DYADIC INTERNATIONAL INC

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’** EQUITY**

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes to Consolidated Financial Statements

Note1: Organization and Summary of Significant Accounting Policies

Description of Business

Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) is a global biotechnology company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and it utilizes severalthird-party consultants and research organizations to carry out the Company’s activities. Over the pasttwo 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 tothird parties, such as Abengoa Bioenergy SA, BASF SE, Codexis, Inc. and others, for use in industrial (non-pharmaceutical) applications. This technology is based on theThermothelomyces heterothallica(formerly known asMyceliophthora thermophila) fungus, which the Company namedC1.

Subsequent to the Company selling its industrial technology business to Danisco USA (“Danisco”), the industrial biosciences business of DuPont (NYSE: DD) (the “DuPont Transaction”) on* December 31, 2015,the Company has been focused on building theC1*-cell protein production platform for the development and production of biologic products including enzymes and other proteins for human and animal health. Some examples of human and animal vaccines and drugs which have the potential to be produced fromC1-cells are protein antigens, ferritin nanoparticles, virus-like particles (“VLPs”), monoclonal antibodies (“mAbs”), Bi/Tri-specific antibodies, Fab antibody fragments, Fcfusion 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 itsC1-cell protein production platform to develop innovative vaccines and drugs, biosimilars and/or biobetters.

The Company also developed the Dapibus™ thermophilic filamentous fungal based microbial protein production platform to enable the rapid development and large-scale manufacture of low-cost proteins, metabolites, and other biologic products for use in non-pharmaceutical applications, such as food, nutrition, and wellness.

Liquidity and Capital Resources

The Company expects to incur losses and have negative net cash flows from operating activities as it continues developing its microbial protein production platforms and related products, and as it expands its pipelines and engages in further research and development activities for internal products as well as for itsthird-party collaborators and licensees. The success of the Company depends on its ability to develop its technologies and products to the point of regulatory approval and subsequent revenue generation or through the sublicensing of the Company’s technologies and products, and its ability to raise capital to finance these developmental efforts.

On* March 8, 2024,the Company issued an aggregate principal amount of $6.0 million of its 8.0% Senior Secured Convertible Promissory Notes due March 8, 2027 (the “Convertible Notes”) in a private placement. The purchasers of the Convertible Notes included immediate family members and family trusts related to Mark Emalfarb, our President and Chief Executive Officer and a member of our Board of Directors, including The Francisco Trust, an existing holder of more than5%* of the Company’s outstanding common stock, (collectively, the “Purchasers”). The net proceeds from the sale of the Convertible Notes, after deducting offering expenses, were $5,824,000. The Company intends to use the net proceeds from the offering of the Convertible Notes for working capital and general corporate purposes.

The Convertible Notes are senior, secured obligations of Dyadic and its affiliates, and interest is payable quarterly in cash on the principal amount equal to 8% per annum. The Convertible Notes will mature on* March 8, 2027 (*the “Maturity Date”), unless earlier converted, repurchased, or redeemed in accordance with the terms of the Convertible Notes.

The Convertible Notes can be converted into shares of Dyadic’s Class A common stock (the “Common Stock”), at the option of the holders of the Convertible Notes (the “Noteholders”) at any time prior to the Maturity Date. This private placement funding is expected to support our near-term revenue growth and accelerate our strategic objective of commercialization opportunities for pharmaceutical and non-pharmaceutical applications. On* October 4, 2024,the Company entered into an amendment (the “Amendment”) to the Convertible Notes. Pursuant to the Amendment, (i) the conversion price upon which the Convertible Notes will be convertible into shares of the Company’s common stock is $1.40 per share of common stock, and (ii) the Redemption Date (as defined in the Amendment) will fall on any of the26,* 29 and32-month anniversaries of the original issue date of the Convertible Notes.

As of* September 30, 2024*, $600,000 of the Convertible Notes were converted into 335,195 shares of Common Stock. For more information regarding the Convertible Notes, including the covenants related thereto, see Note4 to the Consolidated Financial Statements.

The Company expects its existing cash and cash equivalents, and cash raised from the Convertible Notes, investments in debt securities, and operating cash flows will be sufficient to meet its operational, business, and other liquidity requirements for at least the nexttwelve (12) months from the date of issuance of the financial statements contained in this Quarterly Report. However, the Company has based this estimate on assumptions that* mayprove to be wrong, and its operating plan maychange as a result of many factors currently unknown to it. In the event our financing needs arenot* able to be met by our existing cash, cash equivalents and investments, we would seek to raise additional capital through strategic financial opportunities that could include, but arenot limited to, future public or private equity offerings, collaboration agreements, and/or other means. Any amounts raised* maybe used for the further development and commercialization of product candidates, and for other working capital purposes. There isno* guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing shareholders.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, including the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. All significant intra-entity transactions and balances have been eliminated in consolidation. The information included in this Quarterly Report should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended* December31,* 2023, included in our Annual Report.* ***

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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 arenot necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

The Company conducts business inone operating segment, which is identified by the Company based on how resources are allocated, and operating decisions are made. Management evaluates performance and allocates resources based on the Company as a whole.

Use of Estimates

The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Estimates inherent in the preparation of these consolidated financial statements include, but arenot limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts, and experience. Actual results* may*differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.

Concentrations and Credit Risk

The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, investment securities, and accounts receivable. At times, the Company has cash, cash equivalents, and investment securities at financial institutions exceeding the Federal Depository Insurance Company (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”) insured limit on domestic currency and the Netherlands’ FDIC counterpart for foreign currency. The Company currently deals withfour reputable financial institutions and hasnot experienced any losses in those accounts.

For thethree months ended* September 30, 2024and2023*, the Company’s revenue was generated fromten andseven customers, respectively. For thenine months ended* September 30, 2024and2023*, the Company’s revenue was generated from sixteen andthirteen customers, respectively. Significant customers are those that account for greater than10% of the Company’s revenues. For thethree months ended* September 30, 2024and2023*, two andfour significant customers accounted for $1,358,000 or 69.4% and $297,000 or 74.8%% of revenue, respectively. For thenine months ended* September 30, 2024and2023*, two significant customers accounted for $1,450,000 or 54.1% and $1,137,000 or 51.4% of revenue, respectively.

As of* September 30, 2024* and* December 31, 2023*, accounts receivable was from nine andthirteen customers, of which, four customers accounted for $262,000 or 74.1% and $336,000 or 72.0% of total accounts receivable, respectively. The loss of business fromone 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 thethree months ended* September 30, 2024and2023*, the Company hadfour andthree customers outside of the United States (i.e., European customers) that accounted for$550,000 or 28.1% and$127,000 or 32.0% of revenue, respectively. For thenine months ended* September 30, 2024and2023*, the Company hadeight andfour customers outside of the United States (i.e., European customers) that accounted for$854,000 or 31.9% and$314,000 or 14.2% of revenue, respectively.

As of* September 30, 2024* and* December 31, 2023*, the Company hadfive andsix customers outside of the United States (i.e., European customers) that accounted for$167,000 or 47.2% and$213,000 or 45.6% of accounts receivable, respectively.

The Company uses several contract research organizations (“CROs”) to conduct its research projects. For thethree months ended* September 30, 2024and2023*, two andthree CROs accounted for$690,000 or 94.6% and$977,000 or 93.4% of total research services we purchased, respectively. For thenine months ended* September 30, 2024and2023*, two andthree CROs accounted for$1,647,000 or 92.0% and$3,639,000 or 96.4% of total research services we purchased, respectively. As of* September 30, 2024* and* December 31, 2023*, two andthree CROs accounted for$341,000 or 60.8% and $620,000 or 94.4% of accounts payable, respectively. The loss ofone 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 ofthree months or less when purchased as cash equivalents, including money market funds, which are unrestricted for withdrawal or use.

Investment Securities

The Company’s investment policy requires investment securities to be investment grade and held to maturity with the primary objective to maintain a high degree of liquidity while maximizing yield. The Company invests excess cash balances in short-term and long-term investment grade securities. Short-term investment securities mature withintwelve (12) months or less, and long-term investment securities mature overtwelve (12) months from the applicable reporting date. Management determines the appropriate classification of each investment at the time of purchase and reevaluates the classifications at each balance sheet date.

The Company classifies its investments in debt securities as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, net of allowance for credit losses if applicable, and adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized over the life of the related held-to-maturity security. When a debt security is purchased at a premium, both the face value of the debt and premium amount are reflected as investing outflow.

When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and whether it is more likely thannot the Company will be required to sell the investment before recovery of the investment’s cost basis. The Company measures expected credit losses on held to maturity debt securities on an individual security basis. The estimate of expected credit losses considers historical credit information from external sources. The impairment of the investment that is related to the credit loss, if any, is expensed in the period in which the event or change occurred.

The Company classifies its investments in money market funds as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. As of * September 30, 2024* and* December 31, 2023,*all of our money market funds were invested in U.S. Government money market funds, for which the risk of loss is minimal.

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As of* September 30, 2024*, and* December 31, 2023*, the Company didnot have any investment securities classified as trading.

Accounts Receivable

Accounts receivable consist of billed receivables currently due from customers and unbilled receivables. Unbilled receivables represent the excess of contract revenue (or amounts reimbursable under contracts) over billings to date. Such amounts become billable in accordance with the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.

Accounts receivable are stated net of an allowance for credit losses, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions and changes in our customer collection trends. If necessary, an allowance for credit losses is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. Accounts receivable balances are written off against the allowance for credit losses when the potential for collectability is considered remote. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the nexttwelve (12) months. Management determined thatno allowance for credit losses was required as of* September 30, 2024*, and* December 31, 2023*.

Accounts receivable consist of the following:

Accounts Payable

Accounts payable consist of the following:

Accrued Expenses

Accrued expenses consist of the following:

Deferred Financing Costs

Deferred financing costs represent costs incurred in connection with the issuance of debt instruments and equity financings. Deferred financing costs related to the issuance of debt are amortized over the term of the financing instrument using the effective interest method and are presented in the consolidated balance sheets as an offset against the related debt. Offering costs from equity financings are netted against the gross proceeds received from the equity financings. See Note4 for the amortization amount.

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, for thethree andnine months ended* September 30, 2024and2023* were as follows:

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Foreign Currency Transaction Gain or Loss

The Company and its foreign subsidiary use the U.S. dollar as its functional currency, and initially measure the foreign currency denominated assets and liabilities at the transaction date. Monetary assets and liabilities are then re-measured at exchange rates in effect at the end of each period, and property and non-monetary assets and liabilities are carried at historical rates.

Fair Value Measurements

The Company applies fair value accounting for certain financial instruments that are recognized or disclosed at fair value in the financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value intothree levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

The Company’s financial instruments included cash and cash equivalents, investment in debt securities, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, deferred research and development obligations, deposits, and the Company's8% Senior Secured Convertible Promissory Notes (the “Convertible Notes”), due* March 2027.The carrying amount of these financial instruments, except for investment in debt securities and Convertible Notes, approximates fair value due to the short-term maturities of these instruments. The Company’s short-term and long-term investments in debt securities are recorded at amortized cost, and their estimated fair value amounts are provided by thethird*-party broker service for disclosure purposes. See Note4 for additional information related to the Convertible Notes.

Income Taxes

For thenine months ended* September 30, 2024*, there wasno provision for income taxes or unrecognized tax benefits recorded. As of* September 30, 2024* and* December 31, 2023*, deferred tax assets were $17.7 million and $16.4 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, 2024* and* December 31, 2023*.

Stock-Based Compensation

We recognize all share-based payments to employees, consultants, and our Board of Directors (the “Board”), as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.

For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common stock shares outstanding during the reporting period. Diluted net loss per share adjusts the weighted average number of common stock shares outstanding for the potential dilution that could occur if common stock equivalents, such as stock options were exercised and converted into common stock, calculated by applying the treasury stock method.

For thethree andnine months ended* September 30, 2024*, a total of 5,962,960 shares of potentially dilutive securities, including 117,925 shares of unvested restrict stock units and options to purchase 5,845,035 shares of common stock, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. For thethree andnine months ended* September 30, 2023*, a total of 5,658,811 shares of potentially dilutive securities, including 163,044 shares of unvested restrict stock units and options to purchase 5,495,767 shares of common stock, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive

Recent Accounting Pronouncements Not Adopted as of September 30, 2024**

In* December 2023,the FASB issued Accounting Standards Update2023*-09 – Income Taxes (Topic ASC740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU2023-09 will become effective for annual periods beginning* January 1, 2025.Early adoption is permitted for annual financial statements that havenot* yet been issued or made available for issuance. We donot expect that this guidance will have a material impact on our financial position and results of operations.

In* November 2023,the FASB issued Accounting Standards Update2023*-07 – Segment Reporting (Topic ASC280) Improvements to Reportable Segment Disclosures. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss, require disclosure ofother segment items by reportable segment and a description of the composition ofother segment items, require annual disclosures under ASC280 to be provided in interim periods, clarify use of more thanone measure of segment profit or loss by the CODM, require that the title of the CODM be disclosed with an explanation of how the CODM uses the reported measures of segment profit or loss to make decisions, and require that entities with a single reportable segment provide all disclosures required by this update and required under ASC280. ASU2023-07 is effective for public business entities for fiscal years beginning* January 1,2024, and interim periods beginning January 1, 2025,with early adoption permitted. We donot* expect that this guidance will have a material impact on our financial position and results of operations.

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Note2: Cash, Cash Equivalents, and Investments

The Company’s investments in debt securities are classified as held-to-maturity and are recorded at amortized cost, net of allowance for credit losses, and its investments in money market funds are classified as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. The following table shows the Company’s cash, available-for-sale securities, and investment securities by major security type as of* September 30, 2024*, and* December 31, 2023*:

Notes:

(1) Definition of thethree-level fair value hierarchy:

(2) All our money market funds were invested in U.S. Government money market funds.

(3) Short-term investment securities will mature within12 months or less, from the applicable reporting date.

(4) For thethree months ended* September 30, 2024and2023*, the Company received discounts of $9,023 and $1,148 to purchase held-to-maturity investment securities, respectively. For thenine months ended* September 30, 2024* and2023, the Company received discounts of$70,495 and $33,982 to purchase held-to-maturity investment securities, respectively. For the year ended* December 31, 2023*, the Company received discounts of $39,012 to purchase held-to-maturity investment securities.

(5) The Company considers the declines in market value of its investment portfolio to be temporary in nature. As of* September 30, 2024* and* December 31, 2023,the Company didnot* consider any of its investments to be other-than-temporarily impaired andno allowance for credit losses was recorded.

Note3: Research and Collaboration Agreements, Sublicense Agreements, and Investments in Privately Held Companies

Proliant

On* June 27, 2024,the Company entered into a License and Development Agreement (the “Proliant Agreement”) with Proliant Biologicals, LLC d/b/a Proliant Health and Biologicals (“Proliant”), pursuant to which Proliant will license Dyadic’s proprietary fungal microbial expression and production platforms and microbial strains for the production of recombinant serum albumin. Under the terms of the Proliant Agreement, Dyadic has received an initial upfront payment of $500,000, asecond* payment of $500,000 upon the completion of the transfer of a Production Strain (as defined in the Proliant Agreement.) and will receive a final payment of $500,000 upon the meeting of a certain productivity threshold. Upon commencing commercial sales of animal-free recombinant serum albumin products produced pursuant to the Proliant Agreement, the Company will receive royalties based on a certain percentage of the gross margin received by Proliant, as defined in the Proliant Agreement.

For thethree andnine months ended* September 30, 2024*, the Company recognized $1.0 million in license revenue related to the Proliant Agreement, as the performance obligation to deliver the production strains has been completed.

Inzymes ApS

On* September 18, 2023,Dyadic International (USA) Inc., a subsidiary of the Company, signed a Development and Exclusive License Agreement (the “Inzymes Agreement”) with Inzymes ApS (“Inzymes”), a Denmark corporation, to develop and commercialize certain non-animal dairy enzymes used in the production of food products using Dyadic’s proprietary Dapibus™ platform. On October 11, 2024,*the Inzymes Agreement was amended (“the Amended Inzymes Agreement”).

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Under the terms of the Amended Inzymes Agreement, a research collaboration to develop a basket of dairy enzymes will be fully funded by Inzymes with an upfront payment of $0.6 million. Dyadic will also be eligible to receive success fees upon the achievement of certain target yields, milestone payments uponfirst commercial sale of each product and royalties.

In* October 2023,the Company received an upfront payment of $0.6 million in accordance with the terms of the Inzymes Agreement. The payment consisted of funding for specified product research and development efforts and right offirst* refusal for certain product candidates. Forthethree andnine months ended* September 30, 2024*, the Company recorded research and development revenues of $0 and $25,000, respectively. For thethree months ended* September 30, 2024,the Company recognized $425,000 license revenue from success fees upon the achievement of target yield forone* product. The Company will continue evaluating the achievement of success fees related to target yields and product commercialization of each product when they are considered probable and estimable under the Inzymes Agreement.

A Global Food Ingredient Company

On* May 10, 2022,*the Company entered into a Joint Development Agreement (the “JDA”) with a Global Food Ingredient Company (“GFIC”) to develop and manufacture several animal free ingredient products using the Company’s biotechnologies.

Under the initial terms of the JDA, Dyadic was to develop its proprietary production cell lines for the manufacture of animal free ingredient product candidates. The GFIC has completed itsone-year funding commitment for the initial phase of research collaboration in an amount approximating*$1.35* million, and, pursuant to the GFIC’s rights under the JDA, the Company and the GFIC are in discussions related to the potential development of other animal free ingredient products. The Company is also considering other funding sources to continue the original project.

For thethree andnine months ended* September 30, 2024*, there wasno revenue recognized related to this JDA. For thethree andnine months ended* September 30, 2023*, the Company recorded research and development revenues of approximately $0 and $565,000, as well as success fees of approximately $65,500 in connection with the JDA, respectively.

Janssen

On* December 16, 2021,the Company entered a Research, License, and Collaboration Agreement (the “Janssen Agreement”) for the manufacture of therapeutic protein candidates using itsC1*-cell protein production platform with Janssen Biotech, Inc.,one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”).

On* October 2, 2023,Janssen provided written notice to Dyadic that it has decided to wind down the collaboration with an effective end date of December 31, 2023.*

For thethree andnine months ended* September 30, 2024*, there wasno revenue recognized related to the Janssen Agreement. For thethree andnine months ended* September 30, 2023*, the Company recognized approximately $44,000 and $132,000 of license revenue, respectively. For thethree andnine months ended* September 30, 2023*, the Company recorded research and development revenues of approximately $127,000 and $507,000, respectively, in connection with the Janssen Agreement.

Alphazyme

In2019 the Company entered into a sub-licensing agreement with Alphazyme, LLC (“Alphazyme”) that was subsequently amended (the “Amended Alphazyme LLC Agreement”). Under the Amended Alphazyme LLC Agreement, Alphazyme obtained 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 isnot the primary beneficiary of Alphazyme as Dyadic doesnot have the power to control or direct the activities of Alphazyme that most significantly impact the VIE. As a result, the Company doesnot consolidate its investment in Alphazyme. The Company reports its investment in Alphazyme under the cost method of accounting, given that it doesnot have the ability to exercise significant influence or control over Alphazyme.

On* January 18, 2023,*the Company entered into a Securities Purchase Agreement, under which the Company agreed to sell its equity interest in Alphazyme, LLC (the “Alphazyme Sale Agreement”). The Company continues to have the potential to receive additional payments based on the future sales of Alphazyme’s existing products, pursuant to the Alphazyme Sale Agreement.

The Amended Sublicense Agreement between Dyadic and Alphazyme, which was previously entered on* June 24, 2020,remains in effect. Under the Amended Alphazyme Sub-License Agreement, Dyadic is entitled to potential milestoneand royalty payments upon the commercialization of Alphazyme products using Dyadic’s proprietaryC1*-cell protein production platform.

For the year ended* December 31, 2023,the Company received a total cash payment of $1.3 million from the sale of its equity interest in Alphazyme, LLC. In thefirst* quarter of2024, the Company received an additional cash payment of $60,977, which was recorded as gain on sale of Alphazyme in the consolidated statement of operations.

Note4: Convertible Notes Payable

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

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The Convertible Notes are senior, secured obligations of the Company and its affiliates, and interest is payable quarterly in cash on the principal amount equal to 8% per annum, and guaranteed by its subsidiary, Dyadic International (USA), Inc. under a subsidiary guarantee for the benefit of the holders of the Convertible Notes (each such holder, a “Holder”).

The Convertible Notes mature on* March 8, 2027,unless earlier converted or redeemed in accordance with the terms of the Convertible Notes. The Convertible Notes are secured by afirst* priority lien on substantially all assets of the Company and Dyadic International (USA), Inc.

Pursuant to an amendment entered into by the Company on* October 4, 2024,the Holders mayrequire the Company to redeem all or any part of the Convertible Notes on a redemption date falling on any of the26,* 29, and32-month anniversaries of the original issue date of the Convertible Notes (any such date, a “Redemption Date”) uponnot less than60 calendar days written notice prior to the applicable Redemption Date. The Company* mayalso elect to redeem all or any part of the Convertible Notes on a Redemption Date uponnot* less than60 calendar days written notice prior to the applicable Redemption Date. The Convertible Notes are convertible into shares of the Company’s common stock, in whole or in part, at the option of the Holders at any time, based on a conversion price of $1.40 per share of common stock.

The Convertible Notes are accounted for in accordance with ASC470-20, Debt with Conversion and Other Options and ASC815-15, Derivatives and Hedging. Under ASC815, contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position arenot considered to be derivative instruments. Based on the Company’s analysis, it is determined that the Convertible Notes contain embedded features that are indexed to the Company’s own stock and are classified in stockholders’ equity in the Company’s statement of financial position, but donot meet the requirements for bifurcation and recognition as derivatives, and therefore, donot need to be accounted for separately. Accordingly, the proceeds received from the issuance of the Convertible Notes were recorded as a single liability in accordance with ASC470 on the Company’s consolidated balance sheets.

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

For thethree months ended* September 30, 2024*, $114,933 of interest was paid and debt issuance costs of $17,244 were amortized and recorded in interest expense in the consolidated statements of operations. For thenine months ended* September 30, 2024*, $149,778 of interest was paid and debt issuance costs of*$43,961* were amortized and recorded in interest expense in the consolidated statements of operations. As of* September 30, 2024*, accrued interest on the Convertible Notes to related parties and otherthird parties were $28,000 and $80,000, respectively. As of* September 30, 2024*, accumulated amortized debt issuance costs are $26,394.

For thenine months ended* September 30, 2024*, $600,000 of the Convertible Notes were converted into 335,195 shares of the Company’s common stock. As of* September 30, 2024*, convertible notes payable consisted of the following:

Notes:

(1)Mr. Thomas Emalfarb, nephew of Mr. Mark A. Emalfarb, our President and Chief Executive Officer, is the Trustee of the Francisco Trust. Mr. Thomas Emalfarb* maybe deemed to have voting, dispositive and investment power with respect to the shares of common stock held by the Francisco Trust and disclaims any such beneficial ownership other than to the extent of any pecuniary interest he mayhave therein, directly or indirectly. The amount of accrued interest as of September 30, 2024*, is $20,000.

(2) Mark A. Emalfarb, our President and Chief Executive Officer, is the Trustee of the Irrevocable Trust and the brother of Mr. Bradley S. Emalfarb, who is the sole beneficiary of the Irrevocable Trust. Mr. Bradley S. Emalfarb, as sole beneficiary of the Irrevocable Trust, therefore,* maybe deemed to have voting, dispositive and investment power with respect to the shares of common stock held by the Irrevocable Trust and disclaims any such beneficial ownership other than to the extent of any pecuniary interest he mayhave therein, directly or indirectly. For thenine* months ended* September 30, 2024*, $400,000 of the Convertible Notes held by Mr. Bradley S. Emalfarb were converted into 223,463 shares of the Company’s common stock. For thenine months ended* September 30, 2024*, $200,000 of the Convertible Notes held by Bradley Scott Emalfarb Irrevocable Trust were converted into 111,732 shares of the Company’s common stock. As of* September 30, 2024*, the amount of accrued interest for Bradley Emalfarb and Bradley Scott Emalfarb Irrevocable Trust was $2,000 and$4,200, respectively.

(3) Messrs. Thomas Emalfarb, Scott Emalfarb and Michael Emalfarb, nephews of Mr. Mark A. Emalfarb, our President and Chief Executive Officer, are co-trustees of the Descendant Trust and* maytherefore be deemed to have shared voting, dispositive and investment power over the shares of common stock held by the Descendant Trust. The amount of accrued interest as of September 30, 2024*, is $1,800.

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Note5: Commitments and Contingencies

Legal Proceedings

We arenot 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 ofone 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.

VTT Research Contract Extension

On* January 31, 2024,the Company entered into a Third Amendment to the commission contract concerning VTT Technical Research Centre of Finland Ltd. (“VTT”) to develop Dyadic’sC1* fungal expression system for therapeutic protein production. The original contract was entered on* June 28, 2019,and subsequently amended by the First Amendment on June 21, 2022,and the Second Amendment on September 9, 2022.Under the terms of the Third Amendment, the contract duration was extended to January 31, 2025,and Dyadic will pay VTT a total of EUR€186,000 to continue developing Dyadic’sC1*-cell protein production platform for therapeutic protein production, including ourC1 host system. Dyadic has the right to terminate the contract with90 days’ notice. As of * September 30, 2024*, the Company paid EUR€93,000, and the remaining amount of the contract of EUR€93,000 will be paid during thefirst quarter of2025.

Note6: Share-Based Compensation

Description of Equity Plans

The2021 Equity Incentive Award Plan (the*“2021* Plan”) was adopted by the Company’s Board of Directors on* April 9, 2021and approved by the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) on June 11, 2021.The2021* Plan serves as a successor to the Company’s2011 Equity Incentive Plan (the*“2011* Plan”). Since the adoption of the2021 Plan, all equity awards were made from the2021 Plan andno additional awards will be granted under the2011 Plan. The2021 Plan provides for the issuance of a variety of share-based compensation awards, including stock options, restricted stock awards, restricted stock unit awards, performance awards, dividend equivalents awards, deferred stock awards, stock payment awards and stock appreciation rights. As of* April 16, 2021,the2021* Plan increased the number of shares available for grant by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the2011.

As of* September 30, 2024*, the Company had 5,845,035 stock options outstanding and 117,925 unvested restricted stock units in addition to 2,025,191 shares of common stock available for grant under the2021 Plan. As of* December 31, 2023*, there were 5,469,247 stock options outstanding and 243,044 unvested restricted stock units in addition to 2,773,406 shares of common stock available for grant under the2021 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’s2011 Plan and2021 Plan isten years, except for certain options granted to the contractors which are eithertwo orfive 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 zero, as the Company has never paid dividends to common shareholders and doesnot 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 since the DuPont Transaction in2015. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities since2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.

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*Expected life of option.*The expected life of option was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The Company uses the weighted average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to the CEO (i.e.,5 or 10 years) and certain contractors (i.e.,2 or 5 years).

The assumptions used in the Black-Scholes option pricing model for stock options granted for thenine months ended* September 30, 2024* are as follows:

The following table summarizes the stock option activities for thenine months ended* September 30, 2024*:

Notes:

(1) Represents the following options granted:

(2) Repre sents the following options expired:

(a) 300,000 stock options with an exercise price of $1.87 per share granted to an executive, (b) 25,000 stock options with an exercise price of $1.76 per share granted to a member of the Board of Directors, (c) 7,500 stock options with an exercise price of $5.56 per share granted to a consultant, (d) 25,000 stock options with an exercise price of $4.14 per share granted to a consultant, and (e) 1,000 stock options with an exercise price of $1.55 per share granted to an employee.

(3) Represents the following options canceled:

(a) 50,000 stock options granted to a former member of the Board of Directors, (b) 13,125 stock options granted to the Company's former Chairman of the Board of Directors, and (c) 10,187 stock options granted to the Company's former employee.

Restricted Stock Units

Restricted stock units (the “RSUs”) are granted subject to certain restrictions. Vesting conditions are determined at the discretion of the Board of Directors. The fair market value of RSUs is generally determined based on the closing market price of the stock on the grant date.

The following table summarizes the restricted stock award activity for thenine months ended* September 30, 2024*:

Notes:

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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 hadno impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur. For thethree andnine months ended* September 30, 2024*, there were forfeitures of $9,000 and $50,000, respectively.

For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date.

Total non-cash share-based compensation expense was allocated among the following expense categories:

The following table summarizes the Company’s non-cash share-based compensation expense allocation between options and restricted stock units:

Note7: Shareholders’ Equity

Issuances of Common Stock

For thenine months ended* September 30, 2024*, there were 778,310 shares of the Company’s common stock issued with a weighted average issue price of $1.63 per share, including 335,195 shares from the conversion of the Convertible Notes,437,546 shares from the vesting of restricted stock units, and 5,569 shares from the exercise of stock options. For thenine months ended* September 30, 2023*, there were 247,961shares of the Company’s common stock issued resulting from the vesting of restricted stock units with a weighted average issue price of $1.38 per share.

Treasury Stock

As of* September 30, 2024*, there were 12,253,502 shares of common stock held in treasury, at a cost of $18.9 million, representing the purchase price on the date the shares were surrendered to the Company.

Note8: Subsequent Events

For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through* November 12, 2024*, the date the consolidated financial statements were available to be issued. Except for items mentioned in the notes, management isnot aware of any material events that have occurred after the balance sheet date that would require adjustment to, or disclosure in the accompanying financial statements.

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