~~You should not rely upon~~ The forward-looking statements contained in this Form 10-Q are made only as ~~predictions~~ of ~~future events. Although we believe that~~ the ~~expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance~~date hereof, and ~~events and circumstances reflected in the forward-looking statements will be achieved or occur. Except~~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.

We qualify all our forward-looking statements by these cautionary statements. In addition, with respect to all our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

PART I


Item 1.			Financial Statements

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	*September 30, 2021*			*December 31, 2020*
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	13,660,611		$	20,637,045
Short-term investment securities		9,087,199			8,457,452
Interest receivable		74,793			112,247
Accounts receivable		179,632			294,199
Prepaid expenses and other current assets		569,965			280,555
Total current assets		23,572,200			29,781,498

Non-current assets:
Equity investment		284,709			284,709
Other assets		6,143			6,225
Total assets	$	23,863,052		$	30,072,432

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	957,802		$	1,013,099
Accrued expenses		842,450			489,756
Deferred research and development obligations		162,680			123,016
Total current liabilities		1,962,932			1,625,871

Commitments and contingencies (Note 4)

Stockholders’ equity:
Preferred stock, $.0001 par value:
Authorized shares - 5,000,000; none issued and outstanding		0			0
Common stock, $.001 par value:
Authorized shares - 100,000,000; issued shares - 40,332,659 and 39,747,659, outstanding shares - 28,079,157 and 27,494,157 as of September 30, 2021, and December 31, 2020, respectively		40,333			39,748
Additional paid-in capital		100,322,444			98,013,079
Treasury stock, shares held at cost - 12,253,502		(18,929,915	)		(18,929,915	)
Accumulated deficit		(59,532,742	)		(50,676,351	)
Total stockholders’ equity		21,900,120			28,446,561
Total liabilities and stockholders’ equity	$	23,863,052		$	30,072,432

September 30, 2020 December 31, 2019
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 21,862,581 $ 4,823,544
Short-term investment securities 8,544,815 29,399,146
Interest receivable 106,405 329,711
Accounts receivable 806,847 558,530
Income tax receivable 0 250,308
Prepaid expenses and other current assets 419,498 277,999
Total current assets 31,740,146 35,639,238
Non-current assets:
Long-term investment securities 0 1,511,636
Long-term income tax receivable 0 250,308
Other assets 5,558 51,314
Total assets $ 31,745,704 $ 37,452,496
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 976,762 $ 943,378
Accrued expenses 620,633 566,003
Deferred research and development obligations 153,855 78,644
Total current liabilities 1,751,250 1,588,025
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $.0001 par value:
Authorized shares - 5,000,000; NaN issued and outstanding 0 0
Common stock, $.001 par value:
Authorized shares - 100,000,000; issued shares - 39,735,659 and 39,612,659, outstanding shares - 27,482,157 and 27,359,157 as of September 30, 2020 and December 31, 2019, respectively 39,736 39,613
Additional paid-in capital 97,600,771 96,105,851
Treasury stock, shares held at cost - 12,253,502 (18,929,915) (18,929,915)
Accumulated deficit (48,716,138) (41,351,078)
Total stockholders’ equity 29,994,454 35,864,471
Total liabilities and stockholders’ equity $ 31,745,704 $ 37,452,496

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

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2021*			*2020*			*2021*			*2020*
Revenues:
Research and development revenue	$	692,929		$	416,361		$	2,090,541		$	1,256,004

Costs and expenses:
Costs of research and development revenue		392,544			266,929			1,612,810			1,169,351
Provision for contract losses		0			112,433			0			187,388
Research and development		1,901,548			986,054			5,918,888			2,857,670
General and administrative		1,692,837			1,643,493			4,994,458			4,772,117
Foreign currency exchange loss (gain), net		30,002			(16,240	)		76,080			26,317
Total costs and expenses		4,016,931			2,992,669			12,602,236			9,012,843

Loss from operations		(3,324,002	)		(2,576,308	)		(10,511,695	)		(7,756,839	)

Other income:
Interest income		3,202			76,809			49,772			391,779
Other income		1,605,532			0			1,605,532			0
Total other income		1,608,734			76,809			1,655,304			391,779

Net loss	$	(1,715,268	)	$	(2,499,499	)	$	(8,856,391	)	$	(7,365,060	)

Basic and diluted net loss per common share	$	(0.06	)	$	(0.09	)	$	(0.32	)	$	(0.27	)

Basic and diluted weighted-average common shares outstanding		28,079,157			27,482,157			27,754,597			27,467,051

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenues:
Research and development revenue $ 416,361 $ 454,507 $ 1,256,004 $ 1,247,908
Costs and expenses:
Costs of research and development revenue 266,929 384,803 1,169,351 1,034,934
Provision for contract losses 112,433 0 187,388 0
Research and development 986,054 841,343 2,857,670 2,351,953
Research and development - related party 0 101,849 0 827,632
General and administrative 1,643,493 1,056,196 4,772,117 4,354,941
Foreign currency exchange loss (gain), net (16,240) 13,727 26,317 24,693
Total costs and expenses 2,992,669 2,397,918 9,012,843 8,594,153
Loss from operations (2,576,308) (1,943,411) (7,756,839) (7,346,245)
Interest income 76,809 245,027 391,779 777,711
Loss before income taxes (2,499,499) (1,698,384) (7,365,060) (6,568,534)
Provision for income taxes 0 0 0 900
Net loss $ (2,499,499) $ (1,698,384) $ (7,365,060) $ (6,569,434)
Basic and diluted net loss per common share $ (0.09) $ (0.06) $ (0.27) $ (0.24)
Basic and diluted weighted-average common shares outstanding 27,482,157 27,181,003 27,467,051 26,909,205

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

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ EQUITY

(Unaudited)

	Nine Months Ended September 30, 2021
	Common Stock				Treasury Stock						Additional			Accumulated
	Shares		Amount		Shares			Amount			Paid-In Capital			Deficit			Total
December 31, 2020		39,747,659	$	39,748		(12,253,502	)	$	(18,929,915	)	$	98,013,079		$	(50,676,351	)	$	28,446,561
Stock-based compensation expense		—		0		—			0			421,071			0			421,071
Issuance of common stock upon exercise of stock options		60,000		60		0			0			115,740			0			115,800
Net loss		—		0		—			0			0			(3,294,949	)		(3,294,949	)
March 31, 2021		39,807,659	$	39,808		(12,253,502	)	$	(18,929,915	)	$	98,549,890		$	(53,971,300	)	$	25,688,483
Stock-based compensation expense		—		0		—			0			446,120			0			446,120
Issuance of common stock upon exercise of stock options		525,000		525		0			0			869,815			0			870,340
Net loss		—		0		—			0			0			(3,846,174	)		(3,846,174	)
June 30, 2021		40,332,659	$	40,333		(12,253,502	)	$	(18,929,915	)	$	99,865,825		$	(57,817,474	)	$	23,158,769
Stock-based compensation expense		—		0		—			0			457,209			0			457,209
Issuance of common stock upon exercise of stock options		0		0		0			0			(590	)		0			(590	)
Net loss		—		0		—			0			0			(1,715,268	)		(1,715,268	)
September 30, 2021		40,332,659	$	40,333		(12,253,502	)	$	(18,929,915	)	$	100,322,444		$	(59,532,742	)	$	21,900,120

~~(Unaudited)~~

	*Nine Months Ended September 30, 2020*
	*Common Stock*				*Treasury Stock*						*Additional*		*Accumulated*
	*Shares*		*Amount*		*Shares*			*Amount*			*Paid-In Capital*		*Deficit*			*Total*
December 31, 2019		39,612,659	$	39,613		(12,253,502	)	$	(18,929,915	)	$	96,105,851	$	(41,351,078	)	$	35,864,471
Stock-based compensation expense		—		0		—			0			426,939		0			426,939
Issuance of common stock upon exercise of stock options		100,000		100		0			0			174,900		0			175,000
Net loss		—		0		—			0			0		(2,214,139	)		(2,214,139	)
March 31, 2020		39,712,659	$	39,713		(12,253,502	)	$	(18,929,915	)	$	96,707,690	$	(43,565,217	)	$	34,252,271
Stock-based compensation expense		—		0		—			0			436,613		0			436,613
Issuance of common stock upon exercise of stock options		23,000		23		0			0			55,720		0			55,743
Net loss		—		0		—			0			0		(2,651,422	)		(2,651,422	)
June 30, 2020		39,735,659	$	39,736		(12,253,502	)	$	(18,929,915	)	$	97,200,023	$	(46,216,639	)	$	32,093,205
Stock-based compensation expense		—		0		—			0			400,680		0			400,680
Issuance of common stock upon exercise of stock options		0		0		0			0			68		0			68
Net loss		—		0		—			0			0		(2,499,499	)		(2,499,499	)
September 30, 2020		39,735,659	$	39,736		(12,253,502	)	$	(18,929,915	)	$	97,600,771	$	(48,716,138	)	$	29,994,454

Common Stock Treasury Stock Additional Accumulated
Shares Amount Shares Amount Paid-in Capital Deficit Total
Balance at December 31, 2019 39,612,659 $ 39,613 (12,253,502) $ (18,929,915) $ 96,105,851 $ (41,351,078) $ 35,864,471
Stock-based compensation — — — — 1,264,233 — 1,264,233
Exercise of stock options 123,000 123 — — 230,687 — 230,810
Net loss — — — — — (7,365,060) (7,365,060)
Balance at September 30, 2020 39,735,659 $ 39,736 (12,253,502) $ (18,929,915) $ 97,600,771 $ (48,716,138) $ 29,994,454

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

DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	*Nine Months Ended September 30,*
	*2021*			*2020*
Cash flows from operating activities
Net loss	$	(8,856,391	)	$	(7,365,060	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,324,400			1,264,233
Amortization of held-to-maturity securities, net		254,193			282,123
Gain on investment in BDI		(1,605,532	)		0
Foreign currency exchange loss (gain), net		76,081			26,317
Changes in operating assets and liabilities:
Interest receivable		37,454			223,306
Accounts receivable		72,051			(141,698	)
Income tax receivable		0			500,616
Prepaid expenses and other current assets		(289,481	)		(141,550	)
Accounts payable		(47,033	)		(61,651	)
Accrued expenses		352,713			50,745
Deferred research and development obligation		39,664			75,211
Net cash used in operating activities		(8,641,881	)		(5,287,408	)

Cash flows from investing activities
Purchases of held-to-maturity investment securities		(11,283,940	)		(14,677,156	)
Proceeds from maturities of investment securities		10,400,000			36,761,000
Proceeds from the sale of BDI equity interest		1,605,532			0
Net cash provided by investing activities		721,592			22,083,844

Cash flows from financing activities
Proceeds from exercise of options		985,550			230,810
Net cash provided by financing activities		985,550			230,810
Effect of exchange rate changes on cash		(41,695	)		11,791
Net (decrease) increase in cash and cash equivalents		(6,976,434	)		17,039,037
Cash and cash equivalents at beginning of period		20,637,045			4,823,544
Cash and cash equivalents at end of period	$	13,660,611		$	21,862,581

Supplemental cash flow information
Cash received from income tax refund	$	0		$	505,616

~~(Unaudited)~~

Nine Months Ended September 30,
2020 2019
Cash flows from operating activities
Net loss $ (7,365,060) $ (6,569,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense 1,264,233 1,034,346
Amortization of held-to-maturity securities, net 282,123 141,362
Foreign currency exchange loss (gain), net 26,317 24,693
Changes in operating assets and liabilities:
Interest receivable 223,306 58,800
Accounts receivable (141,698) (110,807)
Income tax receivable 500,616 497,460
Prepaid research and development 0 253,446
Prepaid expenses and other current assets (141,550) (164,590)
Accounts payable (61,651) 429,955
Accrued expenses 50,745 70,541
Deferred research and development obligation 75,211 (47,726)
Net cash used in operating activities (5,287,408) (4,381,954)
Cash flows from investing activities
Purchases of held-to-maturity investment securities (14,677,156) (37,585,548)
Proceeds from maturities of investment securities 36,761,000 43,953,000
Net cash provided by investing activities 22,083,844 6,367,452
Cash flows from financing activities
Proceeds from exercise of options 230,810 328,590
Net cash provided by financing activities 230,810 328,590
Effect of exchange rate changes on cash 11,791 (38,075)
Net increase in cash and cash equivalents 17,039,037 2,276,013
Cash and cash equivalents at beginning of period 4,823,544 2,386,314
Cash and cash equivalents at end of period $ 21,862,581 $ 4,662,327
Supplemental cash flow information
Cash received from income tax refund $ 500,616 $ 506,866

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, a satellite office in the Netherlands and predominantly 23 research organizations performing services ~~under contract to Dyadic~~ in the Netherlands, Finland and ~~Spain.~~Israel. 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 is a robust and versatile fungal expression system for the development and production of 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) ~~for $75 million~~ (the “DuPont Transaction”). As part of the DuPont Transaction, Dyadic retained co-exclusive rights to the C1 technology for use in all human and animal pharmaceutical applications, and currently has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions). Danisco retained certain rights to utilize the C1 technology 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 been focused on the biopharmaceutical industry, specifically in further improving and applying the proprietary C1 technology into a safe and efficient gene expression 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. ~~We believe that~~Currently, the C1 technology could be beneficial in the development and manufacturing of human and animal vaccines and drugs, such as virus-like particles (VLPs), protein antigens, monoclonal antibodies (mAbs), Bi-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 ~~designed~~ to leverage its C1 technology to help develop products such as innovative vaccines and drugs, biosimilars and/or biobetters.

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”. ~~Prior to the Company’s uplisting to the NASDAQ, the Company’s common stock traded on the OTCQX market.~~

Impact of ~~COVID-19~~

COVID-19

The outbreak of ~~the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020,~~COVID-19 has led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential ~~impacts~~impact to the Company’s employees, operations, and research projects.

~~To date, as a direct result of COVID-19, some~~

Some of our employees are still working remotely. The extent to which the ~~COVID-19~~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 ~~COVID-19~~the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and its variants and the actions taken and the level of success to contain it or treat ~~COVID-19,~~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~~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~~COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business ~~as a result~~because of ~~any~~ economic recession or depression that has occurred or may occur in the future. Given the daily evolution of the ~~COVID-19~~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~~COVID-19 outbreak to our results of operations, financial condition, or liquidity.

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 ~~we have sufficient~~our existing cash ~~cash equivalents~~position and ~~investments~~investment in investment grade securities will be adequate to ~~fund~~

meet our ~~operations~~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. ~~The~~Additionally, the Company may decide to fund all ~~or part~~ of a Phase I clinical trial ~~in order~~ to demonstrate the safety in humans of a protein produced from the C1 expression platform in humans. There is no assurance that external funding ~~would~~will be available at acceptable terms, if at ~~all.~~

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~~10-Q should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, ~~2019,~~2020, included in our Form ~~10-K~~10-K which was filed with the SEC on March 30, ~~2020.~~2021 (as amended on Form 10-K/A on July 27, 2021).

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 1 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, ~~2020~~ 2021 and ~~2019,~~2020, the Company’s revenue was generated from 8 ~~and 5 customers, respectively.~~customers. For the nine months ended September 30, ~~2020~~ 2021 and ~~2019,~~2020, the Company’s revenue was ~~generated~~generated from 1213 and 812 customers, respectively. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company’s accounts receivable was from 10 5 and 59 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 ~~and the nine~~ months ~~ended~~ ended September 30, 2021 and 2020, the Company had 35 and 63 customers outside of the United States (i.e. European and Asian customers) that accounted for approximately $478,000 or 69.1% and $169,000 or 40.6% ~~or $169,000, and 48.5% or $609,000~~ of ~~total~~the revenue, respectively. For the ~~three and the~~ nine months ended September 30, ~~2019,~~2021 and 2020, the ~~company~~Company had ~~three~~7 and 6 customers outside of the United States that accounted for approximately $1,599,000 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 ~~77.0%~~$180,000 or ~~$351,000 and 73.6% or $918,000 of total revenue, respectively.~~

~~As of September 30, 2020, the Company had 5 customers outside of the United States (i.e. European and Asian customers) that accounted for approximately 64.9% or $613,000~~100% of accounts receivable. As of December 31, ~~2019,~~2020, the Company had 47 customers outside of the United States that accounted for approximately ~~69.5%~~$123,000 or ~~$388,000~~41.6% of accounts receivable.

The Company uses several contract research organizations (“CROs”) to conduct its research projects. For the three months ended September 30, ~~2020~~ 2021 and ~~2019, one CRO~~2020, 2 and 1 CROs accounted for approximately ~~92.9%~~$1,982,000 or 97.2% and ~~91.6%~~$1,129,000 or 99.5% of total research services we purchased, respectively. For the nine months ended September 30, ~~2020~~ 2021 and ~~2019, one~~2020, 3 and 1 CROs accounted for approximately $6,621,000 or 96.9% and $3,602,000 or 96.9% of total research services, respectively. As of September 30, 2021, 2 CROs accounted for approximately $768,000 or 80.2% of the accounts payable. As of December 31, 2020, 1 CRO accounted for approximately ~~96.2% and 77.1%~~$690,000 or 68.1% of ~~total research services we purchased, respectively. As of September 30, 2020, approximately $727,000 or 74.4% of~~the accounts ~~payable was related to this CRO. As of December 31, 2019, approximately $706,000 or 74.9% of accounts payable was related to this CRO.~~payable. The loss of this 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)~~ (12) months or less, and long-term investment securities mature over twelve ~~(12)~~ (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).

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, ~~2020~~2021 and December 31, ~~2019,~~2020, all of 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, ~~2020~~2021, or December 31, ~~2019.~~2020.

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)~~ (12) months. There was 0 allowance for doubtful accounts as of September 30, ~~2020~~2021, and December 31, ~~2019.~~

2020.

Accounts receivable consist of the following:

September 30, 2020 December 31, 2019
(Unaudited) (Audited)
Billed receivable $ 638,339 $ 432,546
Unbilled receivable 168,508 125,984
$ 806,847 $ 558,530

	*September 30, 2021*		*December 31, 2020*
	(Unaudited)		(Audited)
Billed receivable	$	46,992	$	130,532
Unbilled receivable		132,640		163,667
	$	179,632	$	294,199

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

September 30, 2020 December 31, 2019
(Unaudited) (Audited)
Prepaid insurance $ 315,261 $ 173,890
Prepaid expenses - various 103,809 101,221
Prepaid taxes 428 2,888
$ 419,498 $ 277,999

	*September 30, 2021*		*December 31, 2020*
	(Unaudited)		(Audited)
Prepaid insurance	$	504,690	$	204,988
Prepaid research and development expenses		40,411		0
Prepaid expenses - other		24,060		72,403
Prepaid taxes		804		3,164
	$	569,965	$	280,555

Accounts Payable

Accounts payable consist of the following:

September 30, 2020 December 31, 2019
(Unaudited) (Audited)
Research and development expenses $ 727,470 $ 766,001
Legal expenses 181,342 26,994
Other 67,950 150,383
$ 976,762 $ 943,378

	September 30, 2021		December 31, 2020
	(Unaudited)		(Audited)
Research and development expenses	$	767,723	$	904,572
Legal expenses		174,012		24,496
Other		16,067		84,031
	$	957,802	$	1,013,099

Accrued Expenses

Accrued expenses consist of the following:

September 30, 2020 December 31, 2019
(Unaudited) (Audited)
Employee wages and benefits $ 396,567 $ 474,388
Research and development expenses 176,791 69,795
Other 47,275 21,820
$ 620,633 $ 566,003

	*September 30, 2021*		*December 31, 2020*
	(Unaudited)		(Audited)
Employee wages and benefits	$	410,780	$	447,881
Research and development expenses		344,900		28,508
Other		86,770		13,367
	$	842,450	$	489,756

Revenue Recognition

The Company has no pharmaceutical products approved for sale at this point, and all of our revenue to date has been research revenue from ~~third-party~~third-party collaborations and government grants. The Company is expected to generate future revenue from license 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, 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~~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. Since the performance obligation under our collaboration agreements is generally satisfied over time, we elected to use the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.

Under the input methods, revenue will be recognized 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~~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 and fundings:~~ grants: The Company may receive grants ~~and fundings~~ from governments, agencies, and other private and ~~not-for-profit~~not-for-profit organizations. These grants ~~and fundings~~ are intended to be used to partially or fully fund the Company’s research collaborations, including opportunities arising in connection with ~~COVID-19~~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~~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.

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 thesales-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 nine months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Outside contracted services $ 846,564 $ 730,190 $ 2,431,200 $ 1,974,176
Contracted services - related party 0 101,849 0 827,632
Personnel related costs 131,553 95,269 394,706 312,321
Facilities, overhead and other 7,937 15,884 31,764 65,456
$ 986,054 $ 943,192 $ 2,857,670 $ 3,179,585

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Outside contracted services	$	1,700,280	$	846,564	$	5,396,227	$	2,431,200
Personnel related costs		174,856		131,553		472,605		394,706
Facilities, overhead and other		26,412		7,937		50,056		31,764
	$	1,901,548	$	986,054	$	5,918,888	$	2,857,670

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, ~~including revenues~~ and ~~costs,~~ where applicable, ~~the consideration of our business partners’ reimbursement, and~~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:

•~~Level 1~~

	•	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 ~~active markets~~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 ~~identical assets or liabilities.~~

•~~Level 2~~ ~~– Observable inputs other than quoted prices~~investment 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.~~

~~Certain assets and liabilities on the balance sheets are measured at carrying values, which approximate~~debt securities, approximates fair ~~values~~value due to the short-term ~~nature~~maturities of these ~~balances. Such items include cash~~instruments. The Company’s short-term and ~~cash equivalents, accounts receivable, accounts payable, prepaid expenses, and accrued expenses. Investments~~long-term investments in debt securities are recorded at amortized cost, and their estimated fair value amounts are provided by the ~~third-party~~third-party broker service for disclosure purposes.

Non-Marketable Investments

The Company ~~utilized various methods, including income,~~also holds investments in non-marketable equity securities of privately-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 ~~market approaches to determine~~also monitor for any observable price changes. If indicators of impairment exist, we will prepare a quantitative assessment of the fair value of ~~its~~our equity investments, ~~in equity interest,~~ which may ~~fall into Level 3 of~~include using both the ~~fair value hierarchy because of the significant unobservable inputs utilized in these valuation approaches. These inputs can be readily observable,~~ market ~~corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize~~and income approaches which require judgment and the use of ~~observable inputs and minimize the use of unobservable inputs. Our key inputs included, but were not limited to, significant management judgments and~~ estimates, including ~~projections~~discount rates, investee revenues and costs, and available comparable market data of private and public companies, among others. Valuations of such privately-held companies are inherently complex and uncertain due to the ~~timing and amount~~lack of ~~the project’s cash flows, determination of a discount rate~~liquid market for the ~~income approach, market multipliers, probability weighting~~company’s securities. In addition, such investments are inherently risky in that such companies are typically at an early stage of ~~potential outcomes of legal and regulatory proceedings, and weighting 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 ~~valuations produced by the income, cost and market approaches.~~

~~Income Taxes~~

market.

1311

The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and became effective January 1, 2018. The TCJA contains several key provisions, including a reduction in the U.S. federal corporate income tax rate from 35% to 21% and repeal of the corporate alternative minimum tax (“AMT”). The TCJA’s reduction in the U.S. statutory tax rate had no additional impact on the consolidated financial statement for the year ended December 31, 2019.

The TCJA repealed the corporate AMT but permitted unused AMT credit carryforwards to be used to reduce the regular tax obligation in future years. Any AMT credit carryforwards that do not reduce regular taxes are eligible for a 50% refund in 2018 through 2020, and a 100% refund in 2021. Subsequently, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was signed into law in March 2020, accelerated the full refund of any unused AMT credits from 2021 (as provided for in the TCJA) to 2018 or 2019, at the taxpayer’s election.

Accordingly, we reclassified the balance of the AMT credit from the deferred tax asset to an income tax receivable in 2018. The corresponding balance in the valuation allowance has been reversed into income tax benefit in the amount of $1,001,233. On July 27, 2020, we received the remaining $0.5 million AMT refund for the tax year 2019.

Income Taxes

For the nine months ended September 30, ~~2020,~~2021, there were 0 provision for income taxes ~~and~~or unrecognized tax benefits recorded.

~~Deferred~~ As of September 30, 2021 and December 31, 2020, deferred tax assets ~~as of September 30, 2020~~ were approximately $12.6 million and ~~December 31, 2019 were approximately~~ $9.4 ~~million and $7.2~~ 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, ~~2020~~2021 and December 31, ~~2019.~~

2020.

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 nine months ended September 30, ~~2020~~ 2021 and ~~2019,~~2020, the effect of the potential exercise of options to purchase 4,824,215and 4,650,390 ~~and 4,006,390~~ shares of common stock, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive.

~~Recent~~

Recently Adopted Accounting Pronouncements ~~Not Adopted as of September 30, 2020~~

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016-13,~~ 2016-13,Financial Instruments - Credit Losses (Topic ~~326)~~326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. ASU ~~2016-13~~2016-13 will be effective for the Company beginning in the first quarter of 2023. The Company does not expect ASU ~~2016-13~~2016-13 to have a material impact on our consolidated financial ~~statements.~~

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.

1412

~~Recently Adopted Accounting Pronouncements~~

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements. The new disclosure requirements for changes in unrealized gains and losses in other comprehensive income for recurring level 3 measurements, the range and weighted average of significant unobservable inputs and the amended requirements for the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively. The ASU became effective for the Company beginning in the first quarter of 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Note 2:Cash, Cash ~~Equivalent,~~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 ~~short-term and long-term~~ investment securities by major security type as of September 30, ~~2020~~2021, and December 31, ~~2019:~~

September 30, 2020 (Unaudited)
Gross Gross
Level Unrealized Unrealized
(1) Fair Value Holding Gains Holding Losses Adjusted Cost
Cash and Cash Equivalents
Cash $ 785,678 $ — $ — $ 785,678
Money Market Funds 1 21,076,903 — — 21,076,903
Subtotal 21,862,581 — — 21,862,581
Short-Term Investment Securities (2)
Corporate Bonds (4)
2 8,605,115 60,300 0 8,544,815
Total $ 30,467,696 $ 60,300 $ 0 $ 30,407,396

December 31, 2019 (Audited)
Gross Gross
Level Unrealized Unrealized
(1) Fair Value Holding Gains Holding Losses Adjusted Cost
Cash and Cash Equivalents
Cash $ 1,010,510 $ — $ — $ 1,010,510
Money Market Funds 1 3,813,034 — — 3,813,034
Subtotal 4,823,544 — — 4,823,544
Short-Term Investment Securities (2)
Corporate Bonds (4)
2 29,387,053 5,898 (17,991) 29,399,146
Long-Term Investment Securities (3)
Corporate Bonds (4)
2 1,528,190 16,554 0 1,511,636
Total $ 35,738,787 $ 22,452 $ (17,991) $ 35,734,326

2020:

	*September 30, 2021 (Unaudited)*
				*Gross*		*Gross*
	*Level*			*Unrealized*		*Unrealized*
	*(1)*	*Fair Value*		*Holding Gains*		*Holding Losses*			*Adjusted Cost*
Cash and Cash Equivalents
Cash		$	1,486,993	$	—	$	—		$	1,486,993
Money Market Funds	1		12,173,618		—		—			12,173,618
Subtotal			13,660,611		—		—			13,660,611
Short-Term Investment Securities ⁽²⁾
Corporate Bonds ⁽³⁾	2		9,079,410		0		(7,789	)		9,087,199
Total		$	22,740,021	$	0	$	(7,789	)	$	22,747,810

	*December 31, 2020 (Audited)*
				*Gross*		*Gross*
	*Level*			*Unrealized*		*Unrealized*
	*(1)*	*Fair Value*		*Holding Gains*		*Holding Losses*			*Adjusted Cost*
Cash and Cash Equivalents
Cash		$	149,015	$	—	$	—		$	149,015
Money Market Funds	1		20,488,030		—		—			20,488,030
Subtotal			20,637,045		—		—			20,637,045
Short-Term Investment Securities ⁽²⁾
Corporate Bonds ⁽³⁾	2		8,473,461		22,473		(6,463	)		8,457,451
Total		$	29,110,506	$	22,473	$	(6,463	)	$	29,094,496

_________________

Notes:

~~(1)~~

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

•~~Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities~~

•

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

•

Level 2 - Other inputs that are directly or indirectly observable in the markets

•

Level 3 - Inputs that are generally unobservable

(2 ~~- Other inputs that are directly or indirectly observable in the markets~~

•~~Level 3 - Inputs that are generally unobservable~~

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

~~(3) Long-term~~

(3) For the three months ended September 30, 2021 and 2020, there was no premiums paid to purchase held-to-maturity investment ~~securities will mature between 12 and 18 months, from the applicable reporting date.~~

~~(4)~~securities. The ~~premium~~premiums paid to purchase held-to-maturity investment securities was ~~$0 and $54,385~~$283,940 and $221,156 for the ~~three~~nine months ended September 30, ~~2020~~ 2021, and ~~2019,~~2020, respectively. The ~~premium~~premiums paid to purchase held-to-maturity investment securities was ~~$221,156 and $158,548 for the nine months ended September 30, 2020 and 2019, respectively. The premium paid to purchase held-to-maturity investment securities was $233,550~~$282,946 for the year ended December 31, ~~2019.~~

2020.

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, ~~2020,~~2021, the Company does not consider any of its investments to be other-than-temporarily impaired.

Note 3:Research and Collaboration Agreements, Sublicense Agreements, and ~~Sub-licensing Agreements~~

Investments in Privately-Held Companies

BDI ~~Agreements~~

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

The ~~R&D Agreements provide a framework under which the parties will engage in a research and development collaboration encompassing several different projects over approximately a~~ ~~two~~-year period, with a focus on advancing Dyadic’s proprietary C1 technology in the development of next generation biological vaccines and drugs. Dyadic expects to leverage the BDI team’s previous C1 gene expression and industrial fermentation scale-up and commercialization experience with yeast and filamentous fungi processes to further advance Dyadic’s proprietary C1 technology with the potential to commercialize certain biopharmaceutical product(s). All of the data and any products developed from the funded research projects will be owned by Dyadic.

~~Upon closing of the BDI transaction, the~~ Company paid EUR €1€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~~€936,000 over two years ~~in the conduct of~~for the research and development ~~project under the RSA.~~project. If the research and development activities produce a product that is selected for additional development and commercialization, then Dyadic ~~expects to~~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€1 million for a 50% share orand EUR €8€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~~€1.5 million of the net income from Dyadic’s commercialization, if any, of the selected ~~product. In addition, under~~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$1.0 million (the “SFA Commitment”) in contract research services specified by Dyadic over two years ~~since~~from the closing of the BDI transaction.

The Company ~~has~~ 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. As the fair value of BDI equity interest was considered immaterial, the RSA Initial Payment of approximately USD ~~$1.1~~$1.1 million (EUR €1€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$1.0 million paid by Dyadic were expensed as the related research services were performed by BDI. In June 2019, BDI ~~has~~ completed its services under the RSA and the entire amount of the RSA Initial Payment was expensed. ~~As of December 31, 2019,~~ Dyadic had fulfilled its SFA commitment ~~and completed all research projects under the SFA. However,~~ in 2019.

On July 26, 2021, the Company ~~may~~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 ~~future continue~~Company agreed to ~~provide funding~~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 ~~for certain research and commercialization projects.~~

~~For~~Pharma. Under the ~~three months ended September 30, 2020, and 2019,~~Amended SFA, the Company maintains the right to engage in research and development ~~expenses related~~projects at BDI Pharma until June 30, 2025, with the non-compete term extending to ~~BDI, recorded as research~~June 30, 2030, without any other material terms and development - related party in our consolidated statements of operations were NaN and approximately $0.1 million, respectively. For the nine months ended September 30, 2020, and 2019, research and development expenses related to BDI were NaN and approximately $0.8 million, respectively.

conditions changed.

Novovet and Luina Bio ~~Sub-License Agreement~~

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 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.

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, 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 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.

~~As of September 30, 2020,~~

To date Novovet has not raised the capital required to move this opportunity forward, and therefore, the Company has not transferred its C1 technology 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 Company will account for its investment in Novovet and the related income under the equity method of accounting, ~~once~~when and if the transfer of its C1 technology is completed and Novovet receives adequate financing required to commence its research and development activities.

~~Alphazyme~~ The Company intends to terminate the Luina Bio Sub-License Agreement

in 2021 should Novovet be unable to raise the required funding.

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 to amend and restate the Alphazyme Sub-License Agreement.~~

Alphazyme. Pursuant to the Amended Sub-License Agreement and in consideration of Dyadic’s transfer of its C1 technology, Alphazyme ~~is obligated to issue the Company 2.5%~~issued 2.50% of the Class A shares of Alphazyme to Dyadic, and Dyadic ~~will become~~became a party to the Alphazyme Limited Liability Company Agreement pursuant to which the Company ~~will agree~~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 ~~investments~~investment in Alphazyme. The Company ~~will account for~~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~~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. ~~No revenue from the Alphazyme Sub-Licensing Agreement was recorded during the nine months ended~~ As of September 30, ~~2020 because the amount of consideration received was immaterial.~~

~~Research and Commercialization Collaboration with Serum Institute of India~~

~~On May 7, 2019,~~2021, the Company entered into a research and commercialization collaboration with Serum Institute of India Pvt., Ltd (“Serum”). Under the terms of this collaboration, Serum anticipates applying Dyadic’s C1 technologydoes not consider its investment in Alphazyme to express up to twelve (12) antibodies and vaccines and will undertake commercially best efforts to fully develop and commercialize the proteins expressed from Dyadic’s C1 technology. Dyadic has agreed to grant Serum the option to obtain an exclusive commercial sub-license for each of the twelve (12) proteins in return for certain research funding, milestone payments and royalties for 15 years from the date of the first commercial sale.

For the three months ended September 30, 2020, the Company recognized approximately $70,000 in research and research revenue from Serum. For the nine months ended September 30, 2020, the Company recognized approximately $244,000 in research and research revenue from Serum.

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 ~~(VUMC)~~ in response to the repeated threats of epidemics around the world, including Ebola in West Africa and Zika in the ~~Americas, and the successful demonstration of monoclonal antibodies as potential treatments.~~Americas. IDBiologics is developing a portfolio of monoclonal antibodies against ~~SARS-CoV-2,~~SARS-CoV-2, influenza and Zika viruses.

~~Under~~

Pursuant to the term of the IDBiologics Agreement, on July 8, 2021, Dyadic ~~agreed to receive 129,611~~received 129,661 shares of IDBiologics’ common stock, which represent 0.37% of IDBiologics’ outstanding equity, ~~in exchange for~~upon the ~~services to be provided by Dyadic under the~~completion of a feasibility study ~~which includes~~performed by Dyadic. Dyadic provided services including the use of Dyadic’s C1 technology to express a ~~SARS-CoV-2~~SARS-CoV-2 monoclonal antibody ~~IDBiologics’~~which IDBiologics licensed from the Vanderbilt Vaccine ~~Center (VVC).~~Center. The ~~shares of common stock of~~Company determined not to record the basis for its equity interest in IDBiologics ~~vested 50% upon~~because the ~~signing of the IDBiologics Agreement, and vest 25% upon the completion of Step 3 of the feasibility study, and 25% at the end of the project.~~

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. ~~Upon receipt its shares, Dyadic will account for~~

For the ~~equity interest in IDBiologics under the cost method. No revenue from the IDBiologics Agreement was recorded during the nine~~three months ended September 30, ~~2020 because~~2021, approximately $76,000 of research and development revenue was related to IDBiologics. For the ~~amount~~nine months ended September 30, 2021, approximately $132,000 of ~~consideration received~~research and development revenue was ~~immaterial.~~

~~Note 4: Commitments and Contingencies~~

~~Leases~~

~~Jupiter, Florida Headquarters~~

The Company’s corporate headquarters are located in Jupiter, Florida. On June 30, 2020, the Company’s office lease expired and was extended on a monthly basis. On August 13, 2020, the Company entered into a new lease with the same lessor pursuantrelated to which the leased office space was reduced from approximately 4,900 square feet to 2,000 square feet and the combined monthly rental rate and common area maintenance charges were reduced from approximately $9,700 to $4,200. The new lease became effective September 1, 2020 and will expire on August 31, 2021.

~~The Netherlands Office~~

The Company maintains a small satellite office in Wageningen, The Netherlands. The Company occupies a flexible office space for an annual rental rate of approximately $4,000. The lease expires on January 31, 2021, and thereafter, the Company will reconsider the leased space to align with the future operations of the Company.

~~VTT Research Contract Extension~~

IDBiologics.

1815

On June 28, 2019, the Company extended its research contract (“Contract”) through June 2022 with VTT Technical Research Centre of Finland Ltd. (“VTT”). Under the terms of this Contract, Dyadic will pay VTT a total of EUR €2.52 million over the next three years to continue developing Dyadic’s C1 fungal expression system for therapeutic protein production, including C1 host system improvement, glycoengineering,

Note 4:Commitments and management of third-party target protein projects. VTT is subject to an additional success bonus up to EUR €450,000 based on the technical targets stipulated in the Contract. Dyadic and its sublicensees will also have the right to use synthetic promoters developed by VTT with an access fee. On October 25, 2019, the Company expanded the Contract to pay an additional EUR €690,000 over the next 1.5 years to reinforce the glycoengineering work. On March 23, 2020, the Company further expanded the Contract to pay an additional EUR €700,000 over the next 19 months to accelerate the glycoengineering work. Dyadic retains the right to terminate the Contract with 90 days’ notice.

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 2011 Equity Incentive Plan (the ~~“2011~~“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~~“2006 Plan”). Since the effective date of the 2011 Plan, all equity awards were made from the 2011 Plan, and 0no 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, ~~2020,~~2021, the Company had ~~4,650,390~~4,824,215 stock options outstanding and an additional 4,363,386 shares of common stock available for grant under the 2021 Plan. As of December 31, 2020, there were 4,638,390 stock options outstanding and 2,134,211 shares of common stock available for grant under the 2011 Plan. ~~As of December 31, 2019, there were 3,860,390 stock options outstanding and 1,547,211 shares of common stock available for grant under the 2011 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 ~~CEO (five years) and~~ contractors (which are ~~two~~one or three ~~years).~~

years.

The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite service period, which is generally the vesting period, for each separately vesting portion of the award as if the award was, in substance, multiple awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the following:

Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury rates with securities approximating the expected lives of options at the date of grant.

Expected dividend yield. The expected dividend yield is 0,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 after the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatility 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 ~~certain~~the options granted to the CEO ~~(five~~(i.e., 5 or 10 years) and certain contractors (~~two~~(i.e., 2 or ~~three~~3 years).

The assumptions used in the Black-Scholes option pricing model for stock options granted during the nine months ended September 30, ~~2020~~2021 are as follows:


Risk-Free interest rate		~~0.25%~~	0.13% - ~~1.72%~~0.85%
Expected dividend yield	0	—%
Expected stock price volatility	~~39.94%~~	54.52% - ~~51.22%~~60.53%
Expected life of options (in years)	~~1.75~~	2.00 - 6.25 ~~Years~~

The following table summarizes the stock option activities during the nine months ended September 30, ~~2020:~~

Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at December 31, 2019 3,860,390 $1.76 5.7 $13,287,932
Granted (1)
913,000 5.24
Exercised (2)
(123,000) 1.88
Expired 0 0
Canceled 0 0
Outstanding at September 30, 2020 4,650,390 $2.44 5.9 $23,870,114
Exercisable at September 30, 2020 3,292,794 $1.78 4.7 $19,067,568

2021:

						*Weighted-Average*
				*Weighted-Average*		*Remaining Contractual*		*Aggregate Intrinsic*
	*Shares*			*Exercise Price*		*Term (Years)*		*Value*
Outstanding at December 31, 2020		4,638,390		$	2.44		5.64	$	13,701,610
Granted (1)		770,825			5.24
Exercised		(585,000	)		1.68
Expired		0			0
Canceled		0			0
Outstanding at September 30, 2021		4,824,215		$	2.98		6.14	$	12,537,900

Exercisable at September 30, 2021		3,500,516		$	2.37		5.28	$	11,191,507

_________________

Notes:

~~(1)~~

(1) Represents the following stock options granted:

•Annual share-based compensation awards on January 2, 2020, including: (a) 525,000 stock options with an exercise price of $5.27 per share granted to executives and key personnel, vesting upon one year anniversary, or annually in equal installments over four years, (b) 325,000 stock options with an exercise price of $5.27 per share granted to the Board of Directors, vesting upon one year anniversary, (c) 23,000 stock options with an exercise price of $5.27 per share granted to employees, vesting annually in equal installments over four years, and (d) 15,000 stock options with an exercise price of $5.27 per share granted to a consultant, vesting upon one year anniversary.

•~~One-time awards on March 22, 2020, including 25,000 stock options to a contractor with an exercise price of $3.99 per share, vesting in six months from the date of grant.~~

~~(2) Represents the following stock options exercised:~~

•~~A total of 123,000 stock options exercised with a weighted average exercise price of $1.88.~~

	•	Annual share-based compensation awards on January 4, 2021, including: (a) 417,500 stock options with an exercise price of $5.16 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 227,500 stock options with an exercise price of $5.16 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 23,325 stock options with an exercise price of $5.16 per share granted to employees, vesting annually in equal installments over four years and (d) 5,000 stock options with an exercise price of $5.16 per share granted to a consultant, vesting upon one year anniversary.
	•	One-time award on January 8, 2021, 35,000 stock options with an exercise price of $5.50 per share granted to a new member of the Board of Directors, vesting in one year from the grant date.
	•	One-time award on January 21, 2021, 7,500 stock options with an exercise price of $5.65 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on March 22, 2021, 30,000 stock options with an exercise price of $6.87 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on August 24, 2021, 25,000 stock options with an exercise price of $4.96 per share granted to a consultant, vesting in one year from the grant date.

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.

Total non-cash stock option compensation expense was allocated among the following expense categories:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2021*		*2020*		*2021*		*2020*
General and administrative	$	405,383	$	354,264	$	1,183,568	$	1,125,217
Research and development		51,826		46,417		140,832		139,016
Total	$	457,209	$	400,681	$	1,324,400	$	1,264,233

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
General and administrative $ 354,264 $ 118,754 $ 1,125,217 $ 957,843
Research and development 46,417 25,426 139,016 76,503
Total $ 400,681 $ 144,180 $ 1,264,233 $ 1,034,346

Note 6: ~~Shareholders’~~ Shareholders' Equity

Issuances of Common Stock

For the nine months ended September 30, 2021, there were 585,000 shares of the Company’s common stock issued resulting from the exercise of stock options with a weighted average issue price of $1.68 per share. For the nine months ended September 30, 2020, there were 123,000 shares of the Company’s common stock issued ~~as a result of~~resulting from the exercise of stock options with a weighted average issue price of $1.88 per share. For the nine months ended September 30, 2019, there were 499,671 shares of the Company’s common stock issued as a result of the exercise of stock options with a weighted average issue price of $1.62 per share.

~~Changes in Stockholders Equity~~

Nine Months Ended September 30, 2020 (Unaudited)
Common Stock Treasury Stock Additional Paid-In Capital Accumulated Deficit Total
January 1, 2020 $ 39,613 $ (18,929,915) $ 96,105,851 $ (41,351,078) $ 35,864,471
Stock-based compensation — — 426,939 — 426,939
Exercise of stock options 100 — 174,900 — 175,000
Net loss — — — (2,214,139) (2,214,139)
March 31, 2020 $ 39,713 $ (18,929,915) $ 96,707,690 $ (43,565,217) $ 34,252,271
Stock issued — — 436,613 — 436,613
Stock-based compensation 23 — 55,720 — 55,743
Net loss — — — (2,651,422) (2,651,422)
June 30, 2020 $ 39,736 $ (18,929,915) $ 97,200,023 $ (46,216,639) $ 32,093,205
Stock-based compensation — — 400,680 — 400,680
Exercise of stock options — — 68 — 68
Net loss — — — (2,499,499) (2,499,499)
September 30, 2020 $ 39,736 $ (18,929,915) $ 97,600,771 $ (48,716,138) $ 29,994,454

Nine Months Ended September 30, 2019 (Unaudited)
Common Stock Treasury Stock Additional Paid-In Capital Accumulated Deficit Total
January 1, 2019 $ 38,967 $ (18,929,915) $ 94,385,230 $ (33,043,113) $ 42,451,169
Stock-based compensation — — 309,563 — 309,563
Net loss — — — (2,175,258) (2,175,258)
March 31, 2019 $ 38,967 $ (18,929,915) $ 94,694,793 $ (35,218,371) $ 40,585,474
Stock issued 398 — 148,782 — 149,180
Stock-based compensation — — 580,603 — 580,603
Net loss — — — (2,695,792) (2,695,792)
June 30, 2019 $ 39,365 $ (18,929,915) $ 95,424,178 $ (37,914,163) $ 38,619,465
Stock repurchased 102 —�� 179,308 — 179,410
Stock-based compensation — — 144,180 — 144,180
Net loss — — — (1,698,384) (1,698,384)
September 30, 2019 $ 39,467 $ (18,929,915) $ 95,747,666 $ (39,612,547) $ 37,244,671

2117

Treasury Stock

As of September 30, ~~2020~~2021, and December 31, ~~2019,~~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, 2021, the date the consolidated financial statements were available to be issued. 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.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, assumptions and uncertainties. Important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Quarterly Report. All forward-looking statements included in this Quarterly Report are based on information available to us as of the time we file this Quarterly Report and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.

Overview

Description of Business

Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) is a global biotechnology platform company based in Jupiter, Florida with operations in the United States, a satellite office in the Netherlands and predominantly three research organizations performing services under contract to Dyadic in the Netherlands, Finland and Israel. 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 is a robust and versatile fungal expression system for the development and production of 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 for use in all human and animal pharmaceutical applications, and currently has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions). Danisco retained certain rights to utilize the C1 technology 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.

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-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 to develop innovative vaccines and drugs, biosimilars and/or biobetters.

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:

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COVID-19 Vaccine Candidate, DYAI-100, continues to advance towards first-in-human Phase 1 clinical trial:

Our goal is to validate that C1 produced proteins are safe in humans to further accelerate global C1 platform adoption.

GLP animal toxicology study has demonstrated preliminary safety profile of our C1 produced SARS-CoV-2-RBD vaccine candidate (DYAI-100), SARS-CoV-2 virus specific immunoglobulin-G (IgG) antibodies have been detected in animal models.

Completed proof of concept for use of C1 platform to broadly develop and manufacture next generation vaccines and/or booster candidates for infectious and other diseases, in addition to COVID-19 variants of concern.

Additional proprietary owned and third party COVID-19 variant vaccine candidates are being successfully developed in C1 cells, including RBD antigens for Alpha, Beta, Gamma and Delta.

CMC development of DYAI-100 drug substance is in near final stages of purification and drug substance manufacturing.

Global sampling of C1 produced SARS-CoV-2 RBD variant of concern antigens continues.

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C1 COVID-19 Vaccine Collaborations supports the potential for C1 produced COVID-19 immunization coverage globally.

Rubic Consortium - C1 technology transfer has commenced, the DYAI-100 and other COVID-19 variant RBD’s have been delivered. In addition, genetic tools, C1strains and protocols for engineering C1-cells and producing proteins from such C1-cells have been transferred. We are in discussion with Rubic regarding where, in addition to COVID-19, they can successfully apply the C1 technology for the development and commercialization of several other vaccine candidates.

Syngene International – accelerated tech transfer of the DYAI-100 cell line has been completed, the manufacturing part of technology training on the C1 production platform has shown initial success, and a number of the SARS-CoV-2 RBD variant of concern antigens, including the Delta RBD, have been delivered.

Medytox –C1 platform tech transfer has been completed and they are developing nanoparticle vaccine candidates for COVID-19 variants.

Sorrento Therapeutics –the parties are continuing to negotiate the License Agreement, the terms of which may be materially different than the terms set forth in the binding term sheet announced on August 11, 2021; we can give no guidance if or when the License Agreement will be executed, but in the interim, technology transfer to Sorrento for DYAI-100 and the C1 platform has been initiated.

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Other Collaborations

Our global animal health collaborators vaccine project continues to demonstrate safety and efficacy advancing towards potential commercialization.

Zoonotic Anticipation and Preparedness Initiative (ZAPI) – was successfully concluded in July 2021. The ZAPI program validated C1 as the only known effective production platform to express SBV and RVFV antigens. C1 cell expressed antigens were successfully used to develop recombinant particle-display vaccines. A ZAPI study was published in "VACCINES", a Leading Peer-Reviewed Scientific Journal, “Development of a Modular Vaccine Platform for Multimeric Antigen Display Using an Orthobunyavirusvirus Model.”

Five other non-COVID-19 infectious disease monoclonal antibody and antigen development programs are ongoing.

Human health collaborations are advancing to next stages of development and potential licensure.

We entered two new fully funded R&D collaborations with academia and industry.

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Other Corporate Events

Executive leadership team enhanced with the addition of Joseph Hazelton appointed Chief Business Officer. Mr. Hazelton brings over 20 years of pharmaceutical industry experience to Dyadic in key growth areas of product and business development, licensing, and commercialization.

Received approximately $1.6M in cash from the sale of Dyadic’s equity interest in BDI, resulting in a 30% return on this investment.

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.

To date, 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 SARS-CoV-2 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.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

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.

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℠~~, and we have no immediate plans to sell any securities under this program to fund our near-term business plan.~~

~~Note 7: Subsequent Events~~

For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through November 12, 2020, the date the consolidated financial statements were available to be issued. 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.


~~Item 2.~~			~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, assumptions and uncertainties. Important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis include, but 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, a satellite office in the Netherlands and predominantly two research organizations performing services under contract to Dyadic in Finland and Spain. Over the past two 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~~ ~~Myceliophthora thermophila) fungus, which the Company named C1. The C1 technology is a robust and versatile fungal expression system for the development and production of 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) for $75 million (the “DuPont Transaction”). As part of the DuPont Transaction, Dyadic retained co-exclusive rights to the C1 technology for use in all human and animal pharmaceutical applications, and currently has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions). Danisco retained certain rights to utilize the C1 technology 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 been focused on the biopharmaceutical industry, specifically in further improving and applying the proprietary C1 technology into a safe and efficient gene expression platform to help speed up the development, lower production costs and improve the performance of biologic vaccines and drugs at flexible commercial scales. We believe that the C1 technology could be beneficial in the development and manufacturing of human and animal vaccines and drugs, such as virus-like particles (VLPs), protein antigens, monoclonal antibodies (mAbs), Bi-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 designed to leverage its C1 technology to help develop products such as innovative vaccines and drugs, biosimilars and/or biobetters.

~~Recent Developments~~

In 2020, the Company continued to expand its relationships with business and research partners in the biotech and pharmaceutical industry, academic and other institutions, as well as certain governmental agencies as follows:

•~~On November 12, the Company entered into a fully funded collaboration with a top-tier global pharmaceutical company to express two (2) molecules of commercial interest.~~

•On November 12, the Company expanded its collaboration with one of the top-ten global drug manufacturers we are collaborating with, who is funding the research to evaluate C1’s ability to express a new class of proteins in our ongoing research collaboration.

•In October, Dyadic entered into a non-exclusive technology agreement with Epygen Biotech of India, who after obtaining required funding, expects to produce cGMP clinical trial material at their facility and conduct trials in India, using Dyadic’s C1 expressed receptor binding domain (RBD) antigen of the SARS-CoV-2 Spike Protein. This agreement demonstrates how potential collaborators globally can develop and manufacture vaccines and drugs on a regional basis that are affordable, safe and effective.

•On September 17, Dyadic announced a fully funded collaboration with Jiangsu Hengrui Medicine Co., Ltd. (“Hengrui”) to apply Dyadic’s C1 technology to the development of selected Hengrui biologic drugs. This agreement highlights C1’s potential value proposition to address demand for more efficient biomanufacturing processes of biologic drugs and vaccines.

•On July 15, Dyadic signed a fully funded R&D collaboration with one of the top five global pharmaceutical companies for human health. Under this agreement, Dyadic will be expressing two different types of therapeutic compounds.

•In the second quarter, Dyadic entered into two new fully funded collaborations with two of the leading global animal health companies to demonstrate the C1 technology platform for expression and production of therapeutic proteins for companion and farm animal diseases. The Company has rapidly expanded into the animal health market and has signed fully funded agreements with all four leading animal health companies, as well as a fifth global animal health company to evaluate C1. The first two projects has been expanded into the second phase and the Company has received additional funding.

•~~In March, Dyadic entered into a nonexclusive research license with WuXi Biologics, one of the leading global Contract Development and Manufacturing Organizations.~~

•In the first quarter, Data presented at the 15th European Conference on Fungal Genetics (“ECFG15”) demonstrated that the Company’s C1 strain has been glyco-engineered to achieve a core human-like G2 glycan level over 76%. Data also showed excellent progress we made in reducing the extracellular protease background by 50 times in C1. The elimination of protease activity makes the C1 cell line more efficient at producing stable proteins, leading to simpler purification requirements.

•~~In March, Dyadic entered into a feasibility study with the University of Oslo involving an influenza vaccine.~~

~~The Company is currently working on several COVID-19 related vaccine and antibody opportunities, including but not limited to the following:~~

•Dyadic, in conjunction with VTT, has successfully engineered several C1 strains that express the Full Spike protein and the Receptor Binding Domain (RBD) antigen of the SARS-CoV-2 spike protein. C1 RBD is being expressed in multiple forms at high levels, which can be used to produce very large quantities of several potential COVID-19 vaccine candidates at flexible commercial scales, at low cost. The proprietary C1 expressed RBD antigen is being used in animal trials by nine different research groups, governmental agencies, and biopharma companies, including the Israel Institute for Biologic Research (IIBR) and in collaboration with scientists from Oxford University, Utrecht University, Erasmus Medical Center and University of Veterinary Medicine Hannover, DE (TiHo) and others who are testing the C1 expressed RBD vaccine candidate(s) in animal trials on a stand-alone basis as well as testing the C1 RBD with nanoparticles and adjuvants. The animal studies are currently scheduled to include challenge studies with transgenic mice that express the Human Ace-2 and Hamsters as well as additional mice studies.

•In June, Dyadic was selected by the Frederick National Laboratory to engineer its patented and proprietary C1 cell lines to produce several COVID-19 vaccine candidates which will be utilized by the Vaccine Research Center part of the National Institute of Allergy and Infectious Diseases at the National Institute of Health. This collaboration is ongoing and C1 has shown to be able to express one or more of their SARS-CoV-2 vaccine candidates. We expect to send samples to them later this month for them to analyze and characterize.

•Dyadic provided one of its C1 RBD SARS-CoV-2 vaccine strains, along with samples of the C1 expressed RBD vaccine candidate, to the IIBR for their use in developing a potential COVID-19 vaccine. A recently concluded IIBR mice study showed that the C1 expressed SARS-CoV-2 RBD has the potential to generate excellent immunogenicity responses with very high titers and neutralizing antibodies against the Covid-19 virus. The successful mice study has encouraged them to perform a new challenge study in which transgenic mice expressing the Human Ace2 will be infected with the SARS-CoV-2 virus. This study is expected to start soon.

•Interim results from a recent additional mouse study further supports that the C1 expressed SARS-CoV-2 RBD, in addition to generating excellent immunogenicity responses with very high titers and neutralizing antibodies against the Covid-19 virus, also has the potential to stimulate the memory cellular immune response induced in human cells by the SARS-CoV-2 virus.

◦Dyadic has expressed a SARS-CoV-2 monoclonal antibody (mAb) in collaboration with IDBiologics, Inc., who licensed this mAb from the Vanderbilt Vaccine Center (“VVC”). A sample of this potential C1 expressed COVID-19 antibody has been delivered to the VVC and is currently being compared to the same mAb expressed from CHO. Initial neutralization results are encouraging and are supported by prior non-SARS-CoV-2 monoclonal antibody neutralization results reported in one our ongoing pharmaceutical collaborations.

◦Dyadic continues to provide samples of its proprietary C1 expressed RBD SARS-CoV-2 antigens to additional parties who are evaluating the RBD antigen for potential use in SARS-CoV-2 vaccine and diagnostic applications.

~~Impact of COVID-19~~

The outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to the Company’s employees, operations, and research projects.

To date, as a direct result of COVID-19, 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 COVID-19 and the actions taken to contain it or treat COVID-19, 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 as a result of any economic recession or depression that has occurred or may occur in the future. Given the daily evolution of the COVID-19 outbreak and the response to curb its spread, currently we are not able to accurately estimate the effects of the COVID-19 outbreak to our results of operations, financial condition, or liquidity.

~~Open Market Sale Agreement℠~~

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℠, and we have no immediate plans to sell any securities under this program to fund our near-term business plan.

Critical Accounting Policies, Estimates, and Judgments

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.

We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies include the following:

Revenue Recognition

The Company has no pharmaceutical products approved for sale at this point, and all of our revenue to date has been research revenue from third party collaborations and government grants. The Company is expected to generate future revenue from license 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, in the form of cash or non-cash considerations (e.g., minority equity interest).

funding under collaboration agreements in accordance with the 5-step process outlined in 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. Since the performance obligation under our collaboration agreements is generally satisfied over time, we elected to use the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.

Revenue related to ~~grants and fundings:~~ grants: The Company may receive grants ~~and fundings~~ from governments, agencies, and other private and not-for-profit organizations. These grants ~~and fundings~~ 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.

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 sales-based royalties relate, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, 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.

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.

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 ~~the~~an anticipated contract cost exceeds ~~the~~ 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, ~~including revenues~~ and ~~costs,~~ where applicable, ~~the consideration of our business partners’ reimbursement, and~~is recorded when such loss is deemed probable to occur and is reasonable to estimate.

Accrued Research and Development Expenses

In order to properly record services that have been rendered but not yet billed to the Company, we review open contracts and purchase orders, communicate with our personnel and we estimate the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly or quarterly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of accrued research and development expenses include amounts owed to contract research organizations, to service providers in connection with commercialization and development activities.

Stock-Based Compensation

We have granted stock options and restricted stock to employees, directors and consultants. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model considers volatility in the price of our stock, the risk-free interest rate, the estimated life of the option, the closing market price of our stock and the exercise price. For purposes of the calculation, we assumed that no dividends would be paid during the life of the options and restricted stock and applied a discount to reflect the lack of marketability due to the holding period restriction of its shares under Rule 144 prior to the Company April 2019 uplisting to NASDAQ. We also used the weighted-average vesting period and contractual term of the option as the best estimate of the expected life of a new option except in the case of our CEO, 5 or 10 years, , and in the case of contractors, 2 or 3 years). The Company performs a review of assumptions used in the Black-Scholes option-pricing model on an annual basis. During the Company’s annual review of its volatility assumption in 2018, the Company determined that it would be appropriate to use the Company’s historical volatility since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure. The change in assumption was effective January 1, 2018 and only impacts new options granted in 2018 and thereafter.

The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment. These estimates are neither predictive nor indicative of the future performance of our stock. As a result, if other assumptions had been used, our recorded share-based compensation expense could have been materially different from that reported. In addition, because some of the options and restricted stock issued to employees, consultants and other third-parties vest upon the achievement of certain milestones, the total ultimate expense of share-based compensation is uncertain.

In connection with board member and employee terminations, the Company may modify certain terms to outstanding share-based awards. We have recorded charges related to these modifications based on the estimated fair value of the share-based options immediately prior to and immediately after the modification occurs, with any incremental value being charged to expense. We have used the Black-Scholes pricing model in this valuation process, and this requires management to use various assumptions and estimates. Future modifications to share-based compensation transactions may result in significant expenses being recorded in our consolidated financial statements.

Accounting for Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740 (“Topic 740”), “Income Taxes”. Under this method, income tax expense/(benefit) is recognized for: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on

the weight of the available positive and negative evidence, it is more likely than not some portion or all the deferred tax assets will not be realized.

In determining taxable income for the Company’s consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires the Company to make certain estimates of our actual current tax exposure and assessment of temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, the Company must consider all available positive and negative evidence including its past operating results, the existence of cumulative losses in the most recent years and its forecast of future taxable income. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

The Company is required to evaluate the provisions of Topic 740 related to the accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability should be recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents a company’s potential future obligation to the taxing authority for a tax position that was not recognized because of applying the provision of Topic 740.

Non-Marketable Investments

The ~~Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and became effective January 1, 2018. The legislation included, among other things,~~Company also holds investments in non-marketable equity securities of privately-held companies, which usually do not have a ~~reduction~~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 ~~U.S. federal corporate income tax rate from 35%~~same issuer. Such observable price changes may include instances where the investee issues equity securities to ~~21%,~~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 ~~repeal~~quantitative assessment of the corporate alternative minimum tax (the “AMT”). The TCJA repealed the corporate AMT but permitted unused AMT credit carryforwards to be used to reduce the regular tax obligation in future years.Any AMT credit carryforwards that do not reduce regular taxes are eligible for a 50% refund in 2018 through 2020, and a 100% refund in 2021. Subsequently, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was signed into law in March 2020, accelerated the full refund of any unused AMT credits from 2021 (as provided for in the TCJA) to 2018 or 2019, at the taxpayer’s election .

Accordingly, we reclassified the balance of the AMT credit from the deferred tax asset to an income tax receivable in 2018. The corresponding balance in the valuation allowance has been reversed into income tax benefit in the amount of $1,001,233. As of September 30, 2020, we have received 100% of the AMT refund.

~~Fair Value Measurements~~

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilized various methods, including income, cost and market approaches to determine the fair value of ~~its~~our equity investments, ~~in equity interest,~~ which may ~~fall into Level 3 of~~include using both the ~~fair value hierarchy because of the significant unobservable inputs utilized in these valuation approaches. These inputs can be readily observable,~~ market ~~corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize~~and income approaches which require judgment and the use of ~~observable inputs and minimize the use of unobservable inputs. Our key inputs included, but were not limited to, significant management judgments and~~ estimates, including ~~projections~~discount rates, investee revenues and costs, and available comparable market data of private and public companies, among others. Valuations of such privately-held companies are inherently complex and uncertain due to the ~~timing and amount~~lack of ~~the project’s cash flows, determination of a discount rate~~liquid market for the ~~income approach, market multipliers, probability weighting~~company’s securities. In addition, such investments are inherently risky in that such companies are typically at an early stage of ~~potential outcomes of legal and regulatory proceedings, and weighting 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 ~~valuations produced by the income, cost and market approaches.~~

market.

The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for information about recent accounting pronouncements.

Results of Operations

Three and Nine Months Ended September 30, ~~2020~~2021 Compared to the Same Periods in ~~2019~~

2020

Revenue, Cost of Research and Development Revenue, and Provision for Contract Losses

The following table summarizes the Company’s revenue, cost of research and development revenue and provision for contract losses for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenue $ 416,361 $ 454,507 $ 1,256,004 $ 1,247,908
Cost of research and development revenue 266,929 384,803 1,169,351 1,034,934
Provision for contract losses 112,433 — 187,388 —

2020:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	692,929	$	416,361	$	2,090,541	$	1,256,004
Cost of research and development revenue		392,544		266,929		1,612,810		1,169,351
Provision for contract losses		—		112,433		—		187,388

For the three months ended September 30, 2020, revenue and cost of research and development revenue included eight on-going research collaborations compared to five collaborations for the same period a year ago. The slight decreases primarily were due to the smaller dollar amount for each project compared to the same period a year ago. The increase in revenue and cost of research and development revenue for the ~~nine~~three months ended September 30, ~~2020~~2021, was due to higher revenue and cost of revenue amounts for individual projects, including ZAPI, compared to the same period a year ago. The increase in revenue and cost of research and development revenue for thenine months ended September 30, 2021, reflected ~~twelve~~thirteen on-going research collaborations compared to ~~eight~~twelve collaborations for the same period a year ago. ~~The increase in~~There is no provision for contract losses ~~reflected the activities of one biopharmaceutical collaboration research project.~~

in 2021.

Research and Development Expenses

Research and development costs are expensed as incurred and primarily include salary and benefits of research personnel, third-party contract research organization services and supply costs.

Research and development expenses for the three months ended September 30, ~~2020~~2021, increased to approximately ~~$986,000~~$1,902,000 compared to ~~$841,000~~$986,000 for the same period a year ago. The increase primarily reflected the Phase 1 clinical trial cost of DYAI-100, our COVID-19 vaccine candidate in the amount of $1,208,000 offset by a decrease of $292,000 related to our other internal research projects.

Research and development expenses for the nine months ended September 30, 2021, increased to approximately $5,919,000 compared to $2,858,000 for the same period a year ago. The increase primarily reflected ~~additional costs~~the Phase 1 clinical trial cost of DYAI-100, our COVID-19 vaccine candidate in the amount of $3,566,000 offset by a decrease of $505,000 related ~~projects and~~to our other internal research projects.

~~Research~~

General and ~~development~~Administrative Expenses

General and administrative expenses for the ~~nine~~three months ended September 30, ~~2020~~2021, increased by 3.0% to approximately ~~$2,858,000~~$1,693,000 compared to ~~$2,352,000~~$1,643,000 for the same period a year ago. The increase ~~primarily~~principally reflected ~~additional~~increases in payroll and share based compensation related costs of ~~COVID-19 related projects~~$86,000, and insurance expenses of $65,000, offset by reductions in business development and investor relations costs of $79,000, and other ~~internal research projects.~~

~~Research~~decreases of $22,000.

General and ~~development~~administrative expenses -for the nine months ended September 30, 2021, increased by 4.7% to approximately $4,994,000 compared to $4,772,000 for the same period a year ago. The increase principally reflected increases in legal expenses of $184,000, insurance expenses of $104,000, and payroll and share based compensation related ~~party,~~costs of $87,000, offset by reductions in travel and rent expenses of $92,000, and other decreases of $61,000.

Interest Income

Interest income for the three months ended September 30, ~~2020,~~2021, was ~~none~~approximately $3,000 compared to ~~approximately $102,000~~$77,000 for the same period a year ago. The decrease was primarily due to the ~~completion~~lower balance of ~~research projects conducted at BDI~~held-to-maturity securities and less reinvestment due to the decrease in ~~2019.~~

~~Research and development expenses - related party,~~interest rate.

Interest income for the nine months ended September 30, ~~2020,~~2021, was ~~none~~approximately $50,000 compared to ~~approximately $828,000~~$392,000 for the same period a year ago. The decrease was primarily due to the ~~completion~~lower balance of ~~research projects conducted at BDI~~held-to-maturity securities and less reinvestment due to the decrease in ~~2019.~~

~~General and Administrative Expenses~~

~~General and administrative expenses~~interest rate.

Other Income

Other income for the three and nine months ended September 30, ~~2020, increased 55.6% to~~2021, was approximately ~~$1,643,000~~$1,606,000 compared to ~~$1,056,000~~$0 for the same ~~period~~periods a year ago. The increase principally reflected increase in noncash share-based compensation expenses of $236,000, legal and SEC registration expenses of $217,000, accrued incentives of $54,000, insurance premium of $46,000, and other increases of $34,000.

General and administrative expenses for the nine months ended September 30, 2020, increased 9.6% to approximately $4,772,000 compared to $4,355,000 for the same period a year ago. The increase principally reflected increase in insurance premium of $186,000, noncash share-based compensation expenses of $167,000, legal and SEC registration expenses of $99,000, business development and investor relations costs of $65,000, and other increases of $66,000, offset by reductions in executive compensation costs and accrued incentives of $166,000.

~~Interest Income~~

~~Interest income for the three months ended September 30, 2020~~ was ~~approximately $77,000 compared to $245,000 for the same period a year ago. The decrease was primarily~~ due to ~~a decrease~~the sale of BDI equity interest in ~~interest rate and yield on the Company’s investment grade securities, which are classified as held-to-maturity.~~

Interest income for the nine months ended September 30, 2020 was approximately $392,000 compared to $778,000 for the same period a year ago. The decrease was primarily due to a decrease in interest rate and yield on the Company’s investment grade securities, which are classified as held-to-maturity.

2021.

Net Loss

Net loss for the three months ended September 30, ~~2020~~2021, was approximately ~~$2,499,000~~$1,715,000 compared to ~~$1,698,000~~$2,499,000 for the same period a year ago.

Net loss for the nine months ended September 30, ~~2020~~2021, was approximately ~~$7,365,000~~$8,856,000 compared to ~~$6,569,000~~$7,365,000 for the same period a year ago.

Liquidity and Capital Resources

Our primary source of cash has been the cash received from the DuPont Transaction in December 2015, interest income received from investment grade securities, and funding from our research collaboration agreements. ~~The Company’s liquidity was further improved with~~In August 2021, the ~~receipt of an~~Company received approximately ~~$0.5~~$1.6 million ~~tax refund in June 2019 and an approximately $0.5 million additional tax refund in July 2020 resulting~~ from the ~~elimination of corporate Alternative Minimum Tax (AMT) under the TCJA.~~

BDI Sale, which improved our cash position and liquidity in 2021.

Our ability to achieve profitability depends on ~~a number of~~many factors, including our scientific results and our ability to continue to obtain funded research and development collaborations from industry and government programs, as well as sub-license agreements. We may continue to incur substantial operating losses even if we begin to generate revenues from research and development and licensing. Our primary future cash needs are expected to be for general operating activities, including our business development and research expenses, Phase 1 clinical trial, as well as ~~additional~~legal and administrative costs as an SEC reporting and NASDAQ listed company. We may decide to fund all or part of a Phase I clinical trial in order to demonstrate the safety of the C1 expression platform in humans. There is no assurance that funding would be available at acceptable terms, if at all.

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 investments in short-term and long-term 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.

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 at an aggregate offering price of up to $50.0 million through Jefferies as our sales agent or principal. This program adds to our financial flexibility to pursue additional opportunities that leverage the broad application potential of C1. However, as of the date of this filing, there have been no sales made under the Open Market Sale Agreement℠.

On August 10, 2021, the Company signed a binding term sheet to enter into a definitive license agreement with Sorrento Therapeutics, Inc. (“Sorrento”) to out-license its lead COVID-19 vaccine candidate “DYAI-100” and C1 technology for protein-based coronaviruses vaccines and therapeutics. Pursuant to the term sheet, consideration will include a $10 million up-front payment ($5 million in cash and $5 million in Sorrento stock), reimbursement of up to $4 million for DYAI-100 preclinical and clinical development costs incurred by Dyadic, and the potential for multiple future development milestones up to $33 million and additional royalty payments based on net sales. As of the date of this report, the parties have not executed the out-license agreement within the forty-five business day time period set forth in the binding term sheet. We are continuing to negotiate the License Agreement, the terms of which may be materially different than the terms set forth in the binding term sheet. We can give no guidance if or when the License Agreement will be executed, but in the interim, technology transfer to Sorrento for DYAI-100 and the C1 platform has been initiated.

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 investments 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 ~~have no immediate plans~~would seek to ~~sell any securities under this program~~raise funds through public or private equity offerings, and through other means to ~~fund~~meet our ~~near-term business plan.~~

financing requirements. Currently, the Company is self-funding the development and cGMP manufacturing costs of its proprietary COVID-19 vaccine candidate, DYAI-100 towards a Phase 1 clinical trial to demonstrate the safety in humans of a protein produced from the C1 platform.

As of September 30, ~~2020,~~2021, cash and cash equivalents were approximately ~~$21.9~~$13.7 million compared to ~~$4.8~~$20.6 million as of December 31, ~~2019.~~2020. The carrying value of ~~short-term and long-term~~ investment grade securities, including accrued interest as of September 30, ~~2020~~2021, was approximately ~~$8.7~~$9.2 million compared to ~~$31.2~~$8.6 million as of December 31, ~~2019.~~

2020.

Net cash used in operating activities for the nine months ended September 30, 2021, of approximately $8.6 million was principally attributable to a net loss of approximately $8.9 million, offset by gain on investment in BDI of approximately $1.6 million, share-based compensation expenses of approximately $1.3 million, and amortization of held-to-maturity securities of approximately $0.3 million, and changes in operating assets and liabilities of approximately $0.2 million.

Net cash used in operating activities for the nine months ended September 30, 2020, of approximately $5.3 million was principally attributable to a net loss of approximately $7.4 million, ~~partially~~ offset by share-based compensation expenses of approximately $1.3 million, changes in a tax receivable of approximately $0.5 million, and amortization of held-to-maturity securities of approximately $0.3 million.

Net cash used in operating activities for the nine months ended September 30, 2019 of approximately $4.4 million was principally attributable to a net loss of $6.6 million, partially offset by share-based compensation expense of approximately $1.0 million, changes in tax receivable of approximately $0.5 million, changes in other operating assets and liabilities of approximately $0.5 million, and amortization of held-to-maturity securities of approximately $0.2 million.

Net cash provided by investing activities for the nine months ended September 30, ~~2020~~2021, was approximately ~~$22.1~~$0.7 million compared to ~~$6.4~~$22.1 million for the nine months ended September 30, ~~2019.~~2020. Cash flows from investing activities during the nine months ended September 30, ~~2020~~2021 were primarily related to proceeds from maturities, purchases of investment grade debt securities, and ~~2019~~proceeds from the sale of our BDI equity interest. Cash flows from investing activities during the nine months ended September 30, 2020 were primarily related to proceeds from maturities and purchases of investment grade debt securities.

Net cash provided by financing activities for the nine months ended September 30, ~~2020~~2021, was approximately ~~$0.2~~$1.0 million compared to ~~$0.3~~$0.2 million for the nine months ended September 30, ~~2019.~~2020. Cash flows from financing activities during thenine months ended September 30, ~~2020~~2021 and ~~2019~~2020 were primarily related to proceeds from exercise of stock options.


Item 3.			Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.


Item 4.			Controls and procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitation on Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II


Item 1.			Legal Proceedings

We are not currently involved in any litigation that we believe could have a materially adverse effect in our financial condition or results of operations. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.


Item 1A.			Risk Factors

There have been no changes to our risk factors from those disclosed in our Form 10-K for the ~~2019~~2020 fiscal year filed on March 30, ~~2020, other than the updated risk factors set forth below.~~

We face risks related to health epidemics, pandemics and other widespread outbreaks of contagious disease, pandemics, epidemics or other biological threats, such as the ongoing COVID-19 pandemic, that could significantly disrupt our operations and have a material adverse effect2021 (as amended on our business, employees, directors, consultants, collaborators and other third parties, including business development activities and research and development projects conducted by third party contract research organizations parties.

~~Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact~~Form 10-K/A on our business operations, financial condition, and operating results. The ongoing COVID-19 pandemic has significantly impacted the operation of business in the United States and Europe, where several of our key executive management members and our third-party contract research organizations are located. The continuation of the COVID-19 pandemic and various governmental responses in the United States and Europe has adversely affected and may continue to adversely affect our business operations, including our ability to carry on business development activities, restrictions in business-related travel, 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, among others.

In addition, we rely on third parties in the United States and Europe to conduct our research and development projects and to provide other services, and COVID-19 has affected and may continue to affect service providers of such third-party contract research organizations and therefore negatively affect the operations of our on-going research projects, which could materially and negatively affect our business, financial condition, and results of operations.

The COVID-19 pandemic has adversely affected and may continue to adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition and results of operations. As a result, our ability to fund through public or private equity offerings, debt financings, and through other means at acceptable terms, if at all, may be disrupted, in the event our financing needs for the foreseeable future are not able to be met by our existing balances of cash, cash equivalents and investments. The extent to which COVID-19 could impact our business and research and development activities will depend on future developments, which are highly uncertain and cannot be predicted with confidence, and will depend on many factors, including the duration of the outbreak, the effect of travel restrictions and social distancing efforts in the United States and other countries, the scope and length of business closures or business disruptions, and the actions taken by governments to contain and treat the disease. As such, we cannot presently predict the scope and extent of any potential business shutdowns or disruptions.

The Company is currently working on several COVID-19 related vaccine and antibody opportunities. However, there is no assurance that any of these opportunities will materialize or that the C1 technology or any product expressed from C1 or any of the various other steps in a vaccine or drug development process will perform, provide benefits, obtain governmental safety and regulatory approvals, be registered or gain market acceptance. In addition, our C1 technology has yet to be used to produce a vaccine, antibody or other biologic product that has entered the clinical trial phase, and we are competing with more experienced companies for grants or funding of this type. As a result, there is no assurance that we will receive these grants or funding resulting from these proposals.

~~Our sales and operations are subject to the risks of doing business internationally.~~

Our sales and operations are subject to the risks of doing business internationally, as we have customers and partners located outside of the United States. Conducting business internationally exposes us to a variety of risks, including:

•~~changes in or interpretations of foreign regulations that may adversely affect our ability to sell our products, repatriate profits to the United States or operate our foreign-located facilities;~~

•~~the imposition of tariffs;~~

July 27, 2021).

•~~the imposition of limitations on, or increase of, withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;~~

•~~uncertainties relating to foreign laws, regulations and legal proceedings including tax, import/export, anti-corruption and exchange control laws;~~

•~~the availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;~~

•increased demands on our limited resources created by our operations may constrain the capabilities of our administrative and operational resources and restrict our ability to attract, train, manage and retain qualified management, technicians, scientists and other personnel;

•~~economic or political instability in foreign countries;~~

•~~difficulties associated with staffing and managing foreign operations; and~~

•~~the need to comply with a variety of United States and foreign laws applicable to the conduct of international business, including import and export control laws and anti-corruption laws.~~


Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.			Defaults Upon Senior Securities

Not applicable.


Item 4.			Mine Safety Disclosures

Not applicable.


Item 5.			Other Information

None.


Item 6.			Exhibits

~~Following~~

The following Exhibits are filed as part of this report pursuant to Item 601 of Regulation S-K:

Incorporated by Reference
Exhibit No. Description of Exhibit Form Original No. Date Filed Filed Herewith
1.1
Open Market Sale Agreement by and between the Company and Jeffries LLC, dated August 13, 2020
S-3 1.2 August 13, 2020
31.1
Certification of Principal Executive Officer of Dyadic Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
x
31.2
Certification of Principal Financial Officer of Dyadic Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
x
32.1
Certification of Principal Executive Officer of Dyadic Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
x
32.2
Certification of Principal Financial Officer of Dyadic Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
x

			Incorporated by Reference
Exhibit No.	Description of Exhibit	Form	Original No.	Date Filed	Filed Herewith
10.1	Dyadic International, Inc. 2021 Equity Incentive Award Plan	DEF14A	10.1	April 27, 2021
10.2	Master Services Agreement and Work Order, between Dyadic International (USA), Inc. and CR2O B.V., Dated May 28, 2021	8-K	10.1	June 3, 2021
10.3	Sale and Purchase of Shares Agreement of Biotechnology Developments for Industry, S.L. dated July 26, 2021	8-K	10.1	July 27, 2021
10.4	Sale and Purchase of Shares Agreement of VLP The Vaccine Company, S.L.U. dated July 26, 2021	8-K	10.2	July 27, 2021
10.5	Amendment No. 1 dated July 26, 2021 to the Service Framework Agreement dated June 30, 2017	8-K	10.3	July 27, 2021
10.6	Term Sheet for Intellectual Property License Agreement dated August 10, 2021	8-K	10.1	August 11, 2021
10.7	Employment Agreement, dated November 9, 2021, by and between Dyadic International, Inc. and Joseph Hazelton	8-K	10.1	November 9, 2021
31.1	Certification of Principal Executive Officer of Dyadic Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				x
31.2	Certification of Principal Financial Officer of Dyadic Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				x
32.1	Certification of Principal Executive Officer of Dyadic Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				x
32.2	Certification of Principal Financial Officer of Dyadic Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				x

Exhibit No.				Description
101.INS
~~Exhibit No.~~			~~Description~~
~~101.INS~~			Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DYADIC INTERNATIONAL, INC.

November ~~12, 2020~~10, 2021

By:

/s/ Mark A. Emalfarb

Mark A. Emalfarb

President and Chief Executive Officer

(Principal Executive Officer)

November ~~12, 2020~~10, 2021

By:

/s/ Ping W. Rawson

Ping W. Rawson

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period endedSeptember 30, ~~2020~~2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			~~For the transition period from _____ to ______~~

Delaware		45-0486747
~~Delaware~~	~~45-0486747~~
State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	DYAI	The NASDAQ Stock Market LLC


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(7,365,060)	$	(6,569,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	1,264,233		1,034,346
Amortization of held-to-maturity securities, net	282,123		141,362
Foreign currency exchange loss (gain), net	26,317		24,693
Changes in operating assets and liabilities:
Interest receivable	223,306		58,800
Accounts receivable	(141,698)		(110,807)
Income tax receivable	500,616		497,460
Prepaid research and development	0		253,446
Prepaid expenses and other current assets	(141,550)		(164,590)
Accounts payable	(61,651)		429,955
Accrued expenses	50,745		70,541
Deferred research and development obligation	75,211		(47,726)
Net cash used in operating activities	(5,287,408)		(4,381,954)

Cash flows from investing activities
Purchases of held-to-maturity investment securities	(14,677,156)		(37,585,548)
Proceeds from maturities of investment securities	36,761,000		43,953,000
Net cash provided by investing activities	22,083,844		6,367,452

Cash flows from financing activities
Proceeds from exercise of options	230,810		328,590
Net cash provided by financing activities	230,810		328,590
Effect of exchange rate changes on cash	11,791		(38,075)
Net increase in cash and cash equivalents	17,039,037		2,276,013
Cash and cash equivalents at beginning of period	4,823,544		2,386,314
Cash and cash equivalents at end of period	$	21,862,581	$	4,662,327

Supplemental cash flow information
Cash received from income tax refund	$	500,616	$	506,866


	September 30, 2020 (Unaudited)
				Gross		Gross
	Level			Unrealized		Unrealized
	(1)	Fair Value		Holding Gains		Holding Losses		Adjusted Cost
Cash and Cash Equivalents
Cash		$	785,678	$	—	$	—	$	785,678
Money Market Funds	1	21,076,903		—		—		21,076,903
Subtotal		21,862,581		—		—		21,862,581
Short-Term Investment Securities (2)
Corporate Bonds (4)	2	8,605,115		60,300		0		8,544,815


Total		$	30,467,696	$	60,300	$	0	$	30,407,396


	December 31, 2019 (Audited)
				Gross		Gross
	Level			Unrealized		Unrealized
	(1)	Fair Value		Holding Gains		Holding Losses		Adjusted Cost
Cash and Cash Equivalents
Cash		$	1,010,510	$	—	$	—	$	1,010,510
Money Market Funds	1	3,813,034		—		—		3,813,034
Subtotal		4,823,544		—		—		4,823,544
Short-Term Investment Securities (2)
Corporate Bonds (4)	2	29,387,053		5,898		(17,991)		29,399,146
Long-Term Investment Securities (3)
Corporate Bonds (4)	2	1,528,190		16,554		0		1,511,636
Total		$	35,738,787	$	22,452	$	(17,991)	$	35,734,326


	Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	3,860,390	$1.76	5.7	$13,287,932
Granted (1)	913,000	5.24
Exercised (2)	(123,000)	1.88
Expired	0	0
Canceled	0	0
Outstanding at September 30, 2020	4,650,390	$2.44	5.9	$23,870,114

Exercisable at September 30, 2020	3,292,794	$1.78	4.7	$19,067,568

140 Intracoastal Pointe Drive, Suite 404
~~Jupiter, Florida~~

Jupiter, Florida

Address of Principal Executive Offices