XML 32 R13.htm IDEA: XBRL DOCUMENT

Note 5 - Convertible Notes Payable

12 Months Ended

Dec. 31, 2024

Note 5: Convertible Notes

On March 8, 2024, the Company issued senior secured convertible promissory notes (the “Convertible Notes”) with an aggregate principal amount of $6.0 million, of which, $2.0 million were sold to related parties, including immediate family members and family trusts related to Mark Emalfarb, our President and Chief Executive Officer and a member of our Board of Directors.

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 8% per annum, and guaranteed by its subsidiary, Dyadic International (USA), Inc. under a subsidiary guarantee for the benefit of the holders of the Convertible Notes (each such holder, a “Holder”).

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.

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 $175,674 of debt issuance costs associated with the Convertible Notes, which were recorded as a reduction of the Convertible Notes on the consolidated balance sheets. The debt issuance costs are being amortized and recognized as additional interest expense over the expected life of the Convertible Notes using the effective interest method. We determined the expected life of the debt is equal to the three-year term of the Convertible Notes.

On October 4, 2024, the Company entered into an amendment (the “Amendment”) to the Convertible Notes. Under 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 which are May 8, 2026, August 8, 2026 and November 8, 2026.

The Company assessed the Amendment for a debt extinguishment or modification in accordance with ASC 470-50. As both the change in the present value of future cash flows of the modified Convertible Notes to that of the original Convertible Notes (including callable features) and the change in fair value of the embedded conversion option to that of the carrying value of the Convertible Notes immediately before modification resulted in a less than 10% change, the Amendment was deemed not substantial and is regarded as a note modification. The Company did not incur any gain or loss relating to the modification and any incremental costs related to the Amendment were expensed.

For the year ended December 31, 2024, $257,778 of interest was paid and debt issuance costs of $63,020 were amortized and recorded in interest expense in the consolidated statements of operations. As of December 31, 2024, accrued interest on the Convertible Notes to related parties and other third parties was $27,173 and $80,000, respectively. As of December 31, 2024, accumulated amortized debt issuance costs were $36,376.

As of December 31, 2024, $910,000 of the Convertible Notes were converted into 556,623 shares of the Company’s common stock. As of December 31, 2024, convertible notes payable consisted of the following:

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)	03/08/24	03/08/27		8%	$	1,000,000	$	—	$	—		$	1,000,000
Bradley Emalfarb (2)	03/08/24	03/08/27		8%		500,000		—		(500,000	)		—
Bradley Scott Emalfarb Irrevocable Trust (2)	03/08/24	03/08/27		8%		410,000		—		(410,000	)		—
Emalfarb Descendent Trust (3)	03/08/24	03/08/27		8%		90,000		—		—			90,000
Convertible Notes - Related Party					$	2,000,000	$	—	$	(910,000	)		1,090,000
Unamortized Debt Issuance Costs - Related Party													(24,124	)
Net Carrying Amount												$	1,065,876

Convertible Notes - Third Party	03/08/24	03/08/27		8%	$	4,000,000	$	—	$	—			4,000,000
Unamortized Debt Issuance Costs - Third Party													(88,529	)
Net Carrying Amount												$	3,911,471

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 December 31, 2024, is $20,000.

(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 year ended December 31, 2024, $500,000 of the Convertible Notes held by Mr. Bradley S. Emalfarb were converted into 294,891 shares of the Company’s common stock. For the year ended December 31, 2024, $410,000 of the Convertible Notes held by Bradley Scott Emalfarb Irrevocable Trust were converted into 261,732 shares of the Company’s common stock. As of December 31, 2024, the amount of accrued interest for Bradley Emalfarb and Bradley Scott Emalfarb Irrevocable Trust was $1,733 and $3,640, respectively.

(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 December 31, 2024, is $1,800.

The Convertible Notes contain customary covenants, and the Securities Purchase Agreement relating to the Convertible Notes also contains certain affirmative and negative covenants (including, without limitation, restrictions on our ability to incur indebtedness, permit liens, make dividends or certain debt payments or consummate certain affiliate transactions). The Company was in compliance with its covenants with respect to the Convertible Notes as of December 31, 2024.