item 2. |
23 | |||||||
| Item 3. |
23 | |||||||
| Item 4. |
23 | |||||||
| Item 5. |
23 | |||||||
| Item 6. |
||||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the federal securities laws, particularly under Item 2 “Management’s Discussion and Analysis.” All statements other than statements of historical fact are forward‑looking. Examples of forward-looking statements include, but are not limited to, statements regarding industry prospects, future business, future results of operations or financial condition, future liquidity and capital resources, our ability to implement our agreements with third parties, management strategies, and our competitive position. Forward-looking statements generally can be identified by use of the words “expect,” “should,” “intend,” “anticipate,” “will,” “project,” “may,” “might,” “potential,” or “continue” and other similar terms or variations of them or similar terminology. Dyadic International, Inc., and its subsidiaries cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance.
Forward-looking statements involve many risks, uncertainties, or other factors beyond Dyadic’s control. These factors include, but are not limited to (i) our history of net losses; (ii) market and regulatory acceptance of our microbial protein production platforms and other technologies; (iii) competition, including from alternative technologies; (iv) the results of nonclinical studies and clinical trials; (v) our capital needs; (vi) changes in global economic and financial conditions; (vii) our reliance on information technology; (viii) our dependence on third parties; (ix) government regulations and environmental, social and governance issues; (x) intellectual property risks and (xi) other factors discussed in Dyadic’s publicly available filings, including information set forth under the caption “Risk Factors” in this Quarterly Report and in our annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024 (the “Annual Report”). We caution you that the foregoing list of important factors is not exclusive. Any forward-looking statements are based on our beliefs, assumptions, and expectations of future performance, considering the information currently available to us. Before investing in our common stock, investors should carefully read the information set forth under the caption “Risk Factors” and elsewhere in this Quarterly Report, in our Annual Report and in our other SEC filings, which could have a material effect on our business, results of operations and financial condition. The forward-looking statements contained in this Quarterly Report are made only as of the date hereof, and except as required by law, we undertake no obligation to publicly update any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.
| Item 1. |
Financial Statements |
DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investment securities | ||||||||
| Interest receivable | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred research and development obligations | ||||||||
| Operating lease liability, current portion | ||||||||
| Accrued interest | ||||||||
| Accrued interest- related party | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Convertible notes, net of issuance costs | ||||||||
| Convertible notes, net of issuance costs - related party | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 5) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value: | ||||||||
| Authorized shares - ; issued and outstanding | ||||||||
| Common stock, $ par value: | ||||||||
| Authorized shares - ; issued shares - and , outstanding shares - and as of September 30, 2024, and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, shares held at cost - | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Research and development revenue |
$ | $ | $ | $ | ||||||||||||
| License revenue |
||||||||||||||||
| Total revenue |
||||||||||||||||
| Costs and expenses: |
||||||||||||||||
| Costs of research and development revenue |
||||||||||||||||
| Research and development |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Foreign currency exchange loss |
||||||||||||||||
| Total costs and expenses |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
||||||||||||||||
| Gain on sale of Alphazyme |
||||||||||||||||
| Interest expense |
( |
) | ( |
) | ||||||||||||
| Interest expense - related party |
( |
) | ( |
) | ||||||||||||
| Total other income (expense), net |
( |
) | ||||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted net loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic and diluted weighted-average common shares outstanding |
||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Nine Months Ended September 30, 2024 |
||||||||||||||||||||||||||||
| Common Stock |
Treasury Stock |
Additional Paid-In |
Accumulated |
|||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||||||||
| January 1, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units |
— | |||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| March 31, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units |
— | ( |
) | |||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options |
— | ( |
) | |||||||||||||||||||||||||
| Issuance of common stock upon settlement of convertible debt |
||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| June 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||
| Issuance of common stock upon settlement of convertible debt |
||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| September 30, 2024 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Nine Months Ended September 30, 2023 |
||||||||||||||||||||||||||||
| Common Stock |
Treasury Stock |
Additional Paid-In |
Accumulated |
|||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||||||||
| January 1, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| March 31, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| June 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||
| September 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Stock-based compensation expense |
||||||||
| Amortization of held-to-maturity securities, net |
( |
) | ( |
) | ||||
| Amortization of debt issuance costs |
||||||||
| Gain from the sale of investment in Alphazyme |
( |
) | ( |
) | ||||
| Foreign currency exchange loss, net |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Interest receivable |
( |
) | ||||||
| Accounts receivable |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Operating lease assets and liabilities |
( |
) | ||||||
| Accounts payable |
( |
) | ( |
) | ||||
| Accrued expenses |
||||||||
| Accrued interest |
||||||||
| Accrued interest - related party |
||||||||
| Deferred research and development obligation |
( |
) | ||||||
| Deferred license revenue |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities |
||||||||
| Purchases of held-to-maturity investment securities |
( |
) | ( |
) | ||||
| Proceeds from maturities of investment securities |
||||||||
| Proceeds from the sale of investment in Alphazyme |
||||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of convertible notes, net of issuance costs |
||||||||
| Proceeds from issuance of convertible notes, net of issuance costs - related party |
||||||||
| Net cash provided by financing activities |
||||||||
| Effect of exchange rate changes on cash |
( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental cash flow information |
||||||||
| Vesting of restricted stock units |
$ | $ | ||||||
| Conversion of convertible notes |
$ | $ | ||||||
| Cash paid for interest |
$ | $ | ||||||
| Right-of-use asset obtained in exchange for lease obligations |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1: Organization and Summary of Significant Accounting Policies
Description of Business
Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) is a global biotechnology company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and it utilizes several third-party consultants and research organizations to carry out the Company’s activities. Over the past two plus decades, the Company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins, and has previously licensed this technology to third parties, such as Abengoa Bioenergy SA, BASF SE, Codexis, Inc. and others, for use in industrial (non-pharmaceutical) applications. This technology is based on the Thermothelomyces heterothallica (formerly known as Myceliophthora thermophila) fungus, which the Company named C1.
Subsequent to the Company selling its industrial technology business to Danisco USA (“Danisco”), the industrial biosciences business of DuPont (NYSE: DD) (the “DuPont Transaction”) on December 31, 2015, the Company has been focused on building the C1-cell protein production platform for the development and production of biologic products including enzymes and other proteins for human and animal health. Some examples of human and animal vaccines and drugs which have the potential to be produced from C1-cells are protein antigens, ferritin nanoparticles, virus-like particles (“VLPs”), monoclonal antibodies (“mAbs”), Bi/Tri-specific antibodies, Fab antibody fragments, Fcfusion proteins, as well as other therapeutic enzymes and proteins. The Company is involved in multiple funded research collaborations with animal and human pharmaceutical companies which are designed to leverage its C1-cell protein production platform to develop innovative vaccines and drugs, biosimilars and/or biobetters.
The Company also developed the Dapibus™ thermophilic filamentous fungal based microbial protein production platform to enable the rapid development and large-scale manufacture of low-cost proteins, metabolites, and other biologic products for use in non-pharmaceutical applications, such as food, nutrition, and wellness.
Liquidity and Capital Resources
The Company expects to incur losses and have negative net cash flows from operating activities as it continues developing its microbial protein production platforms and related products, and as it expands its pipelines and engages in further research and development activities for internal products as well as for its third-party collaborators and licensees. The success of the Company depends on its ability to develop its technologies and products to the point of regulatory approval and subsequent revenue generation or through the sublicensing of the Company’s technologies and products, and its ability to raise capital to finance these developmental efforts.
On March 8, 2024, the Company issued an aggregate principal amount of $
The Convertible Notes are senior, secured obligations of Dyadic and its affiliates, and interest is payable quarterly in cash on the principal amount equal to
The Convertible Notes can be converted into shares of Dyadic’s Class A common stock (the “Common Stock”), at the option of the holders of the Convertible Notes (the “Noteholders”) at any time prior to the Maturity Date. This private placement funding is expected to support our near-term revenue growth and accelerate our strategic objective of commercialization opportunities for pharmaceutical and non-pharmaceutical applications. On October 4, 2024, the Company entered into an amendment (the “Amendment”) to the Convertible Notes. Pursuant to the Amendment, (i) the conversion price upon which the Convertible Notes will be convertible into shares of the Company’s common stock is $
As of September 30, 2024, $
The Company expects its existing cash and cash equivalents, and cash raised from the Convertible Notes, investments in debt securities, and operating cash flows will be sufficient to meet its operational, business, and other liquidity requirements for at least the next twelve (12) months from the date of issuance of the financial statements contained in this Quarterly Report. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. In the event our financing needs are not able to be met by our existing cash, cash equivalents and investments, we would seek to raise additional capital through strategic financial opportunities that could include, but are not limited to, future public or private equity offerings, collaboration agreements, and/or other means. Any amounts raised may be used for the further development and commercialization of product candidates, and for other working capital purposes. There is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing shareholders.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, including the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. All significant intra-entity transactions and balances have been eliminated in consolidation. The information included in this Quarterly Report should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2023, included in our Annual Report.
In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
The Company conducts business in operating segment, which is identified by the Company based on how resources are allocated, and operating decisions are made. Management evaluates performance and allocates resources based on the Company as a whole.
Use of Estimates
The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts, and experience. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.
Concentrations and Credit Risk
The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, investment securities, and accounts receivable. At times, the Company has cash, cash equivalents, and investment securities at financial institutions exceeding the Federal Depository Insurance Company (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”) insured limit on domestic currency and the Netherlands’ FDIC counterpart for foreign currency. The Company currently deals with four reputable financial institutions and has not experienced any losses in those accounts.
For the three months ended September 30, 2024 and 2023, the Company’s revenue was generated from and customers, respectively. For the nine months ended September 30, 2024 and 2023, the Company’s revenue was generated from and customers, respectively. Significant customers are those that account for greater than 10% of the Company’s revenues. For the three months ended September 30, 2024 and 2023, and significant customers accounted for $
As of September 30, 2024 and December 31, 2023, accounts receivable was from and customers, of which, customers accounted for $
The Company conducts operations in the Netherlands through its foreign subsidiary and generates a portion of its revenues from customers that are located outside of the United States. For the three months ended September 30, 2024 and 2023, the Company had and customers outside of the United States (i.e., European customers) that accounted for $
As of September 30, 2024 and December 31, 2023, the Company had
The Company uses several contract research organizations (“CROs”) to conduct its research projects. For the three months ended September 30, 2024 and 2023, and CROs accounted for $
Cash and Cash Equivalents
We treat highly liquid investments with original maturities of three months or less when purchased as cash equivalents, including money market funds, which are unrestricted for withdrawal or use.
Investment Securities
The Company’s investment policy requires investment securities to be investment grade and held to maturity with the primary objective to maintain a high degree of liquidity while maximizing yield. The Company invests excess cash balances in short-term and long-term investment grade securities. Short-term investment securities mature within twelve (12) months or less, and long-term investment securities mature over twelve (12) months from the applicable reporting date. Management determines the appropriate classification of each investment at the time of purchase and reevaluates the classifications at each balance sheet date.
The Company classifies its investments in debt securities as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, net of allowance for credit losses if applicable, and adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized over the life of the related held-to-maturity security. When a debt security is purchased at a premium, both the face value of the debt and premium amount are reflected as investing outflow.
When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. The Company measures expected credit losses on held to maturity debt securities on an individual security basis. The estimate of expected credit losses considers historical credit information from external sources. The impairment of the investment that is related to the credit loss, if any, is expensed in the period in which the event or change occurred.
The Company classifies its investments in money market funds as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. As of September 30, 2024 and December 31, 2023, all of our money market funds were invested in U.S. Government money market funds, for which the risk of loss is minimal.
As of September 30, 2024, and December 31, 2023, the Company did not have any investment securities classified as trading.
Accounts Receivable
Accounts receivable consist of billed receivables currently due from customers and unbilled receivables. Unbilled receivables represent the excess of contract revenue (or amounts reimbursable under contracts) over billings to date. Such amounts become billable in accordance with the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.
Accounts receivable are stated net of an allowance for credit losses, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions and changes in our customer collection trends. If necessary, an allowance for credit losses is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. Accounts receivable balances are written off against the allowance for credit losses when the potential for collectability is considered remote. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the next twelve (12) months. Management determined that
Accounts receivable consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Billed receivable | $ | $ | ||||||
| Unbilled receivable | ||||||||
| $ | $ | |||||||
Accounts Payable
Accounts payable consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Research and development expenses | $ | $ | ||||||
| Legal expenses | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Accrued Expenses
Accrued expenses consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Employee wages and benefits | $ | $ | ||||||
| Research and development expenses | ||||||||
| Legal expenses | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method and are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are netted against the gross proceeds received from the equity financings. See Note 4 for the amortization amount.
Research and Development Costs
Research and development (“R&D”) costs are expensed as incurred. R&D costs are for the Company’s internally funded pharmaceutical programs and other governmental and commercial projects.
Research and development costs consist of personnel-related costs, facilities, research-related overhead, services from independent contract research organizations, and other external costs. Research and development costs, including related party, for the three and nine months ended September 30, 2024 and 2023 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Outside contracted services | $ | $ | $ | $ | ||||||||||||
| Personnel related costs | ||||||||||||||||
| Facilities, overhead and other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Foreign Currency Transaction Gain or Loss
The Company and its foreign subsidiary use the U.S. dollar as its functional currency, and initially measure the foreign currency denominated assets and liabilities at the transaction date. Monetary assets and liabilities are then re-measured at exchange rates in effect at the end of each period, and property and non-monetary assets and liabilities are carried at historical rates.
Fair Value Measurements
The Company applies fair value accounting for certain financial instruments that are recognized or disclosed at fair value in the financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
| • | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| • | Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| • | Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. |
The Company’s financial instruments included cash and cash equivalents, investment in debt securities, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, deferred research and development obligations, deposits, and the Company's 8% Senior Secured Convertible Promissory Notes (the “Convertible Notes”), due March 2027. The carrying amount of these financial instruments, except for investment in debt securities and Convertible Notes, approximates fair value due to the short-term maturities of these instruments. The Company’s short-term and long-term investments in debt securities are recorded at amortized cost, and their estimated fair value amounts are provided by the third-party broker service for disclosure purposes. See Note 4 for additional information related to the Convertible Notes.
Income Taxes
For the nine months ended September 30, 2024, there was no provision for income taxes or unrecognized tax benefits recorded. As of September 30, 2024 and December 31, 2023, deferred tax assets were $
Stock-Based Compensation
We recognize all share-based payments to employees, consultants, and our Board of Directors (the “Board”), as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.
For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common stock shares outstanding during the reporting period. Diluted net loss per share adjusts the weighted average number of common stock shares outstanding for the potential dilution that could occur if common stock equivalents, such as stock options were exercised and converted into common stock, calculated by applying the treasury stock method.
For the three and nine months ended September 30, 2024, a total of
Recent Accounting Pronouncements Not Adopted as of September 30, 2024
In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 will become effective for annual periods beginning January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact on our financial position and results of operations.
In November 2023, the FASB issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss, require disclosure of other segment items by reportable segment and a description of the composition of other segment items, require annual disclosures under ASC 280 to be provided in interim periods, clarify use of more than one measure of segment profit or loss by the CODM, require that the title of the CODM be disclosed with an explanation of how the CODM uses the reported measures of segment profit or loss to make decisions, and require that entities with a single reportable segment provide all disclosures required by this update and required under ASC 280. ASU 2023-07 is effective for public business entities for fiscal years beginning January 1, 2024, and interim periods beginning January 1, 2025, with early adoption permitted. We do not expect that this guidance will have a material impact on our financial position and results of operations.
Note 2: Cash, Cash Equivalents, and Investments
The Company’s investments in debt securities are classified as held-to-maturity and are recorded at amortized cost, net of allowance for credit losses, and its investments in money market funds are classified as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. The following table shows the Company’s cash, available-for-sale securities, and investment securities by major security type as of September 30, 2024, and December 31, 2023:
| September 30, 2024 (Unaudited) | ||||||||||||||||||||||||
| Allowance | Gross | Gross | ||||||||||||||||||||||
| Level | for | Unrealized | Unrealized | |||||||||||||||||||||
| (1 | ) | Credit Losses | Holding Gains | Holding Losses | Adjusted Cost | |||||||||||||||||||
| Cash and Cash Equivalents | ||||||||||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | — | $ | ||||||||||||||||
| Money Market Funds (2) | 1 | — | — | — | ||||||||||||||||||||
| Subtotal | — | — | — | |||||||||||||||||||||
| Short-Term Investment Securities (3) | ||||||||||||||||||||||||
| Corporate Bonds (4)(5) | 2 | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 (Audited) | |||||||||||||||||||||||
| Allowance | Gross | Gross | |||||||||||||||||||||
| Level | for | Unrealized | Unrealized | ||||||||||||||||||||
| (1) | Fair Value | Credit Losses | Holding Gains | Holding Losses | Adjusted Cost | ||||||||||||||||||
| Cash and Cash Equivalents | |||||||||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | — | $ | |||||||||||||||
| Money Market Funds (2) | 1 | — | — | — | |||||||||||||||||||
| Subtotal | — | — | — | ||||||||||||||||||||
| Short-Term Investment Securities (3) | |||||||||||||||||||||||
| Corporate Bonds (4)(5) | 2 | ( | ) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
_________________
Notes:
(1) Definition of the three-level fair value hierarchy:
| • | Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities |
| • | Level 2 - Other inputs that are directly or indirectly observable in the markets |
| • | Level 3 - Inputs that are generally unobservable |
(2) All our money market funds were invested in U.S. Government money market funds.
(3) Short-term investment securities will mature within 12 months or less, from the applicable reporting date.
(4) For the three months ended September 30, 2024 and 2023, the Company received discounts of $
(5) The Company considers the declines in market value of its investment portfolio to be temporary in nature. As of September 30, 2024 and December 31, 2023, the Company did not consider any of its investments to be other-than-temporarily impaired and no allowance for credit losses was recorded.
Note 3: Research and Collaboration Agreements, Sublicense Agreements, and Investments in Privately Held Companies
Proliant
On June 27, 2024, the Company entered into a License and Development Agreement (the “Proliant Agreement”) with Proliant Biologicals, LLC d/b/a Proliant Health and Biologicals (“Proliant”), pursuant to which Proliant will license Dyadic’s proprietary fungal microbial expression and production platforms and microbial strains for the production of recombinant serum albumin. Under the terms of the Proliant Agreement, Dyadic has received an initial upfront payment of $
For the three and nine months ended September 30, 2024, the Company recognized $
On September 18, 2023, Dyadic International (USA) Inc., a subsidiary of the Company, signed a Development and Exclusive License Agreement (the “Inzymes Agreement”) with Inzymes ApS (“Inzymes”), a Denmark corporation, to develop and commercialize certain non-animal dairy enzymes used in the production of food products using Dyadic’s proprietary Dapibus™ platform. On October 11, 2024, the Inzymes Agreement was amended (“the Amended Inzymes Agreement”).
In October 2023, the Company received an upfront payment of $
A Global Food Ingredient Company
On May 10, 2022, the Company entered into a Joint Development Agreement (the “JDA”) with a Global Food Ingredient Company (“GFIC”) to develop and manufacture several animal free ingredient products using the Company’s biotechnologies.
Under the initial terms of the JDA, Dyadic was to develop its proprietary production cell lines for the manufacture of animal free ingredient product candidates. The GFIC has completed its one-year funding commitment for the initial phase of research collaboration in an amount approximating $1.35 million, and, pursuant to the GFIC’s rights under the JDA, the Company and the GFIC are in discussions related to the potential development of other animal free ingredient products. The Company is also considering other funding sources to continue the original project.
For the three and nine months ended September 30, 2024, there was
Janssen
On December 16, 2021, the Company entered a Research, License, and Collaboration Agreement (the “Janssen Agreement”) for the manufacture of therapeutic protein candidates using its C1-cell protein production platform with Janssen Biotech, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”).
On October 2, 2023, Janssen provided written notice to Dyadic that it has decided to wind down the collaboration with an effective end date of December 31, 2023.
For the three and nine months ended September 30, 2024, there was
Alphazyme
In 2019 the Company entered into a sub-licensing agreement with Alphazyme, LLC (“Alphazyme”) that was subsequently amended (the “Amended Alphazyme LLC Agreement”). Under the Amended Alphazyme LLC Agreement, Alphazyme obtained additional capital contribution and Dyadic’s ownership was diluted to
The Company evaluated the nature of its equity interest investment in Alphazyme and determined that Alphazyme is a VIE due to the capital structure of the entity. However, the Company is not the primary beneficiary of Alphazyme as Dyadic does not have the power to control or direct the activities of Alphazyme that most significantly impact the VIE. As a result, the Company does not consolidate its investment in Alphazyme. The Company reports its investment in Alphazyme under the cost method of accounting, given that it does not have the ability to exercise significant influence or control over Alphazyme.
On January 18, 2023, the Company entered into a Securities Purchase Agreement, under which the Company agreed to sell its equity interest in Alphazyme, LLC (the “Alphazyme Sale Agreement”). The Company continues to have the potential to receive additional payments based on the future sales of Alphazyme’s existing products, pursuant to the Alphazyme Sale Agreement.
The Amended Sublicense Agreement between Dyadic and Alphazyme, which was previously entered on June 24, 2020, remains in effect. Under the Amended Alphazyme Sub-License Agreement, Dyadic is entitled to potential milestone and royalty payments upon the commercialization of Alphazyme products using Dyadic’s proprietary C1-cell protein production platform.
For the year ended December 31, 2023, the Company received a total cash payment of $
Note 4: Convertible Notes Payable
On March 8, 2024, the Company issued senior secured convertible promissory notes (the “Convertible Notes”) with an aggregate principal amount of $
The Convertible Notes are senior, secured obligations of the Company and its affiliates, and interest is payable quarterly in cash on the principal amount equal to
The Convertible Notes mature on March 8, 2027, unless earlier converted or redeemed in accordance with the terms of the Convertible Notes. The Convertible Notes are secured by a first priority lien on substantially all assets of the Company and Dyadic International (USA), Inc.
Pursuant to an amendment entered into by the Company on October 4, 2024, the Holders may require the Company to redeem all or any part of the Convertible Notes on a redemption date falling on any of the 26, 29, and 32-month anniversaries of the original issue date of the Convertible Notes (any such date, a “Redemption Date”) upon not less than 60 calendar days written notice prior to the applicable Redemption Date. The Company may also elect to redeem all or any part of the Convertible Notes on a Redemption Date upon not less than 60 calendar days written notice prior to the applicable Redemption Date. The Convertible Notes are convertible into shares of the Company’s common stock, in whole or in part, at the option of the Holders at any time, based on a conversion price of $
The Convertible Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-15, Derivatives and Hedging. Under ASC 815, contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. Based on the Company’s analysis, it is determined that the Convertible Notes contain embedded features that are indexed to the Company’s own stock and are classified in stockholders’ equity in the Company’s statement of financial position, but do not meet the requirements for bifurcation and recognition as derivatives, and therefore, do not need to be accounted for separately. Accordingly, the proceeds received from the issuance of the Convertible Notes were recorded as a single liability in accordance with ASC 470 on the Company’s consolidated balance sheets.
The Company incurred $
For the three months ended September 30, 2024, $
For the nine months ended September 30, 2024, $
| Holder | Issuance Date | Due Date | Interest Rate | Convertible Note Principal | Principal Repayments | Conversion to Common Stock | Principal Outstanding | |||||||||||||||
| Francisco Trust dated 2/28/1996 (1) |
|
| $ | $ | — | $ | — | $ | ||||||||||||||
| Bradley Emalfarb (2) |
|
| — | ( | ) | |||||||||||||||||
| Bradley Scott Emalfarb Irrevocable Trust (2) |
|
| — | ( | ) | |||||||||||||||||
| Emalfarb Descendent Trust (3) |
|
| — | — | ||||||||||||||||||
| Convertible Notes - Related Party | $ | $ | — | $ | ) | |||||||||||||||||
| Unamortized Debt Issuance Costs - Related Party | ) | |||||||||||||||||||||
| Net Carrying Amount | $ | |||||||||||||||||||||
| Convertible Notes - Third Party |
|
| $ | $ | — | $ | — | |||||||||||||||
| Unamortized Debt Issuance Costs - Third Party | ) | |||||||||||||||||||||
| Net Carrying Amount | $ | |||||||||||||||||||||
_________________
Notes:
(1) Mr. Thomas Emalfarb, nephew of Mr. Mark A. Emalfarb, our President and Chief Executive Officer, is the Trustee of the Francisco Trust. Mr. Thomas Emalfarb may be deemed to have voting, dispositive and investment power with respect to the shares of common stock held by the Francisco Trust and disclaims any such beneficial ownership other than to the extent of any pecuniary interest he may have therein, directly or indirectly. The amount of accrued interest as of September 30, 2024, is $
(2) Mark A. Emalfarb, our President and Chief Executive Officer, is the Trustee of the Irrevocable Trust and the brother of Mr. Bradley S. Emalfarb, who is the sole beneficiary of the Irrevocable Trust. Mr. Bradley S. Emalfarb, as sole beneficiary of the Irrevocable Trust, therefore, may be deemed to have voting, dispositive and investment power with respect to the shares of common stock held by the Irrevocable Trust and disclaims any such beneficial ownership other than to the extent of any pecuniary interest he may have therein, directly or indirectly. For the nine months ended September 30, 2024, $
(3) Messrs. Thomas Emalfarb, Scott Emalfarb and Michael Emalfarb, nephews of Mr. Mark A. Emalfarb, our President and Chief Executive Officer, are co-trustees of the Descendant Trust and may therefore be deemed to have shared voting, dispositive and investment power over the shares of common stock held by the Descendant Trust. The amount of accrued interest as of September 30, 2024, is $
Note 5: Commitments and Contingencies
Legal Proceedings
We are not currently involved in any litigation that we believe could have a materially adverse effect in our financial condition or results of operations. From time to time, the Company is subject to legal proceedings, asserted claims and investigations in the ordinary course of business, including commercial claims, employment and other matters, which management considers immaterial, individually and in the aggregate. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The requirement for these provisions is reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable and costly. Protracted litigation and/or an unfavorable resolution of one or more of proceedings, claims or investigations against the Company could have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations.
VTT Research Contract Extension
On January 31, 2024, the Company entered into a Third Amendment to the commission contract concerning VTT Technical Research Centre of Finland Ltd. (“VTT”) to develop Dyadic’s C1 fungal expression system for therapeutic protein production. The original contract was entered on June 28, 2019, and subsequently amended by the First Amendment on June 21, 2022, and the Second Amendment on September 9, 2022. Under the terms of the Third Amendment, the contract duration was extended to January 31, 2025, and Dyadic will pay VTT a total of EUR to continue developing Dyadic’s C1-cell protein production platform for therapeutic protein production, including our C1 host system. Dyadic has the right to terminate the contract with 90 days’ notice. As of September 30, 2024, the Company paid EUR and the remaining amount of the contract of EUR will be paid during the first quarter of 2025.
Note 6: Share-Based Compensation
Description of Equity Plans
The 2021 Equity Incentive Award Plan (the “2021 Plan”) was adopted by the Company’s Board of Directors on April 9, 2021 and approved by the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) on June 11, 2021. The 2021 Plan serves as a successor to the Company’s 2011 Equity Incentive Plan (the “2011 Plan”). Since the adoption of the 2021 Plan, all equity awards were made from the 2021 Plan and no additional awards will be granted under the 2011 Plan. The 2021 Plan provides for the issuance of a variety of share-based compensation awards, including stock options, restricted stock awards, restricted stock unit awards, performance awards, dividend equivalents awards, deferred stock awards, stock payment awards and stock appreciation rights. As of April 16, 2021, the 2021 Plan increased the number of shares available for grant by
As of September 30, 2024, the Company had
Stock Options
Options are granted to purchase common stock at prices that are equal to the fair value of the common stock on the date the option is granted. Vesting is determined by the Board of Directors at the time of grant. The term of any stock option awards under the Company’s 2011 Plan and 2021 Plan is years, except for certain options granted to the contractors which are either or years.
The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite service period, which is generally the vesting period, for each separately vesting portion of the award as if the award was, in substance, multiple awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the following.
Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury rates with securities approximating the expected lives of options at the date of grant.
Expected dividend yield. The expected dividend yield is zero, as the Company has never paid dividends to common shareholders and does not currently anticipate paying any in the foreseeable future.
Expected stock price volatility. The expected stock price volatility was calculated based on the Company’s own volatility since the DuPont Transaction in 2015. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.
Expected life of option. The expected life of option was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The Company uses the weighted average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to the CEO (i.e.,
The assumptions used in the Black-Scholes option pricing model for stock options granted for the nine months ended September 30, 2024 are as follows:
| Risk-Free interest rate | ||||
| Expected dividend yield | —% | |||
| Expected stock price volatility | | |||
| Expected life of options (in years) |
The following table summarizes the stock option activities for the nine months ended September 30, 2024:
| Weighted-Average | ||||||||||||||||
| Weighted-Average | Remaining Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Exercise Price | Term (Years) | Value | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted (1) | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Expired (2) | ( | ) | ||||||||||||||
| Canceled (3) | ( | ) | ||||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||||||
_________________
Notes:
(1) Represents the following options granted:
| • | Annual share-based compensation awards on January 2, 2024, with an exercise price of $ | |
| • | One-time awards on April 11, 2024, with an exercise price of $ | |
| • | A one-time award on September 23, 2024, of |
(2) Represents the following options expired:
| (a) |
(3) Represents the following options canceled:
| (a) |
Restricted Stock Units
Restricted stock units (the “RSUs”) are granted subject to certain restrictions. Vesting conditions are determined at the discretion of the Board of Directors. The fair market value of RSUs is generally determined based on the closing market price of the stock on the grant date.
The following table summarizes the restricted stock award activity for the nine months ended September 30, 2024:
| Weighted-Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted (1) | ||||||||
| Vested (2) | ( | ) | ||||||
| Unvested shares forfeited(3) | ( | ) | ||||||
| Outstanding at September 30, 2024 | $ | |||||||
_________________
Notes:
| (1) |
| On March 13, 2024, the Company granted |
| (2) |
| Represents |
| (3) | Represents the cancellation of RSUs granted to a former member of the Board of Directors. |
Compensation Expenses
We recognize all share-based payments to employees and our Board of Directors, as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations, and these charges had no impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur. For the three and nine months ended September 30, 2024, there were forfeitures of $
For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date.
Total non-cash share-based compensation expense was allocated among the following expense categories:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following table summarizes the Company’s non-cash share-based compensation expense allocation between options and restricted stock units:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Share based compensation expense - stock option | $ | $ | $ | $ | ||||||||||||
| Share based compensation expense - restricted stock units | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Note 7: Shareholders’ Equity
Issuances of Common Stock
For the nine months ended September 30, 2024, there were
Treasury Stock
As of September 30, 2024, there were
Note 8: Subsequent Events
For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through November 12, 2024, the date the consolidated financial statements were available to be issued. Except for items mentioned in the notes, management is not aware of any material events that have occurred after the balance sheet date that would require adjustment to, or disclosure in the accompanying financial statements.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, assumptions and uncertainties. Important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Quarterly Report. All forward-looking statements included in this Quarterly Report are based on information available to us as of the time we file this Quarterly Report and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.
Overview
Description of Business
Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) is a global biotechnology company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and it utilizes several third-party consultants and research organizations to carry out the Company’s activities. Over the past two plus decades, the Company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins, and has previously licensed this technology to third parties, such as Abengoa Bioenergy, BASF, Codexis and others, for use in industrial (non-pharmaceutical) applications. This technology is based on the Thermothelomyces heterothallica (formerly known as Myceliophthora thermophila) fungus, which the Company named C1.
On December 31, 2015, the Company sold its industrial technology business to Danisco USA (“Danisco”), the industrial biosciences business of DuPont (NYSE: DD) (the “DuPont Transaction”). As part of the DuPont Transaction, Dyadic retained co-exclusive rights to the C1-cell protein production platform for use in all human and animal pharmaceutical applications, and currently the Company has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions) for use in all human and animal pharmaceutical applications. Danisco retained certain rights to utilize the C1-cell protein production platform in pharmaceutical applications, including the development and production of pharmaceutical products, for which it will be required to make royalty payments to Dyadic upon commercialization. After December 31, 2029, Danisco will have certain rights to sublicense C1 technology to third parties for which the Company will be entitled to receive royalties on such pharmaceutical products for a certain period of time. In certain circumstances, Dyadic may owe a royalty to either Danisco or certain licensors of Danisco, depending upon whether Dyadic elects to utilize certain patents either owned by Danisco or licensed in by Danisco.
After the DuPont Transaction, the Company has been building innovative microbial platforms to address the growing demand for global protein bioproduction and unmet clinical needs for effective, affordable, and accessible biopharmaceutical products for human and animal health and for other biologic products for use in non-pharmaceutical applications.
The C1-cell protein production platform is a robust and versatile thermophilic filamentous fungal expression system for the development and production of biologic products including enzymes and other proteins for human and animal health. Some examples of human and animal vaccines and drugs which have the potential to be produced from C1-cells are protein antigens, ferritin nanoparticles, virus-like particles (“VLPs”), monoclonal antibodies (“mAbs”), Bi/Tri-specific antibodies, Fab antibody fragments, Fc-fusion proteins, as well as other therapeutic enzymes and proteins. The Company is involved in multiple funded research collaborations with animal and human pharmaceutical companies which are designed to leverage its C1-cell protein production platform to develop innovative vaccines and drugs, biosimilars and/or biobetters.
The Company also developed the Dapibus™ thermophilic filamentous fungal based microbial protein production platform to enable the rapid development and large-scale manufacture of low-cost proteins, metabolites, and other biologic products for use in non-pharmaceutical applications, such as food, nutrition, and wellness.
Recent Developments
Alternative Proteins
Non-Food Applications
| ● |
On June 28, 2024, the Company announced that it entered into a development and commercialization partnership with Proliant Health and Biologicals (“PHB”), a leading supplier of purified proteins for the diagnostic, nutrition and cell culture markets. Dyadic has received an initial payment of $500,000 in July 2024 and received a second payment of $500,000 for completing the transfer of a Production Strain according to the terms of the agreement in September 2024, and we expect to receive a final payment of $500,000 upon the meeting of a certain productivity threshold. Dyadic will also receive a share of profits received by PHB from the sale of animal-free recombinant albumin products produced using Dyadic’s filamentous fungal microbial platforms. A portion of the final payment will be allocated to the technology transfer and commercialization effort. The initial focus of the partnership will be the commercialization of recombinant human serum albumin products, with the anticipated launch of the first product in the first half of 2025. |
| ● |
The Company has completed its development of the DNASE-1 enzyme, and a Certificate of Analysis has been issued for the product, sampling efforts have begun. The Company is currently in dialog with manufacturing organizations to produce a research grade DNASE-1 product with anticipation of taking pre-orders by the first quarter of 2025. |
| ● |
The Company has initiated a project to produce research grade DNA/RNA Polymerases, DNA Ligase, and RNase Inhibitor products; stable cell lines have been developed with optimization and analysis ongoing. These enzymes are essential tools in molecular biology with unique functions in DNA and RNA manipulation. |
| ● |
The Company has made progress in the production of recombinant transferrin for use in cell culture media for the alternative protein industry and a Certificate of Analysis has been issued for the product; product sampling occurred in the third quarter, earlier than originally estimated. Current application testing for recombinant bovine transferrin is ongoing for use in cell culture media for the cultured meat industry, with results expected in the fourth quarter. |
| ● |
The Company has made progress with its research grade recombinant bovine alpha-lactalbumin; a Certificate of Analysis has been issued for the product; sampling is expected to begin in the late fourth quarter. |
Food Applications
| ● |
During the third quarter, the Company has received its first milestone of $425,000 for achieving the target yield level from the development and license agreement entered into in 2023 to commercialize certain non-animal dairy enzymes used in the production of food products using the Dapibus™ protein production platform. This is in addition to the upfront payment of $0.6 million received in October 2023. The development of a second enzyme is progressing. |
| ● |
The Company has developed a highly productive strain and is actively sampling recombinant alpha-lactalbumin, a whey protein, and has entered into a joint development agreement with a Top 10 global dairy company for the development of food grade alpha-lactalbumin. Additionally, the Company provided samples to four alternative protein companies. |
| ● |
The Company is sampling recombinant lactoferrin to several interested parties. |
Bio Industrial Products
| ● |
Development of five enzymes is ongoing with potential for use in multiple industries, such as nutrition, biogas, biofuels and biorefining. Sampling has been initiated with interested parties. |
Animal Health
| ● |
The Company further expanded its collaboration with Phibro/Abic targeting a number of additional vaccines for use in developing livestock animal diseases. |
| ● |
The Company’s C1-produced H5 A/2.3.3.4.b A/Astrakhan ferritin nanoparticle antigen is being evaluated in poultry and cattle trials by multiple partners, underscoring the platform’s scalability for animal health applications. |
Human Health
| ● |
In collaboration with ViroVax, LLC, the Company co-developed a C1-produced ferritin nanoparticle Mpox antigen that can be manufactured rapidly, cost-effectively, and at flexible scales. Preclinical studies for Mpox vaccine candidate developed in collaboration with ViroVax LLC are scheduled to begin in Q4 2024. |
| ● |
The Company is advancing its human health collaborations with partnerships with two top ten pharmaceutical companies and a leading biotech, having successfully expressed an antibody targeting digestive health and antigens for HIV, HPV, RSV, and other respiratory viruses. |
| ● |
Third party collaborator(s) reported data demonstrating all three infectious disease mAbs expressed from C1-cells showed virtual identical neutralizing and binding activity to traditionally produced CHO mAbs. |
| ● |
The Company submitted multiple applications for grant funding from leading Non-Governmental Organization in collaboration with Fondazione Biotecnopolo di Siena and other partners for a variety of vaccine antigens. |
| ● |
C1- produced H5 Clade 2.3.3.4.b A/Astrakhan recombinant ferritin nanoparticle sample provided to a prospective partner for development of potential H5 avian influenza ‘Bird Flu’ diagnostic kit. |
Critical Accounting Estimates
The preparation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.
We define critical accounting estimates as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting estimates, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting estimates include the following:
Revenue Recognition
The Company has no products approved for sale. All our revenue to date has been research revenue from third-party collaborations and government grants, as well as revenue from sublicensing agreements and collaborative arrangements, which may include upfront payments, options to obtain a license, payment for research and development services, milestone payments and royalties, in the form of cash or non-cash considerations (e.g., minority equity interest).
Revenue related to research collaborations and agreements: The Company typically performs research and development services as specified in each respective agreement on a best-efforts basis, and recognizes revenue from research funding under collaboration agreements in accordance with the 5-step process outlined in ASC Topic 606 (“Topic 606”): (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We recognize revenue when we satisfy a performance obligation by transferring control of the service to a customer in an amount that reflects the consideration that we expect to receive. Depending on how the performance obligation under our license and collaboration agreements is satisfied, we recognize the revenue either at a point in time or over time by using the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.
Under the input method, revenue will be recognized based on the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation. The Company believes that the cost-based input method is the best measure of progress to reflect how the Company transfers its performance obligation to a customer. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of full-time equivalent effort and third-party contract costs. Revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations.
A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.
Revenue related to grants: The Company may receive grants from governments, agencies, and other private and not-for-profit organizations. These grants are intended to be used to fund the Company’s research collaborations partially or fully, including opportunities arising in connection with COVID-19 that the Company is pursuing with certain collaborators. However, most, if not all, of such potential grant revenues, if received, is expected to be earmarked for third parties to advance the research required, including preclinical and clinical trials for SARS-CoV-2 vaccines and/or antibodies candidates.
Revenue related to sublicensing agreements: If the sublicense to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when technology is transferred to the customer and the customer can use and benefit from the license.
Customer options: If the sublicensing agreement includes customer options to purchase additional goods or services, the Company will evaluate if such options are considered material rights to be deemed as separate performance obligations at the inception of each arrangement.
Milestone payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price. If the milestone payment is in exchange for a sublicense and is based on the sublicensee’s subsequent sale of product, the Company recognizes milestone payment by applying the accounting guidance for royalties.
Royalties: With respect to licenses deemed to be the predominant item to which the sales-based royalties relate, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its sublicensing arrangements.
We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred research and development obligations), as appropriate. If upfront fees or considerations related to sublicensing agreement are received prior to the technology transfer, the Company will record the amount received as deferred revenue from licensing agreement.
We are not required to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
The Company adopted a practical expedient to expense sales commissions when incurred because the amortization period would be one year or less.
Accrued Research and Development Expenses
In order to properly record services that have been rendered but not yet billed to the Company, we review open contracts and purchase orders, communicate with our personnel and we estimate the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly or quarterly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and adjust if necessary. Examples of accrued research and development expenses include amounts owed to contract research organizations, to service providers in connection with research and development activities.
Stock-Based Compensation
We have granted stock options to employees, directors, and consultants. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model considers volatility in the price of our stock, the risk-free interest rate, the estimated life of the option, the closing market price of our stock and the exercise price. For purposes of the calculation, we assumed that no dividends would be paid during the life of the options. We also used the weighted-average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to the CEO (i.e., 5 or 10 years) and certain contractors (i.e., 2 or 5 years). The expected stock price volatility was calculated based on the Company’s own volatility since the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.
The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment. These estimates are neither predictive nor indicative of the future performance of our stock. As a result, if other assumptions had been used, our recorded share-based compensation expense could have been materially different from that reported. In addition, because some of the performance-based options issued to employees, consultants, and other third-parties vest upon the achievement of certain milestones, the total ultimate expense of share-based compensation is uncertain.
Accounting for Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740, “Income Taxes”. Under this method, income tax expense /(benefit) is recognized for: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all the deferred tax assets will not be realized.
In determining taxable income for the Company’s consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process requires the Company to make certain estimates of our actual current tax exposure and assessment of temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, the Company must consider all available positive and negative evidence including its past operating results, the existence of cumulative losses in the most recent years and its forecast of future taxable income. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
The Company is required to evaluate the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability should be recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefits, because it represents a company’s potential future obligation to the taxing authority for a tax position that was not recognized because of applying the provision of ASC 740.
The Company classifies accrued interest and penalties related to its tax positions as a component of income tax expense. The Company currently is not subject to U.S. federal, state, and local tax examinations by tax authorities for the years before 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for information about recent accounting pronouncements.
Results of Operations
Three and Nine Months Ended September 30, 2024 Compared to the Same Periods in 2023
Revenue and Cost of Research and Development Revenue
The following table summarizes the Company’s revenue and cost of research and development revenue for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Research and development revenue |
$ | 532,500 | $ | 352,942 | $ | 1,253,013 | $ | 2,079,918 | ||||||||
| License revenue |
1,425,000 | 44,118 | 1,425,000 | 132,353 | ||||||||||||
| Cost of research and development revenue |
395,894 | 105,869 | 841,805 | 1,625,731 | ||||||||||||
For the three months ended September 30, 2024, the increase in research and development revenue and cost of research and development revenue was due to the increasing numbers of collaborations conducted in 2024. The Company’s revenue was generated from eleven collaborations compared to seven collaborations for the same period a year ago. For the nine months ended September 30, 2024, the decrease in research and development revenue and cost of research and development revenue was due to the winding down of several large research collaborations conducted in 2023. For the nine months ended September 30, 2024, the Company’s revenue was generated from nineteen collaborations compared to twenty collaborations for the same period a year ago.
The license revenue for the three and nine months ended September 30, 2024, was related to the licensing fee from the Proliant agreement of $1.0 million, and a success fee payment from the Inzyme agreement of $425,000. The license revenue for the three and nine months ended September 30, 2023, was related to the Janssen license agreement, which was completed in December 2023.
Research and Development Expenses
Research and development costs are expensed as incurred and include salary and benefits of research personnel, third-party contract research organization services and supply costs.
Research and development expenses for the three months ended September 30, 2024, decreased to $460,000 compared to $716,000 for the same period a year ago. The decrease reflected the winding down of activities related to the Company’s Phase 1 clinical trial of DYAI-100 COVID-19 vaccine candidate as patient dosing was completed in February 2023, and a decrease in the amount of ongoing internal research projects.
Research and development expenses for the nine months ended September 30, 2024, decreased to $1,499,000 compared to $2,444,000 for the same period a year ago. The decrease reflected the winding down of activities related to the Company’s Phase 1 clinical trial of DYAI-100 COVID-19 vaccine candidate as patient dosing was completed in February 2023 and a decrease in the amount of ongoing internal research projects.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2024, increased by 1.2% to $1,298,000 compared to $1,282,000 for the same period a year ago. The increase reflected increases in business development and investor relations expenses of $52,000, and other increases of $24,000, offset by decreases in management incentives of $38,000, and accounting and legal expenses of $22,000.
General and administrative expenses for the nine months ended September 30, 2024, increased by 12.7% to $4,694,000 compared to $4,165,000 for the same period a year ago. The increase reflected increases in business development and investor relations expenses of $241,000, share-based compensation expenses of $90,000, accounting expenses of $82,000, legal expenses of $63,000, and other increases of $92,000, offset by decrease in insurance expenses of $39,000.
Other Income (Expenses), Net
For the three months ended September 30, 2024, total other income (expenses), net, was an expense of $1,000 compared to an income of $106,000 for the same period a year ago. The decrease in other income was due to interest expenses related to the Convertible Notes in 2024.
For the nine months ended September 30, 2024, total other income (expenses), net, was $112,000 compared to $1,337,000 for the same period a year ago. The decrease in other income was largely due to the gain on sale of the Company’s equity interest in Alphazyme, LLC of $1,018,000 in 2023, and interest expenses of $302,000 related to the Convertible Notes in 2024.
Net Loss
Net loss for the three months ended September 30, 2024, was $203,000 compared to $1,614,000 for the same period a year ago. The decrease in net loss was largely due to the licensing revenue of $1.0 million from Proliant and success fees of $425,000 from Inzyme recognized in the third quarter 2024, in addition to increase in research and development revenue of $180,000, partially offset by interest expense, net of interest income of $107,000.
Net loss for the nine months ended September 30, 2024, was $4,258,000 compared to $4,724,000 for the same period a year ago. The decrease in loss from operations was largely due to the licensing revenue of $1.0 million from Proliant and success fees of $425,000 from Inzyme recognized in the third quarter of 2024, offset by the gain on sale of the Company’s equity interest in Alphazyme LLC of $1,018,000 in 2023 and decrease in research and development expenses of $946,000, partially offset by increases in general and administrative expenses of $529,000 and interest expenses of $302,000.
Liquidity and Capital Resources
The Company expects to incur losses and have negative net cash flows from operating activities as it continues developing its microbial platforms and related products, and as it expands its pipelines and engages in further research and development activities for internal products as well as for its third-party collaborators and licensees. The success of the Company depends on its ability to develop its technologies and products to the point of regulatory approval and subsequent revenue generation or through the sublicensing of the Company’s technologies and products, and its ability to raise capital to finance these developmental efforts.
On March 8, 2024, the Company issued an aggregate principal amount of $6.0 million of its 8.0% Senior Secured Convertible Promissory Notes due March 8, 2027 (the “Convertible Notes”) in a private placement. The purchasers of the Convertible Notes included immediate family members and family trusts related to Mark Emalfarb, our President and Chief Executive Officer and a member of our Board of Directors, including The Francisco Trust, an existing holder of more than 5% of the Company’s outstanding common stock, (collectively, the “Purchasers”). The net proceeds from the sale of the Convertible Notes, after deducting offering expenses, were $5,824,000. The Company intends to use the net proceeds from the offering of the Convertible Notes for working capital and general corporate purposes. This private placement funding is expected to support our near-term revenue growth and accelerate our strategic objective of commercialization opportunities for pharmaceutical and non-pharmaceutical applications.
The Convertible Notes are senior, secured obligations of Dyadic and its affiliates, and interest is payable quarterly in cash on the principal amount equal to 8% per annum. The Convertible Notes will mature on March 8, 2027 (the “Maturity Date”), unless earlier converted, repurchased, or redeemed in accordance with the terms of the Convertible Notes.
The Convertible Notes can be converted into shares of Dyadic’s Class A common stock (the “Common Stock”), at the option of the holders of the Convertible Notes (the “Noteholders”) at any time prior to the Maturity Date. On October 4, 2024, the Company entered into an amendment (the “Amendment”) to the Convertible Notes. Pursuant to the Amendment, (i) the conversion price upon which the Convertible Notes will be convertible into shares of the Company’s common stock is $1.40 per share of common stock, and (ii) the Redemption Date (as defined in the Amendment) will fall on any of the 26, 29 and 32-month anniversaries of the original issue date of the Convertible Notes.
As of September 30, 2024, $600,000 of the Convertible Notes were converted into 335,195 shares of Common Stock. For more information regarding the Convertible Notes, including the covenants related thereto see Note 4 to the Consolidated Financial Statements.
The Company expects its existing cash and cash equivalents and cash raised from the Convertible Notes, investments in debt securities, and operating cash flows from its existing and future license agreement(s) will be sufficient to meet its operational, business, and other liquidity requirements for at least the next twelve (12) months from the date of issuance of the financial statements contained in this Quarterly Report. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. In the event our financing needs are not able to be met by our existing cash, cash equivalents and investments, we would seek to raise additional capital through strategic financial opportunities that could include, but are not limited to, future public or private equity offerings, collaboration agreements, and/or other means. Any amounts raised may be used for the further development and commercialization of product candidates, and for other working capital purposes. There is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing shareholders.
As of September 30, 2024, cash and cash equivalents were $5.9 million compared to $6.5 million as of December 31, 2023. The carrying value of investment grade securities, including accrued interest as of September 30, 2024, was $4.0 million compared to $0.8 million as of December 31, 2023.
Net cash used in operating activities for the nine months ended September 30, 2024 was $3.3 million, which was principally attributable to a net loss of $4.3 million, partially offset by changes in operating assets and liabilities of $0.2 million and share-based compensation expenses of $0.9 million.
Net cash used in operating activities for the nine months ended September 30, 2023, of approximately $5.8 million was principally attributable to a net loss of approximately $4.7 million, gain from the sale of investment in Alphazyme, LLC of approximately $1.0 million, and changes in operating assets and liabilities of approximately $1.0 million, partially offset by share-based compensation expenses of approximately $0.9 million.
Net cash used in investing activities for the nine months ended September 30, 2024 was $3.1 million, compared to a net cash provided by investing activities of $7.4 million for the nine months ended September 30, 2023. The decrease in net cash used in investing activities was attributable to additional purchases of investment securities of $3.7 million, decreases in proceeds received from maturities of investment securities of $5.6 million, and proceeds from the sale of investment in Alphazyme of $1.3 million.
Net cash provided by financing activities for the nine months ended September 30, 2024 was $5.8 million, which was related to net proceeds from issuance of convertible notes. For the nine months ended September 30, 2023, there were no cash flows from financing activities.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
| Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
| Legal Proceedings |
We are not currently involved in any litigation that we believe could have a materially adverse effect in our financial condition or results of operations. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. See Note 5 to the Consolidated Financial Statements for commitments and contingencies.
| Risk Factors |
There have been no changes to our risk factors from those disclosed in our Annual Report for the 2023 fiscal year filed on March 28, 2024.
| Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Defaults Upon Senior Securities |
Not applicable.
| Mine Safety Disclosures |
Not applicable.
| Other Information |
(a) None.
(b) None.
(c) On , our a Rule 10b5-1 trading arrangement, which is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. Such trading arrangement includes the potential sale of up to shares of our common stock and expires on June 10, 2025, unless earlier terminated in accordance with the provisions of the arrangement.
Except as described above, during the quarter ended September 30, 2024, of our directors or officers (as defined in Section 16 of the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) and (c), respectively, of Regulation S-K).
| Exhibits |
The following Exhibits are filed as part of this report pursuant to Item 601 of Regulation S-K:
(1) Identifies a management contract or compensatory plan or arrangement.
(2) Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DYADIC INTERNATIONAL, INC. |
||||||||
| November 12, 2024 |
By: |
/s/ Mark A. Emalfarb |
||||||
| Mark A. Emalfarb |
||||||||
| President and Chief Executive Officer |
||||||||
| (Principal Executive Officer) |
||||||||
| November 12, 2024 | By: |
/s/ Ping W. Rawson |
||||||
| Ping W. Rawson |
||||||||
| Chief Financial Officer |
||||||||
| (Principal Financial Officer and Principal Accounting Officer) |
||||||||