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Note 1 - Organization and Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Basis of Presentation and Significant Accounting Policies [Text Block] | 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, 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. 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, 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. 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, to raise capital to finance these developmental efforts. The Company expects its existing cash and cash equivalents, 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 Form 10-Q. 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. The Company has self-funded the development and cGMP manufacturing costs of its proprietary COVID-19 vaccine candidate, DYAI-100. In February 2023, the dosing of the DYAI-100 Phase 1 clinical trial to demonstrate the safety in humans of a protein produced from the C1-cell protein production platform was completed in South Africa. A six-month follow up study is currently ongoing with a Phase 1 full study report expected in December 2023. We do not expect a significant amount of additional capital needed to complete the Phase 1 clinical trial of DYAI-100 in 2023. In addition, we do not plan to continue Phase 2/3 clinical trials of DYAI-100 unless we obtain funding from our partners and collaborators. During the nine months ended September 30, 2023, the Company received approximately $1.3 million from the sale of its equity interest in Alphazyme, LLC. In October 2023, the Company received a $600,000 upfront payment from Inzymes ApS for product development and licensing. 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 on Form 10-Q should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2022, included in our Form 10-K which was filed with the SEC on March 29, 2023. 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 one 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, 2023 and 2022, the Company’s revenue were generated from seven and eight customers, respectively. For the nine months ended September 30, 2023 and 2022, the Company’s revenue was generated from twelve and thirteen customers, respectively. Significant customers are those that account for greater than 10% of the Company’s revenues. For the three months ended September 30, 2023 and 2022, four and three significant customers accounted for approximately $297,000 or 84.1% and $697,000 or 83.4% of research and development revenue, respectively. For the nine months ended September 30, 2023 and 2022, two and three significant customers accounted for approximately $1,137,000 or 54.7% and $1,263,000 or 63.7% of research and development revenue, respectively. As of September 30, 2023 and December 31, 2022, accounts receivable was from ten and six customers, of which, four and three customers accounted for approximately $305,000 or 73.0% and $291,000 or 88.2% of total accounts receivable, respectively. The loss of business from one or a combination of the Company’s customers could adversely affect its operations. 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, 2023 and 2022, the Company had three and four customers outside of the United States (i.e., European and Asian customers) that accounted for approximately $127,000 or 36.0% and $133,000 or 16.0% of research and development revenue, respectively. For the nine months ended September 30, 2023 and 2022, the Company had four and six customers outside of the United States (i.e., European and Asian customers) that accounted for approximately $314,000 or 15.1% and $509,000 or 25.6% of research and development revenue, respectively. As of September 30, 2023 and December 31, 2022, the Company had three and four customers outside of the United States (i.e., European and Asian customers) that accounted for approximately $145,000 or 34.8% and $91,000 or 27.4% of accounts receivable, respectively. The Company uses several contract research organizations (“CROs”) to conduct its research projects. For the three months ended September 30, 2023 and 2022, three CROs accounted for approximately $977,000 or 93.4% and $1,352,000 or 99.5% of total research services we purchased, respectively. For the nine months ended September 30, 2023 and 2022, three CROs accounted for approximately $3,639,000 or 96.4% and $4,146,000 or 97.4% of total research services we purchased, respectively. As of September 30, 2023 and December 31, 2022, three CROs accounted for approximately $526,000 or 87.6% and $1,018,000 or 79.7% of accounts payable, respectively. The loss of one CRO or a combination of the Company’s CROs could adversely affect its operations. 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, 2023 and December 31, 2022, 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, 2023, or December 31, 2022, 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 no allowance for credit losses was required as of September 30, 2023, and December 31, 2022. Accounts receivable consist of the following:
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (Unaudited) |  |  | (Audited) |
Billed receivable |  | $ | 238,695 |  |  | $ | 115,469 |
Unbilled receivable |  |  | 179,183 |  |  |  | 214,532 |
|  | $ | 417,878 |  |  | $ | 330,001 |
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following:
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (Unaudited) |  |  | (Audited) |
Prepaid insurance |  | $ | 311,389 |  |  | $ | 265,429 |
Prepaid expenses - various |  |  | 110,094 |  |  |  | 124,273 |
Prepaid research and development expenses |  |  | 62,370 |  |  |  | — |
Prepaid taxes |  |  | 335 |  |  |  | 2,534 |
|  | $ | 484,188 |  |  | $ | 392,236 |
Accounts Payable Accounts payable consist of the following:
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (Unaudited) |  |  | (Audited) |
Research and development expenses |  | $ | 508,068 |  |  | $ | 1,067,958 |
Legal expenses |  |  | 25,003 |  |  |  | 56,514 |
Other |  |  | 67,077 |  |  |  | 151,841 |
|  | $ | 600,148 |  |  | $ | 1,276,313 |
Accrued Expenses Accrued expenses consist of the following:
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | (Unaudited) |  |  | (Audited) |
Employee wages and benefits |  | $ | 429,820 |  |  | $ | 580,264 |
Research and development expenses |  |  | 177,875 |  |  |  | 343,457 |
Other |  |  | 12,547 |  |  |  | 31,360 |
|  | $ | 620,242 |  |  | $ | 955,081 |
Leases The Company determines if an arrangement is, or contains, a lease at contract inception and during modifications or renewal of existing leases. The Company does not recognize leases with terms of twelve months or less on the balance sheet. Options to extend or terminate a lease are not included in the Company’s initial lease term assessment, unless there is reasonable certainty that the Company will exercise any such option. Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. For operating leases, right-of-use assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses an estimated rate of interest that they would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease right-of-use asset also includes any lease payments made and excludes any lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s prior lease for its corporate headquarters located at 140 Intracoastal Pointe Dr. expired on August 31, 2023, and there was no right-of-use asset or lease liability recognized for this lease due to its short-term nature. In August 2023, the Company entered into a new lease (“1044 N Lease”) comprising approximately 1,719 square feet of office space located at 1044 N US 1, Jupiter, Florida, commencing September 1, 2023 (“Commencement Date”). Rent is subject to scheduled three percent (3%) annual increases, and the Company is responsible for certain common area maintenance charges and taxes throughout the life of the 1044 N Lease. The 1044 N Lease has an initial term of three (3) years, following the Commencement Date with an option to extend for two (2) successive one (1) year terms. The options were not included in the lease term used in determining the right-of-use asset or lease liability as the Company did not consider it reasonably certain they would exercise the options. For the three months and nine months ended September 30, 2023, the Company’s total operating lease expense were approximately $15,000, and $45,000, respectively. As of September 30, 2023, the Company’s total operating lease liabilities was approximately $148,000 and the operating lease right-of-use asset was approximately $153,000. 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, during the three and nine months ended September 30, 2023 and 2022 were as follows:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Outside contracted services |  | $ | 556,042 |  |  | $ | 550,750 |  |  | $ | 1,947,228 |  |  | $ | 3,302,911 |
Personnel related costs |  |  | 147,426 |  |  |  | 186,993 |  |  |  | 447,034 |  |  |  | 593,258 |
Facilities, overhead and other |  |  | 12,883 |  |  |  | 5,842 |  |  |  | 50,207 |  |  |  | 21,076 |
|  | $ | 716,351 |  |  | $ | 743,585 |  |  | $ | 2,444,469 |  |  | $ | 3,917,245 |
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 and deposits. The carrying amount of these financial instruments, except for investment in debt securities, 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. Income Taxes For the nine months ended September 30, 2023, there was no provision for income taxes or unrecognized tax benefits recorded. As of September 30, 2023 and December 31, 2022, deferred tax assets were approximately $17.1 million and $15.5 million, respectively. Due to the Company’s history of operating losses and the uncertainty regarding our ability to generate taxable income in the future, the Company has established a 100% valuation allowance against deferred tax assets as of September 30, 2023 and December 31, 2022. Other Income For the nine months ended September 30, 2023, other income of approximately $1,018,000 was related to the sale of the equity interest in Alphazyme, LLC. For the nine months ended September 30, 2022, other income of $250,000 was related to a settlement payment we received from the termination of term sheet of a proposed license and collaboration. 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, 2023, a total of 5,658,811 shares of potentially dilutive securities, including 163,044 shares of unvested restrict stock units and options to purchase 5,495,767 shares of common stock, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2022, the effect of potential exercise of options to purchase 5,281,097 shares of common stock was excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. which replaces the incurred loss model with a forward-looking expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses. ASU 2016-13 applies to financial assets, measured at amortized cost, including held-to-maturity debt securities and accounts receivable. ASU 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to members’ equity in the period of adoption. The Company adopted ASU 2016-13 and related amendments as of January 1, 2023, and the adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to our consolidated financial statements.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//235/tableOfContent + Details
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