CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This 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, our competitive position and the COVID-19 pandemic. 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 cautioncautions readers that any forward-looking statementinformation is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.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, (1) general economic, political and market conditions; (2) our ability to generate the required productivity, stability, purity, performance, cost, safety and other data necessary to carry out and implement our biopharmaceutical research and business plans and strategic initiatives; (3) our ability to retain and attract employees, consultants, directors and advisors; (4) our ability to implement and successfully carry out Dyadic’s and third parties’ research and development efforts; (5) our ability to obtain new license and research agreements; (6) our ability to maintain our existing access to, and/or expand access to third party contract research organizations and other service providers in order to carry out our research projects for ourselves and third parties; (7) competitive pressures and reliance on our key customers and collaborators; (8) our ability, and the ability of the contract research organizations and other third party service providers with whom we are currently working with, to advance vaccine candidates into, and successfully complete, preclinical studies and clinical trials; (9) the commercialization of our vaccine candidates, if approved; (10) the pharmaceutical and biotech industry, governmental regulatory and other agencies’ willingness to adopt, utilize and approve the use of the C1 gene expression platform;C1-cell protein production platform and our other technologies; (11) the risk of theft, misappropriation or expiration of owned or licensed proprietary and intellectual property, genetic and biological materials owned by us and/or Danisco US, Inc. and VTT Technical Research Centre of Finland Ltd; (12) the speculative nature and illiquidity of equity securities received as consideration from sub-licenses; (13) our expectations concerning the impact of the novel coronavirus identified as “COVID-19” on our business and operating results; and (14) 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 Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2021 (as amended on Form 10-K/A on July 27, 2021).29, 2022. 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 Form 10-K filed with the SEC on March 30, 2021 (as amended on Form 10-K/A on July 27, 2021)29, 2022 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 Form 10-Q 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. 

PART I

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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 platform company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and predominantly 3it utilizes a number of third-party consultants and research organizations performing services into carry out the Netherlands, Finland and Israel.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. The C1 technology-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.

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 technology-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 technology-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. 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 primarily been focused on the animal and human biopharmaceutical industry,industries, specifically in further improving and applying the proprietary C1 technology-cell protein production platform into a safe and efficient gene expressionprotein production platform to help speed up the development, lower production costs and improve the performance of biologic vaccines and drugs and other biological products at flexible commercial scales. Currently,Some examples of human and animal vaccines and drugs which have the potential to be produced from C1-cells are protein antigens, 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 technology-cell protein production platform to help develop products such as innovative vaccines and drugs, biosimilars and/or biobetters. TheAdditionally, the Company is also working on several COVID-19 related vaccine and antibody opportunities, including its proprietary COVID-19 vaccine candidate, DYAI-100, towards a first-in-human Phase 1 clinical trial. 

Effective April 17, 2019, our common stock began trading on the NASDAQ Stock Market LLC’s NASDAQ Capital Market, under the symbol “DYAI”.has begun to develop other technologies that have potential applications in non-pharmaceutical markets. 

Impact of COVID-19

The outbreak of COVID-19 has led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential impact to the Company’s employees, operations, and research projects.

Some of our employees are still working remotely. The extent to which the COVID-19 pandemic will directly or indirectly impact our business will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and its variants and the actions taken and the level of success to contain or treat the SARS-CoV-2 virus and its variants, the economic impact on local, regional, national and international business partners and markets, delays or disruptions in our on-going research projects, and unavailability of the employees of the Company or third-party contract research organizations with whom we conduct business, due to illness or quarantines, all of which are highly uncertain and cannot be predicted at this time. Management is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, vendors, industry, and workforce. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business because of economic recession or depression that has occurred or may occur in the future. Given the daily evolution of the COVID-19 outbreak and the ongoing response to curb its spread (including government travel and meeting restrictions), currently we are not able to accurately estimate the effects of the COVID-19 outbreak to our results of operations, financial condition, or liquidity.

Liquidity and Capital Resources 

We rely on our existing cash and cash equivalents, investments in debt securities, and operating cash flow to provide the working capital needs for our operations. We believe that our existing cash position and investment in investment grade securities will be adequate to meet our operational, business, and other liquidity requirements for at least the next twelve (12) months. However, in the event our financing needs for the foreseeable future are not able to be met by our existing cash, cash equivalents and investments, we would seek to raise funds through public or private equity offerings, and through other means to meet our financing requirements. Additionally, the Company may decide to fund all of a Phase I clinical trial to demonstrate the safety in humans of a protein produced from the C1 expression-cell protein production platform in humans. There is no assurance that external funding will be available at acceptable terms, if at all, and the Company may, therefore, self-fund these vital projects.

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”) 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, 2020,2021, included in our Form 10-K which was filed with the SEC on March 30,29, 2021 (as amended on Form 10-K/A on July 27, 2021).2022.

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.

Since concluding the DuPont Transaction, the Company has conducted business in 1one 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. 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 only deals with reputable financial institutions and has not experienced any losses in such accounts.

For each of the three months ended September 30, 2021March 31, 2022 and 2020, the Company’s revenue was generated from 8 customers. For the nine months ended September 30, 2021and 2020, the Company’s revenue was generated from 13 and 12 customers, respectively.eight customers. As of September 30, 2021March 31, 2022 and December 31, 20202021, the Company’s accounts receivable was from 5 sixand 9eight customers, 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, 2021March 31, 2022 and 20202021, the Company had 5three and 3six customers outside of the United States (i.e., European and Asian customers) that accounted for approximately $478,000$136,000 or 69.1%25.5% and $169,000$353,000 or 40.6%76.6% of the revenue, respectively. For the

As of nineMarch 31, 2022 months ended September 30, 2021 and 2020, the Company had 7three customers outside of the United States (i.e., European and Asian customers) that accounted for approximately $244,000 or 46.2% of accounts receivable. As of 6December 31, 2021, the Company had four customers outside of the United States that accounted for approximately $1,599,000$157,000 or 76.5% and $609,000 or 48.5% of the revenue, respectively. 

As of September 30, 2021, the Company had 4 customers outside of the United States (i.e. European and Asian customers) that accounted for approximately $180,000 or 100% of accounts receivable. As of December 31, 2020, the Company had 7 customers outside of the United States that accounted for approximately $123,000 or 41.6%56.4% of accounts receivable.

The Company uses several contract research organizations (“CROs”) to conduct its research projects. For the three months ended September 30, 2021March 31, 2022 and 20202021, 2two and 1three CROs accounted for approximately $1,982,000$1,494,000 or 97.2%96.7% and $1,129,000$2,017,000 or 99.5%98.1% of total research services we purchased, respectively. For the nine months endedAs of September 30,March 31, 2022 and December 31, 2021and 2020, 3 and 1two CROs accounted for approximately $6,621,000$731,000 or 96.9%84.4% and $3,602,000approximately $1,312,000 or 96.9% of total research services, respectively. As of September 30, 2021, 2 CROs accounted for approximately $768,000 or 80.2%84.8% of the accounts payable. As of December 31, 2020, 1 CRO accounted for approximately $690,000 or 68.1% of the accounts payable.payable, respectively. The loss of thisone 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 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 its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company’s investments in debt securities have been classified and accounted for 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, 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. Other-than-temporary impairment charges, if incurred, will be included in other income (expense).

As ofMarch 31, 2022 and December 31, 2021, all of our money market funds were invested in U.S. Government money market funds. The Company’s investments in money market funds have been classified and accounted for as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. As of September 30, 2021 and December 31, 2020, all our money market funds were invested in U.S. Government money market funds. The Company did not have any investment securities classified as trading as of September 30, 2021March 31, 2022, or December 31, 20202021.

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.

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the next twelve (12) months. There was 0 allowance for doubtful accounts as of September 30, 2021March 31, 2022, and December 31, 20202021.

Accounts receivable consist of the following:

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

Accounts Payable

Accounts payable consist of the following:

Accrued Expenses

Accrued expenses consist of the following:

Revenue Recognition

The Company has no pharmaceutical products approved for sale at this point, and allpoint. All of our revenue to date has been research revenue from third-party collaborations and government grants. The Company is expected to generate futuregrants, as well as revenue from licensesublicensing agreements and collaborative arrangements, which may include upfront payments, for licenses or options to obtain a license, payment for research and development services, and 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. SinceDepending on how the performance obligation under our license and collaboration agreements is generally satisfied, over time, we elected to userecognize 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 methods,method, revenue will be recognized based on the basis of 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 partially or fully fund the Company’s research collaborations, 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 is able to 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. To date, the Company has not recognized any milestone payment revenue resulting from any of its sublicensing arrangements.

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 of 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.

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 ninemonths ended September 30, 2021March 31, 2022 and 20202021 were as follows:

Provision for Contract Losses

The Company assesses the profitability of our collaboration agreements to provide research services to our contracted business partners and identifies those contracts where current operating results or forecasts indicate probable future losses. If an anticipated contract cost exceeds anticipated contract revenue, a provision for the entire estimated loss on the contract is recorded and then accreted into the statement of operations over the remaining term of the contract. The provision for contract losses is based on management's judgment and estimates, and where applicable, is recorded when such loss is deemed probable to occur and is reasonable to estimate.

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 converted 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:

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.

Non-Marketable Investments

The Company also holds investments in non-marketable equity securities of privately-heldprivately held companies, which usually do not have a readily determinable fair value. Our policy is to measure these investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer such observable price changes may include instances where the investee issues equity securities to new investors, thus creating a new indicator of fair value, as an example. On a quarterly basis, we perform a qualitative assessment considering impairment indicators to evaluate whether these investments are impaired and also monitor for any observable price changes. If indicators of impairment exist, we will prepare a quantitative assessment of the fair value of our equity investments, which may include using both the market and income approaches which require judgment and the use of estimates, including discount rates, investee revenues and costs, and available comparable market data of private and public companies, among others. Valuations of such privately-heldprivately held companies are inherently complex and uncertain due to the lack of liquid market for the company’s securities. In addition, such investments are inherently risky in that such companies are typically at an early stage of development, may have no or limited revenues, may not be or may never become profitable, may not be able to secure additional funding or their technologies, services or products may not be successfully developed or introduced into the market.

Income Taxes

For the ninethree months ended September 30, 2021March 31, 2022, there were 0no provision for income taxes or unrecognized tax benefits recorded. As of September 30, 2021March 31, 2022 and December 31, 20202021, deferred tax assets were approximately $12.6$15.2 million and $9.4$13.0 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, 2021March 31, 2022 and December 31, 20202021.

Other Income 

The other income recognized in the first quarter of 2022 was related to a settlement payment we received from the termination of term sheet of a proposed license and collaboration.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and other revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income (loss) under GAAP. The Company does not have any significant transactions that are required to be reported in other comprehensive income (loss), and therefore, does not separately present a statement of comprehensive income (loss) in its consolidated financial statements.

Stock-Based Compensation

We recognize all share-based payments to employees, consultants, and our board of directors (“Board of Directors”), 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.

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 ninemonths ended September 30, 2021March 31, 2022 and 20202021, the effect of the potential exercise of options to purchase 4,824,215and 4,650,3905,425,040 and 5,324,215 shares of common stock, respectively, were 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 (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in the first quarter of 2023. The Company does not expect ASU 2016-13 to have a material impact on our consolidated financial positions, results of operations, and cash flows.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments of this update simplify the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The Company adopted ASU 2019-12 on January 1, 2021, and adoption of ASU 2019-12 did not have any material impact on our consolidated financial positions, results of operations, cash flows and related disclosures.

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.

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, and its investments in money market funds are classified as cash equivalents. The following table shows the Company’s cash, available-for-sale securities, and investment securities by major security type as of September 30, 2021March 31, 2022, and December 31, 20202021:

_________________

Notes:

(1) Definition of the three-level fair value hierarchy:

(2) Short-term investment securities will mature within 12 months or less, from the applicable reporting date.

(3) For theLong-term investment securities will mature longer than three12 months ended from the applicable reporting date.

(September 30, 2021 4and 2020, there was) no premiums paid to purchase held-to-maturity investment securities. The premiums paid to purchase held-to-maturity investment securities was $283,940$20,850 and $221,156$283,940 for the ninethree months ended September 30, 2021,March 31, 2022, and 20202021, respectively. The premiums paid to purchase held-to-maturity investment securities was $282,946$283,940 for the year ended December 31, 20202021.

The Company considers the declines in market value of its investment portfolio to be temporary in nature. 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. 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. As of September 30, 2021March 31, 2022, the Company does not consider any of its investments to be other-than-temporarily impaired.

Note 3:Research and Collaboration Agreements, Sublicense Agreements, and Investments in Privately-HeldPrivately Held Companies

BDI Phibro/Abic

On February 10, 2022, the Company entered into an exclusive sub-license agreement with Abic Biolgical Latories Ltd. (“Abic”), an affiliate of Phibro Animal Health Corporation (“Phibro”) to provide services for a targeted disease (the “Phibro/Abic Agreement”). The Phibro/Abic Agreement was an addendum to the initially non-exclusive sub-license agreement the Company signed with Phibro on July 1, 2020. According to the Phibro/Abic Agreement, the Company received an exclusivity payment of $100,000 in April 2022.

Phibro/Abic may terminate the Phibro/Abic Agreement in its entirety, or any sublicense granted, in each case with or without cause at any time upon 90 days’ prior written notice to Dyadic. 

Accounting Treatment

The Company considered the guidance in ASC 808, Collaborative Arrangements (ASC 808) and determined the Phibro Agreement is not applicable to such guidance. The Company concluded that Phibro/Abic represented a customer and applied relevant guidance from ASC 606, Revenue from Contracts with Customers (ASC 606) to evaluate the appropriate accounting for the Phibro/Abic Agreement. 

The Company identified the following obligations under the Phibro/Abic Agreement: (1) an exclusive right to utilize the C1-cell protein production platform for certain disease; (2) our obligation to provide agreed-upon research and development services; (3) research report to be provided to Phibro/Abic based on the requirements of the agreement.

Based on management’s assessment, the Company concluded 2 performance obligations should be accounted for separately: (1) the agreed-upon research and development services, and (2) the right to exclusively access and use C1-cell protein production platform for certain disease.

Accordingly, the Company records the R&D services as research and development revenue using the cost-based input method in accordance with the Company’s policy (see Note 1). 

Under the Phibro/Abic Agreement, the Company is eligible to receive an exclusivity payment of $100,000, certain milestone payment upon regulatory approval, and future sales-based royalty payments. The milestone payment is considered constrained variable consideration and excluded from the transaction price at inception. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company will not recognize revenue related to sales-based royalty until the associated event occurs.

For three months ended March 31, 2022, the Company recorded $100,000 of the exclusivity payment as license revenue.

Janssen

On December 16, 2021, the Company entered into 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”). Pursuant to the terms of the Janssen Agreement: (i) Janssen will pay Dyadic an upfront payment of $500,000 for a non-exclusive license to utilize the C1-cell protein production platform to develop C1 production cell lines for the manufacturing of Janssen’s therapeutic protein candidates against several biologic targets, (ii) Janssen will provide R&D funding up to €1.6 million to develop and assess C1 production cell lines for its product candidates, (iii) Janssen will have an option to pay a mid-seven figure payment for an exclusive license from Dyadic to use the C1-cell protein production platform for the manufacturing of therapeutic proteins directed to one specific target, and upon exercise, Janssen would have the right to add additional non-exclusive targets to the collaboration and Dyadic would complete the technology transfer of the C1-cell protein production platform, fully enabling Janssen to internally develop C1 cell lines against licensed targets, and upon successful completion of the technology transfer, Dyadic is eligible to receive a milestone payment in the low seven figures, (iv) for each product candidate, Dyadic could receive development and regulatory milestones in the mid-seven figures, and (v) Dyadic could receive aggregate commercial milestone payments in the low nine figures per product, subject to a limit on the number of such products, with the amount depending on the cumulative amount of active pharmaceutical ingredient produced by Janssen for each product manufactured with Dyadic’s C1-cell protein production platform. 

Janssen may terminate the Janssen Agreement in its entirety, or on a country-by-country or other jurisdiction-by-other jurisdiction basis, for any or no reason, upon 90 days’ prior written notice to Dyadic.

Accounting Treatment

The Company considered ASC 808, Collaborative Arrangements (ASC 808) and determined the Janssen Agreement is not applicable to such guidance. The Company concluded that Janssen represented a customer and applied relevant guidance from ASC 606, Revenue from Contracts with Customers (ASC 606) to evaluate the appropriate accounting for the Janssen Agreement. 

The Company identified the following promises under the Janssen Agreement: (1) a right to access the C1-cell protein production platform; (2) our obligation to provide agreed upon research and development services under the R&D Funding; (3) participation in the joint steering committee; (4) the reservation of targets; (5) the grant of option to obtain a research license of intellectual property and know-how rights of its C1-cell protein production platform to produce target proteins; (6) our obligation to complete tech transfer activities upon the exercise of a research license; and (7) the options to obtain a commercial license and an exclusive license on specific targets. 

The Company concluded that the research and development services under the R&D Funding represents a separate unit of account, because it is a prerequisite to the license agreement and a third-party contract research organization will be used to conduct the research. The Company also concluded that, while participation on the joint steering committee was capable of being distinct, participation is part of the research and development services and does not constitute the transfer of a good or service to Janssen within the context of the contract. 

Other promises including the reservation of targets and tech transfer are not capable of being distinct from the licenses within the context of the contract and should therefore not be treated as a separate performance obligation. Additionally, at contract inception, the Company evaluated Janssen’s options for a research license, commercial license and to exercise exclusive rights on certain targets in order to determine whether these options to purchase additional license rights at their standalone selling prices provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer. The Company concluded that these options in the Janssen Agreement are not material rights and do not give rise to a separate performance obligation. Instead, these options are deemed as marketing offers, and additional option fee payments are recognized or being recognized as revenue when Janssen exercises the option. The exercise of an option that does not represent a material right is treated as a separate contract for accounting purposes. 

Based on management’s assessment, the Company concluded 2 performance obligations should be accounted for separately: (1) the agreed-upon research and development services, and (2) the right to access C1-cell protein production platform under the research plan. Accordingly, the Company records the €1.6 million of R&D Funding as research and development revenue using the cost-based input method in accordance with the Company’s policy (see Note 1). 

As noted above, the Company received a non-refundable upfront payment of $0.5 million to reserve the initial protein targets until Janssen decides to exercise an option to license in the future, which represents a right to access the C1-cell protein production platform prior to using it. The Company recognizes the upfront payment of $0.5 million over the target reservation period, during which Janssen can obtain a research and/or commercial license and/or an exclusive license on specific targets or recognize in full when the contract is terminated. 

The Company also excluded option exercise fees and future milestone payments that the Company was eligible to receive under the Janssen Agreement, from the initial transaction price. The Company will not recognize revenue related to option exercise payments and future milestone payments until the associated event occurs, or relevant thresholds are met. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

At March 31, 2022, the upfront payment was recorded in deferred license revenue, current and non-current portion in amount of $112,146 and $308,823, respectively. For the three months ended March 31, 2022, the Company recognized $14,706 of the upfront payment as license revenue.

IDBiologics, Inc.

On July 8, 2020, the Company entered into a Common Stock Purchase Agreement (the “IDBiologics Agreement”) with IDBiologics, Inc (“IDBiologics”). IDBiologics is a private biotechnology company focused on the development of human monoclonal antibodies for the treatment and prevention of serious infectious diseases. The Company was founded in 2017 and seeded by Vanderbilt University Medical Center in response to the repeated threats of epidemics around the world including Ebola in West Africa and Zika in the Americas. IDBiologics is developing a portfolio of monoclonal antibodies against SARS-CoV-2, influenza and Zika viruses. 

Pursuant to the term of the IDBiologics Agreement, on July 8, 2021, Dyadic received 129,661 shares of IDBiologics’ common stock, which represent 0.37% of IDBiologics’ outstanding equity, in exchange of a feasibility study performed by Dyadic. Dyadic provided services including the use of Dyadic’s C1-cell technology to express a SARS-CoV-2 monoclonal antibody which IDBiologics licensed from the Vanderbilt Vaccine Center. The Company determined not to record the basis for its equity interest in IDBiologics because the fair value amount of the service provided is considered immaterial. 

The Company evaluated the nature of its equity interest in IDBiologics and determined that IDBiologics is a VIE due to the capital structure of the entity. However, the Company is not the primary beneficiary of IDBiologics as Dyadic does not have the power to control or direct the activities of IDBiologics that most significantly impact the VIE. As a result, the Company does not consolidate its investment in IDBiologics.

On April 25, 2021, the Company entered into a project agreement (the “Project Agreement”) to provide additional research services to IDBiologics. For the three months ended March 31, 2022, approximately $109,000 of research and development revenue and approximately $156,000 of accounts receivable were related to the Project Agreement.

Alphazyme

On May 5, 2019, the Company entered into a sub-license agreement (the “Alphazyme Sub-License Agreement”) with Alphazyme, LLC (“Alphazyme”). Under the terms of the Alphazyme Sub-License Agreement, the Company has granted to Alphazyme, subject to the terms of the license agreement entered into between the Company and Danisco US, Inc. on December 31, 2015, a sub-license to certain patent rights and know-how related to Dyadic’s proprietary C1-cell protein production platform for the purpose of commercializing certain pharmaceutical products that are used as reagents to catalyze a chemical reaction to detect, measure, or be used as a process intermediate to produce a nucleic acid as a therapeutic or diagnostic agent. 

On June 24, 2020, the Company entered into an Amended and Restated Non-Exclusive Sub-License Agreement (the “Amended Sub-License Agreement”) with Alphazyme to amend and restate the Alphazyme Sub-License Agreement. Pursuant to the Amended Sub-License Agreement and in consideration of Dyadic’s transfer of its C1-cell protein production platform, Alphazyme issued 2.50% of the Class A shares of Alphazyme to Dyadic, and Dyadic became a party to the Alphazyme Limited Liability Company Agreement pursuant to which the Company will agree to certain customary rights, covenants and obligations. In addition, and subject to achieving certain milestones, Alphazyme is obligated to pay a potential milestone payment and royalties on net sales, if any, which incorporate Dyadic’s proprietary C1-cell protein production platform. 

On December 1, 2020, an Amended and Restated Limited Liability Company Agreement with Alphazyme (the “Amended Alphazyme LLC Agreement”) was entered into. Under the Amended Alphazyme LLC Agreement, Alphazyme obtained additional capital contribution from a third-party and Dyadic’s ownership was diluted to 1.99%. As a result, the Company recorded a gain of $284,709 as its basis of investment in Alphazyme.

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. 

 As of March 31, 2022, the Company does not consider its investment in Alphazyme to be impaired, as there was no event or transaction that would change the value of this investment.

BDI

On June 30, 2017, the Company entered into a strategic Research Services Agreement (the “RSA”) and a Service Framework Agreement (the “SFA”, and together with the RSA, the “R&D Agreements”) with Biotechnology Developments for Industry in Pharmaceuticals, S.L.U. (“BDI Pharma”). BDI Pharma, together, and with VLP The Vaccines Company, S.L.U. (“VLPbio”), both of which are both subsidiaries of Biotechnology Developments for Industry, S.L., a Spanish biotechnology company (“BDI Holdings” and together with BDI Pharma and VLPbio, “BDI”).

The Company paid EUR €1.0 million (the “RSA Initial Payment”) in cash to engage BDI to develop designated C1 based product candidates and further improve the C1 manufacturing process, in consideration of which Dyadic also received a 16.1% equity interest in BDI Holdings and a 3.3% equity interest in VLPbio. Under the RSA, BDI is obligated to spend a minimum amount of EUR €936,000 over two years for the research and development project. If the research and development activities produce a product that is selected for additional development and commercialization, then Dyadic would share with BDI a range of between 50% and 75% of the net income from such selected product, depending upon the amount of BDI’s aggregate spend in the development of the selected product, with a minimum aggregate spend by BDI of EUR €1 million for a 50% share and EUR €8.0 million for a 75% share. If BDI does not enter into an agreement with Dyadic for such additional development and commercialization of the selected product, then Dyadic will pay to BDI EUR €1.5 million of the net income from Dyadic’s commercialization, if any, of the selected product (“Benefit Sharing for Selected Product”). The provision related to Benefit Sharing for Selected Product survives upon the completion of the project and termination of the RSA. Under the SFA, Dyadic agreed to purchase from BDI at least USD $1.0 million (the “SFA Commitment”) in contract research services specified by Dyadic over two years from the closing of the BDI transaction.

The Company concluded that BDI is not a Variable Interest Entity (“VIE”), because BDI has sufficient equity to finance its activities without additional subordinated financial support and its at-risk equity holders have the characteristics of a controlling financial interest. Additionally, Dyadic is not the primary beneficiary of BDI as Dyadic does not have the power to control or direct the activities of BDI or its operations. As a result, the Company does not consolidate its investments in BDI, and the financial results of BDI are not included in the Company’s consolidated financial results.

The Company performed a valuation analysis of the components of the transaction and allocated the consideration based on the relative fair value of each component. Asconcluded that the fair value of BDI equity interest was considered immaterial, the RSA Initial Payment of approximately USD $1.1$1.1 million (EUR €1.0 million) was accounted for as a prepaid research and development collaboration payment on our consolidated balance sheet, and both the collaboration payment under the RSA and the SFA Commitment of USD $1.0 million paid by Dyadic were expensed as the related research services were performed by BDI. In June 2019, BDI completed its services under the RSA and the entire amount of the RSA Initial Payment was expensed. Dyadic had fulfilled its SFA commitment in 2019.

On July 26, 2021, the Company entered (i) a Sale and Purchase of Shares Agreement under which the Company agreed to sell its 16.1% equity interest in BDI Holdings, and (ii) a Sale and Purchase of Shares Agreement under which the Company agreed to sell its 3.3% equity interest in VLPBio (together the “BDI Sale”). In connection with the closing of the BDI Sale, the Company received approximately $1.6 million, net of transaction and legal expenses in August 2021. The gain generated from the BDI Sale was recorded in other income.

In connection with the BDI Sale, the Company also entered into an amendment to the Service Framework Agreement (the “Amended SFA”) with BDI Pharma. Under the Amended SFA, the Company maintains the right to engage in research and development projects at BDI Pharma until June 30, 2025, with the non-compete term extending to June 30, 2030, without any other material terms and conditions changed.

For the three months ended March 31, 2022, there was 0 research and development expense incurred related to BDI.

Novovet and Luina Bio

On April 26, 2019, the Company entered into a sub-license agreement (the “Luina Bio Sub-License Agreement”) with Luina Bio Pty Ltd. (“Luina Bio”) and Novovet Pty Ltd (“Novovet”). Under the terms of the Luina Bio Sub-License Agreement, the Company has granted to Novovet, subject to the terms of the license agreement entered into between the Company and Danisco US, Inc. on December 31, 2015, a worldwide sub-license to certain patent rights and know-how related to Dyadic’s proprietary C1 gene expression-cell protein production platform for the exclusive and sole purpose of commercializing certain targeted antigen and biological products for the prevention and treatment of various ailments for companion animals.animals

In consideration of the license granted pursuant to the Luina Bio Sub-License Agreement, Dyadic received a 20% equity interest in Novovet (“Novovet Up-Front Consideration”) in accordance with the terms of Novovet’s Shareholder Agreement (“Shareholders Agreement”) and will receive a percentage of royalties on future net sales and non-sales revenue, if any, which incorporates Dyadic’s proprietary C1 gene expression-cell protein production platform.

The Company evaluated the nature of its equity interest investment in Novovet and determined that Novovet is a VIE, because Novovet does not have sufficient equity to finance its activities without additional financial support from third party investors or lenders. However, the Company is not the primary beneficiary of Novovet as Dyadic does not have the power to control or direct the activities of Novovet that most significantly impact the VIE. As a result, the Company will not consolidate its investment in Novovet, but account for under the equity method investment, given that it has the ability to exercise significant influence, but not control, over Novovet.

To date Novovet has not raised the capital required to move this opportunity forward, and therefore, the Company has not transferred its C1 technology-cell protein production platform to Novovet. Therefore, the Novovet Up-Front Consideration received under the Luina Bio Sub-License Agreement, in the form of a 20% equity interest in Novovet, does not yet meet the revenue recognition criteria under ASC 606. The

On February 15, 2022, the Company will account for its investment in Novovet and the related income under the equity method of accounting, when and if the transfer of its C1 technology is completedsent a letter to Luina Bio Pty Ltd and Novovet receives adequate financing required to commencePty Ltd, indicating its research and development activities. The Company intendsintention to terminate the Luina Bio Sub-License Agreement in 2021 should Novovet be unable to raise the required funding.Agreement.

Alphazyme 

On May 5, 2019, the Company entered into a sub-license agreement (the “Alphazyme Sub-License Agreement”) with Alphazyme, LLC (“Alphazyme”). Under the terms of the Alphazyme Sub-License Agreement, the Company has granted to Alphazyme, subject to the terms of the license agreement entered into between the Company and Danisco US, Inc. on December 31, 2015, a sub-license to certain patent rights and know-how related to Dyadic’s proprietary C1 gene expression platform for the purpose of commercializing certain pharmaceutical products that are used as reagents to catalyze a chemical reaction to detect, measure, or be used as a process intermediate to produce a nucleic acid as a therapeutic or diagnostic agent.

On June 24, 2020, the Company entered into an Amended and Restated Non-Exclusive Sub-License Agreement (the “Amended Sub-License Agreement”) with Alphazyme. Pursuant to the Amended Sub-License Agreement and in consideration of Dyadic’s transfer of its C1 technology, Alphazyme issued 2.50% of the Class A shares of Alphazyme to Dyadic, and Dyadic became a party to the Alphazyme Limited Liability Company Agreement pursuant to which the Company has agreed to certain customary rights, covenants, and obligations. In addition, and subject to achieving certain milestones, Alphazyme is obligated to pay a potential milestone payment and royalties, based on net sales, if any, which incorporate Dyadic’s proprietary C1 gene expression platform. 

On December 1, 2020, the Company entered into an Amended and Restated Limited Liability Company Agreement with Alphazyme (the “Amended Alphazyme LLC Agreement”). Under the Amended Alphazyme LLC Agreement, Alphazyme obtained an additional capital contribution and Dyadic’s ownership was diluted to 1.99%.

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.

For the year ended December 31, 2020, the Company recorded a gain of $284,709 from its investment in Alphazyme resulting from a third-party capital contribution obtained by Alphazyme. As of September 30, 2021, the Company does not consider its investment in Alphazyme to be impaired.

IDBiologics, Inc.

On July 8, 2020, the Company entered into a Common Stock Purchase Agreement (the “IDBiologics Agreement”) with IDBiologics, Inc (“IDBiologics”). IDBiologics is a private biotechnology company focused on the development of human monoclonal antibodies for the treatment and prevention of serious infectious diseases. The Company was founded in 2017 and seeded by Vanderbilt University Medical Center in response to the repeated threats of epidemics around the world, including Ebola in West Africa and Zika in the Americas. IDBiologics is developing a portfolio of monoclonal antibodies against SARS-CoV-2, influenza and Zika viruses.

Pursuant to the term of the IDBiologics Agreement, on July 8, 2021, Dyadic received 129,661 shares of IDBiologics’ common stock, which represent 0.37% of IDBiologics’ outstanding equity, upon the completion of a feasibility study performed by Dyadic. Dyadic provided services including the use of Dyadic’s C1 technology to express a SARS-CoV-2 monoclonal antibody which IDBiologics licensed from the Vanderbilt Vaccine Center. The Company determined not to record the basis for its equity interest in IDBiologics because the fair value amount is considered immaterial.

The Company evaluated the nature of its equity interest in IDBiologics and determined that IDBiologics is a VIE due to the capital structure of the entity. However, the Company is not the primary beneficiary of IDBiologics as Dyadic does not have the power to control or direct the activities of IDBiologics that most significantly impact the VIE. As a result, the Company does not consolidate its investment in IDBiologics.

For the three months ended September 30, 2021, approximately $76,000 of research and development revenue was related to IDBiologics. For the nine months ended September 30, 2021, approximately $132,000 of research and development revenue was related to IDBiologics. 

Note 4:    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.

Note 5:    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”) was adopted by the Company’s Board of Directors on April 28, 2011 and approved by the Company’s stockholders on June 15, 2011. The 2011 Plan serves as the successor to the Company’s 2006 Stock Option Plan (the “2006 Plan”). Since the effective date of the 20112021 Plan, all equity awards were made from the 20112021 Plan, and no additional awards will be granted under the 2006 plan. Under the 2011 Plan, 3,000,000 shares of the Company’s common stock were initially reserved for issuance pursuant to a variety of share-based compensation awards, plus any shares available for issuance under the 2006 Plan or are subject to awards under the 2006 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2006 Plan. In accordance with the provisions of the 2011 Plan, the Board of Directors approved an increase of 1,500,000 shares to the plan on January 1, 2019, and 2020.

At our 2021 Virtual Annual Meeting of Shareholders (“Annual Meeting”) held on June 11, 2021, shareholders approved the Company’s 2021 Equity Incentive Award Plan (the “2021 Plan”), which was adopted by the Board of Directors on April 9, 2021. The 2021 Plan increased the number of shares available for the grant of stock options, restricted stock awards and other awards by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the 2011 Plan as of April 16, 2021.The 2021 Plan became effective as of the date of the Annual Meeting and as of September 30, 2021, no additional awards were granted under the 2011 Plan.

As of September 30, 2021March 31, 2022, the Company had 4,824,2155,425,040 stock options outstanding and an additional 4,363,3864,584,215 shares of common stock available for grant under the 2021 Plan. As of December 31, 20202021, there were 4,638,3903,577,561 stock options outstanding and 2,134,2114,263,386 shares of common stock available for grant under the 20112021 Plan.

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 ten years, except for certain options granted to the contractors which are either one or three 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: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 aftersince the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilityvolatilities 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., 5 or 10 years) and certain contractors (i.e., 21 or 3 years).

The assumptions used in the Black-Scholes option pricing model for stock options granted during the ninethree months ended September 30, 2021March 31, 2022 are as follows:

The following table summarizes the stock option activities during the ninethree months ended September 30, 2021March 31, 2022:

_________________

Notes:

(1) Represents the following stock options granted:

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 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 stock option compensation expense was allocated among the following expense categories:

Note 6:    Shareholders'Shareholders’ Equity

Issuances of Common Stock

For the ninethree months ended September 30, 2021March 31, 2022, there were 585,00035,000 shares of the Company’s common stock issued resulting from the exercise of stock options with a weighted average issue price of $1.68$1.21 per share. For the ninethree months ended September 30, 2020March 31, 2021, there were 123,00060,000 shares of the Company’s common stock issued resulting from the exercise of stock options with a weighted average issue price of $1.88$1.93 per share.

Treasury Stock

As of September 30, 2021, and December 31, 2020, there were 12,253,502 shares of common stock held in treasury, at a cost of approximately $18.9 million, representing the purchase price on the date the shares were surrendered to the Company.

Open Market Sale Agreement℠

On August 13, 2020, we entered into an Open Market Sale Agreement℠ with Jefferies LLC, or Jefferies, with respect to an at the market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.001 per share, having an aggregate offering price of up to $50.0 million through Jefferies as our sales agent or principal.

We have not and are not obligated to sell any shares under the sale agreement. Subject to the terms and conditions of the sale agreement, Jefferies will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable laws and regulations, to sell shares of our common stock from time to time based upon our instructions, including any price, time or size limits or other customary parameters or conditions we specify, subject to certain limitations. Under the sale agreement, Jefferies may sell shares of our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.

We will pay Jefferies a commission equal to 3.0% of the gross proceeds from each sale of shares of our common stock sold through Jefferies under the sale agreement and will provide Jefferies with customary indemnification and contribution rights. In addition, we agreed to reimburse certain legal expenses and fees by Jefferies in connection with the offering up to a maximum of $50,000, in addition to certain ongoing disbursements of Jefferies’ counsel, if required. The sale agreement will terminate upon the sale of all $50.0 million of shares under the sale agreement, unless earlier terminated by either party as permitted therein.

The issuance and sale, if any, of shares of our common stock by us under the sale agreement will be made pursuant to a registration statement on Form S-3 filed with the SEC on August 13, 2020, and declared effective by the SEC on August 25, 2020 and the accompanying Prospectus, as supplemented by a Prospectus Supplement. As of the date of this filing, there have been no sales made under the Open Market Sale Agreement℠.

Note 7:    Subsequent Events

Management continues to actively monitor the COVID-19 pandemic and its development, and the possible effects on the Company’s financial condition, liquidity, operations, vendors, industry, and workforce. 

For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through November 10, 2021May 12, 2022, the date the consolidated financial statements were available to be issued. ManagementExcept as discussed below, management is not aware of any material events that have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in the accompanying financial statements.

On May 10, 2022, Dyadic International (USA), Inc., a subsidiary of Dyadic International, Inc., entered into a Joint Development Agreement (the "JDA Agreement”) with Leprino Foods Company (“LFC”), effective May 12, 2022. Under the terms and conditions of the JDA Agreement, Dyadic and LFC will develop and manufacture a number of animal free ingredient products using Dyadic’s biotechnologies.

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 platform company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and predominantly threeit utilizes a number of third-party consultants and research organizations performing services under contract to Dyadic incarry out the Netherlands, Finland and Israel.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 (formerly known as Myceliophthora thermophila) fungus, which the Company named C1. The C1 technologyC1-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.

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 technologyC1-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 technologyC1-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. 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 primarily been focused on the animal and human biopharmaceutical industry,industries, specifically in further improving and applying the proprietary C1 technologyC1-cell protein production platform into a safe and efficient gene expressionprotein production platform to help speed up the development, lower production costs and improve the performance of biologic vaccines and drugs and other biological products at flexible commercial scales.

The Company and its C1 technology played an important role in the €20 million Zoonosis Anticipation Preparedness Initiative (“ZAPI”) program, which was a five-year research and development program sponsored by the European Union. ZAPI brought together experts in human and animal health to create new platforms and technologies that will facilitate a fast, coordinated, and practical response to new pandemic threats as soon as they emerge. The Company’s C1 gene expression and recombinant protein production platform was selected by ZAPI as a production host of antigens for the Schmallenberg virus (“SBV”) and Rift Valley Fever virus (“RVFV”). The C1 expressed SBV antigen was produced at approximately 300 times greater yield than the SBV antigen expressed from insect (baculovirus) cells and was more stable. Additionally, the C1 SBV antigen was shown to be safe and effective to provide full protection to cattle, sheep, and mice. Based on these results, ZAPI has provided the Company with additional funding, in 2021, to produce both the SBV and RVFV antigens in order to perform expanded animal trials with the C1 expressed antigens which is expected to generate additional safety and efficacy data. In the first quarter of 2021, ZAPI expanded its program with Dyadic by providing additional funding to C1 research and development efforts as well as to conduct additional animal studies using the SBV and RVFV antigens produced from C1. Several positive outcomes have already originated from the ZAPI results, including several fully funded animal health projects and a number of COVID-19 vaccine collaborations, including Dyadic’s proprietary receptor-binding domain (“RBD”) antigen of the SARS-CoV-2 spike protein, used in the production of the Company’s proprietary COVID-19 DYAI-100 vaccine candidate. The C1 expressed SARS-CoV-2 RBD antigen has been developed and tested in various collaborations, including with three of the top infectious disease and coronavirus scientists who worked with Dyadic and C1 in the ZAPI consortium, the Israel Institute for Biological Research (“IIBR”), Medytox, Inc., and others. These activities have positioned the Company to determine its current path forward for an anticipated first-in-human Phase 1 clinical program of DYAI-100 in 2022. The main goal of the DYAI-100 Phase 1 clinical trial is to demonstrate that a protein produced from the Company’s proprietary and patented C1-cells can be safely used in humans which we anticipate will help to accelerate the C1 technology platform’s adoption, use and commercialization and also to serve as a proof of concept for the development of next generation multivariant COVID-19 vaccine candidates.

Based on a growing amount of safety, efficacy and productivity data from research and development programs within ZAPI, the IIBR and several internal and externally funded programs, we and a growing number of scientists globally believe that the C1 cell protein production platform can be used to speed the development, lower production costs, and improve the performance of biologic vaccines, drugs and other biological products which can be efficiently manufactured at flexible commercial scales more affordably. Based on these internally and externally funded C1-cell engineering programs, the number and types of potential vaccines, drugs and biologic products which may be developed and commercialized, continues to grow. Some examples of human and animal vaccines and drugs which have the potential to be produced from C1-cells are protein antigens, virus-like particles (“VLPs”), monoclonal antibodies (“mAbs”), Bi/Tri-specific antibodies, Fab antibody fragments, Fc-FusionFc-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 technologyC1-cell protein production platform to develop innovative vaccines and drugs, biosimilars and/or biobetters. Additionally, the Company has begun to develop other technologies that have potential applications in non-pharmaceutical markets.

Recent Developments

The Company continues to advance its internal research projects and expand its relationships with business and research partners in the biotech and pharmaceutical industry, academic and other institutions, as well as certain government agencies, as follows: