Dyadic(DYAI) - 2024 Q2 - Quarterly Report

FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Dyadic International, Inc. and its subsidiaries, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes Consolidated Balance Sheets | Metric | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :---------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Cash and cash equivalents | $6,133,398 | $6,515,028 | | Short-term investment securities | $3,964,517 | $748,290 | | Total current assets | $10,502,601 | $8,067,335 | | Total assets | $10,630,372 | $8,219,236 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $1,948,516 | $2,251,781 | | Convertible notes, net | $3,893,602 | — | | Convertible notes, net - related party | $1,557,441 | — | | Total liabilities | $7,462,190 | $2,340,651 | | Total stockholders' equity | $3,168,182 | $5,878,585 | | Total liabilities and stockholders' equity | $10,630,372 | $8,219,236 | - Total assets increased from $8.2 million at December 31, 2023, to $10.6 million at June 30, 2024, primarily driven by an increase in short-term investment securities and the issuance of convertible notes[9] - Total liabilities significantly increased from $2.3 million to $7.5 million, mainly due to the issuance of $6.0 million in convertible notes during the period[9] Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development revenue | $385,896 | $793,042 | $720,513 | $1,726,976 | | License revenue | — | $44,117 | — | $88,235 | | Total revenue | $385,896 | $837,159 | $720,513 | $1,815,211 | | Costs of research and development revenue | $301,956 | $792,944 | $445,911 | $1,519,862 | | Research and development expenses | $515,629 | $917,552 | $1,038,352 | $1,728,118 | | General and administrative expenses | $1,607,756 | $1,402,569 | $3,396,350 | $2,882,609 | | Loss from operations | $(2,042,591) | $(2,290,427) | $(4,168,149) | $(4,340,921) | | Net loss | $(2,045,223) | $(2,152,960) | $(4,054,819) | $(3,109,404) | | Basic and diluted net loss per common share | $(0.07) | $(0.07) | $(0.14) | $(0.11) | - Total revenue decreased significantly for both the three-month and six-month periods ended June 30, 2024, primarily due to the winding down of several large research collaborations and the completion of the Janssen license agreement in 2023[12][126][127] - Net loss increased for the six months ended June 30, 2024, to $4.05 million from $3.11 million in the prior year, largely influenced by a decrease in the gain on sale of Alphazyme LLC and increased general and administrative expenses, despite lower R&D expenses[12][134] Consolidated Statements of Stockholders' Equity | Metric | January 1, 2024 | June 30, 2024 | | :---------------------------------- | :-------------- | :------------ | | Common Stock Shares | 41,064,563 | 41,731,141 | | Common Stock Amount | $41,065 | $41,732 | | Additional Paid-In Capital | $105,044,756 | $106,388,505 | | Accumulated Deficit | $(80,277,321) | $(84,332,140) | | Total Stockholders' Equity | $5,878,585 | $3,168,182 | - Total stockholders' equity decreased from $5.88 million at January 1, 2024, to $3.17 million at June 30, 2024, primarily due to the net loss incurred during the period[14] - The company issued 666,578 shares of common stock during the six months ended June 30, 2024, from convertible note conversions, RSU vesting, and stock option exercises[14][92] Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,077,354) | $(3,841,654) | | Net cash (used in) provided by investing activities | $(3,127,551) | $3,888,358 | | Net cash provided by financing activities | $5,824,326 | — | | Net (decrease) increase in cash and cash equivalents | $(381,630) | $47,319 | | Cash and cash equivalents at end of period | $6,133,398 | $5,841,591 | - Net cash used in operating activities decreased to $3.1 million for the six months ended June 30, 2024, from $3.8 million in the prior year, mainly due to a lower net loss and favorable changes in operating assets and liabilities[17][140] - Net cash provided by financing activities was $5.8 million for the six months ended June 30, 2024, driven by the issuance of convertible notes, compared to no financing activities in the prior year[17][141] - Cash and cash equivalents decreased by $0.38 million to $6.1 million at June 30, 2024, primarily due to significant cash used in investing activities for purchasing investment securities, partially offset by financing proceeds[17][141] Notes to Consolidated Financial Statements Note 1: Organization and Summary of Significant Accounting Policies - Dyadic International, Inc. is a global biotechnology company focused on developing gene expression platforms (C1 and Dapibus™) for producing biologic products for human and animal health, as well as non-pharmaceutical applications like food and nutrition[19][20][21] - The company expects to incur losses and negative cash flows from operations as it continues R&D and expands its platforms, relying on capital raises and sublicensing for success[22] - On March 8, 2024, Dyadic issued $6.0 million in 8.0% Senior Secured Convertible Promissory Notes, with net proceeds of $5.824 million, to support near-term revenue growth and commercialization efforts[23][25] Note 2: Cash, Cash Equivalents, and Investments | Metric | June 30, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :---------------------------------- | :------------------------- | :------------------------- | | Cash | $683,233 | $25,775 | | Money Market Funds | $5,450,165 | $6,489,253 | | Short-Term Investment Securities (Corporate Bonds) | $3,962,295 | $748,105 | | Total | $10,095,693 | $7,263,133 | - The company classifies debt securities as held-to-maturity at amortized cost and money market funds as available-for-sale securities, presented as cash equivalents[37][39][58] - As of June 30, 2024, and December 31, 2023, no investments were considered other-than-temporarily impaired, and no allowance for credit losses was recorded[58] Note 3: Research and Collaboration Agreements, Sublicense Agreements, and Investments in Privately Held Companies - Dyadic entered a License and Development Agreement with Proliant Biologicals, LLC on June 27, 2024, for recombinant serum albumin production, with an initial upfront payment of $0.5 million received in July 2024[59][61] - Under the Inzymes Agreement, Dyadic recorded research and development revenues of $0.052 million and $0.092 million for the three and six months ended June 30, 2024, respectively, following an upfront payment of $0.6 million in October 2023[62][63] - The Janssen Agreement for therapeutic protein manufacturing was wound down by December 31, 2023, resulting in no revenue recognized from it in the first half of 2024, compared to $0.044 million in license revenue and $0.191 million in R&D revenue for the three months ended June 30, 2023[66] - Dyadic received an additional cash payment of $0.062 million in Q1 2024 from the sale of its equity interest in Alphazyme, LLC, recorded as a gain on sale[69] Note 4: Convertible Notes Payable - On March 8, 2024, Dyadic issued $6.0 million in 8.0% Senior Secured Convertible Promissory Notes due March 8, 2027, with $2.0 million sold to related parties[70][72] - The notes are convertible into common stock at $1.79 per share, and $0.4 million of notes were converted into 223,463 shares of common stock by June 30, 2024[73] - The company incurred $0.176 million in debt issuance costs, amortizing $0.027 million as interest expense for the six months ended June 30, 2024[75] Note 5: Commitments and Contingencies - Dyadic is not currently involved in any litigation expected to have a materially adverse effect on its financial condition or results of operations[79] - The company extended its contract with VTT Technical Research Centre of Finland Ltd. to January 31, 2025, for C1 fungal expression system development, with payments totaling €0.186 million[80] Note 6: Share-Based Compensation - As of June 30, 2024, Dyadic had 5,830,222 stock options outstanding and 117,925 unvested restricted stock units, with 2,040,004 shares available for grant under the 2021 Plan[82] | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Total non-cash share-based compensation expense | $604,081 | $664,955 | | - Stock option expense | $433,807 | $554,914 | | - Restricted stock units expense | $170,274 | $110,041 | - Stock-based compensation expense is recognized based on grant date fair values using the Black-Scholes model for options and closing market price for RSUs, with forfeitures recorded as they occur[83][86][89] Note 7: Shareholders' Equity - For the six months ended June 30, 2024, 666,578 shares of common stock were issued at a weighted average price of $1.61 per share, including conversions of convertible notes, vesting of restricted stock units, and exercise of stock options[92] - As of June 30, 2024, the company held 12,253,502 shares of common stock in treasury at a cost of $18.9 million[93] Note 8: Subsequent Events - Management has evaluated subsequent events through August 13, 2024, and is not aware of any material events requiring adjustment or disclosure, except for those already mentioned in the notes[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting business overview, recent developments, critical accounting estimates, and a detailed analysis of revenue, expenses, and liquidity Overview - Dyadic is a global biotechnology company leveraging its C1-cell and Dapibus™ protein production platforms for human and animal health biopharmaceuticals and non-pharmaceutical applications like food and nutrition[97][99][100][101] - The company retained co-exclusive rights to the C1-cell platform for human and animal pharmaceutical applications after selling its industrial technology business to Danisco USA in 2015[98] - Recent developments include a partnership with Proliant Health and Biologicals for recombinant serum albumin, progress in DNASE-1 and recombinant transferrin for non-food applications, and successful development of recombinant alpha-lactalbumin and lactoferrin for food applications[102][103] - In animal health, collaborations with Phibro Animal Health continue, and C1-produced H5 A/Astrakhan ferritin nanoparticle antigen shows potential as a vaccine candidate against avian influenza in poultry and cattle[106] - In human health, pre-clinical animal testing of an adjuvanted H5 avian influenza ferritin nanoparticle vaccine candidate demonstrated a strong immune response in rabbits, and the C1 Platform successfully expressed multiple infectious disease antigens and delivered mAbs for evaluation[107] Critical Accounting Estimates - Revenue recognition for research collaborations and agreements follows a 5-step process under ASC Topic 606, primarily using the cost-based input method to measure progress, which requires significant judgment in estimating costs to complete performance obligations[109][110][111][113] - Accrued research and development expenses are estimated based on open contracts, purchase orders, and communication with personnel, with periodic adjustments[119] - Stock-based compensation fair value for options is estimated using the Black-Scholes model, considering volatility, risk-free interest rate, and expected life, while RSUs are based on closing market price[120] - Income taxes are accounted for under the asset and liability method, with a 100% valuation allowance against deferred tax assets due to a history of operating losses and uncertainty of future taxable income[123][124] Off-Balance Sheet Arrangements - The company does not have any off-balance sheet arrangements[126] Recent Accounting Pronouncements - The company refers to Note 1 for information on recent accounting pronouncements, including ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), neither of which are expected to have a material impact on financial position or results of operations[54][55][126] Results of Operations | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development revenue | $385,896 | $793,042 | $720,513 | $1,726,976 | | License revenue | — | $44,117 | — | $88,235 | | Cost of research and development revenue | $301,956 | $792,944 | $445,911 | $1,519,862 | | Research and development expenses | $516,000 | $918,000 | $1,038,000 | $1,728,000 | | General and administrative expenses | $1,608,000 | $1,403,000 | $3,396,000 | $2,883,000 | | Loss from operations | $(2,043,000) | $(2,290,000) | $(4,168,000) | $(4,341,000) | | Net loss | $(2,045,000) | $(2,153,000) | $(4,055,000) | $(3,109,000) | - Research and development revenue decreased for both periods due to the winding down of several large collaborations in 2023, with no license revenue in 2024 after the Janssen agreement completion[126][127] - R&D expenses decreased by $0.402 million (three months) and $0.690 million (six months) due to the winding down of the DYAI-100 COVID-19 vaccine clinical trial and fewer internal research projects[128][129] - General and administrative expenses increased by 14.6% (three months) and 17.8% (six months), driven by higher share-based compensation, legal, and business development expenses[131] - Net loss for the six months ended June 30, 2024, increased to $4.055 million from $3.109 million, primarily due to a $0.957 million decrease in gain on sale of Alphazyme LLC and increased interest expenses from convertible notes[134] Liquidity and Capital Resources - The company expects to incur losses and negative operating cash flows, with success dependent on technology development, regulatory approval, revenue generation, or sublicensing, and the ability to raise capital[135] - The $5.824 million net proceeds from the $6.0 million convertible notes issued in March 2024 are intended for working capital and general corporate purposes, supporting near-term revenue growth and commercialization[136] - Existing cash, cash equivalents, convertible notes proceeds, investments, and operating cash flows are expected to meet liquidity requirements for at least the next twelve months, though this estimate is based on assumptions that may change[139] | Metric | June 30, 2024 | December 31, 2023 | | :---------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $6.1 million | $6.5 million | | Investment grade securities (carrying value) | $4.0 million | $0.8 million | Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Dyadic International, Inc. is not required to provide quantitative and qualitative disclosures about market risk - Dyadic is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[142] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness, and notes no material changes in internal controls over financial reporting during the quarter. It also acknowledges the inherent limitations of any control system - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2024[142] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024[143] - The company acknowledges that control systems have inherent limitations, providing only reasonable, not absolute, assurance, and can be circumvented by individual acts, collusion, or management override[144] OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any litigation that is expected to have a materially adverse effect on its financial condition or results of operations, though it may encounter routine legal proceedings - Dyadic is not currently involved in any litigation believed to have a materially adverse effect on its financial condition or results of operations[146] Item 1A. Risk Factors There have been no changes to the company's risk factors from those disclosed in its Annual Report for the 2023 fiscal year - No changes to risk factors have occurred since the Annual Report for the 2023 fiscal year filed on March 28, 2024[147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - There were no unregistered sales of equity securities and use of proceeds to report[147] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[147] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[147] Item 5. Other Information This section discloses that several key executives and directors adopted Rule 10b5-1 trading arrangements during the quarter ended June 30, 2024, for potential sales of common stock - During the quarter ended June 30, 2024, Mark Emalfarb (President and CEO), Jack Kaye (director), Ronen Tchelet (VP of Research and Business Development), and Ping Wang Rawson (CFO) adopted Rule 10b5-1 trading arrangements[148] - These arrangements include potential sales of up to 1 million shares for Mr. Emalfarb, 292,367 for Mr. Kaye, 250,000 for Mr. Tchelet, and 282,485 for Ms. Rawson, with various expiration dates[148] Item 6. Exhibits This section lists the exhibits filed as part of the report, including corporate governance documents, a license and development agreement, and certifications - Exhibits include the Restated Certificate of Incorporation, Third Amended and Restated Bylaws, and the License and Development Agreement with Proliant Biologicals, LLC[150] - Certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents, are also filed[151] Signatures - The report was duly caused to be signed on behalf of Dyadic International, Inc. by Mark A. Emalfarb, President and Chief Executive Officer, and Ping W. Rawson, Chief Financial Officer, on August 13, 2024[153]