DYADIC INTERNATIONAL INC 10-K

Item 9A. 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 December 31, 2023. 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 December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2023. This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report because we are a “smaller reporting company.” Changes in Internal Controls Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 because 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. 32 Item 9B. Other Information Insider Trading Arrangements During the quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a - 1 under the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5 - 1 trading arrangement” or a “non-Rule 10b5 - 1 trading arrangement” (each as defined in Item 408 (a) and (c), respectively, of Regulation S-K). Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 2024 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2023 fiscal year. Item 11. Executive Compensation The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 2024 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2023 fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 2024 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2023 fiscal year. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 2024 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2023 fiscal year. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated by reference to the Company’s definitive proxy statement relating to the 2024 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2023 fiscal year. 33 PART IV Item 15. Financial Statement and Exhibits (a) Financial Statement Our financial statements and related notes thereto are listed and included in this Annual Report on Form 10-K beginning on page F-1. (b) Exhibits Incorporated by Reference Exhibit No. Description of Exhibit Form Original No. Date Filed Filed Herewith 3.1# Restated Certificate of Incorporation dated November 1, 2004 10-12G 3.1 January 14, 2019 3.2# Third Amended and Restated Bylaws dated March 28, 2023 8-K 3.1 March 29, 2023 4.1# Specimen Stock Certificate Evidencing Shares of Common Stock 10-12G 4.1 January 14, 2019 4.2# Description of Registered Securities 10-K 4.2 March 30, 2020 4.3# Senior Secured Convertible Promissory Note due March 8, 2027, dated March 8, 2024 8-K 4.1 March 11, 2024 10.1**# Dyadic International, Inc. 2011 Equity Incentive Plan 10-12G 10.2 January 14, 2019 10.2**# Dyadic International, Inc. 2021 Equity Incentive Plan S-8 4.3 August 12, 2021 10.2.1** Form of Stock Option Agreement Pursuant to the Dyadic International, Inc. 2021 Equity Incentive Plan x 10.2.2** Form of Restricted Stock Unit Agreement Pursuant to the Dyadic International, Inc. 2021 Equity Incentive Plan x 10.3**# Form of Restricted Stock Unit Agreement Pursuant to the Dyadic International, Inc. 2011 Equity Incentive Plan 10-12G 10.3 January 14, 2019 10.4**# Form of Stock Option Agreement Pursuant to the Dyadic International, Inc. 2011 Equity Incentive Plan 10-12G 10.4 January 14, 2019 10.5**# Employment Agreement, dated June 16, 2016, and First Amendment dated January 23, 2017, by and between Dyadic International, Inc. and Mark A. Emalfarb 10-12G 10.5 January 14, 2019 10.5.1**# Second Amendment to Employment Agreement between Dyadic International, Inc. and Mark A. Emalfarb, dated as of November 12, 2019 8-K 10.1 November 13, 2019 10.6**# Consulting Agreement, dated January 1, 2016, by and between Dyadic Netherlands B.V. and Sky Blue Biotech kft on behalf of Ronen Tchelet 10-12G 10.7 January 14, 2019 10.7**# Compensation Letter, dated March 26, 2018, by and between Dyadic International, Inc. and Ping W. Rawson 10-12G 10.9 January 14, 2019 10.8**# Employment Agreement between Dyadic International Inc. and Joseph Hazelton dated November 9, 2021 8-K 10.1 November 9, 2021 10.9**# Form of Director and Officer Indemnification Agreement 10-12G 10.10 January 14, 2019 10.10# Lease Agreement with Jupiter Harbour Office, LLC dated August 19, 2023 10-Q 10.1 November 8, 2023 10.11†# Pharma License Agreement with Danisco US, Inc. dated December 31, 2015 10-12G 10.12 January 14, 2019 10.12†# Commission Contract with VTT Technical Research Centre of Finland Ltd dated September 2, 2016 10-12G 10.13 January 14, 2019 10.12.1†# Commission Contract with VTT Technical Research Centre of Finland Ltd dated June 28, 2019 8-K 10.1 July 5, 2019 10.13†# Service Framework Agreement with Biotechnology Developments for Industry in Pharmaceuticals, S.L.U. dated June 30, 2017 10-Q 10.2 November 8, 2023 10.13.1†# Amendment No. 1 dated July 26, 2021, to the Service Framework Agreement dated June 30, 2017 8-K 10.3 July 27, 2021 10.14†# License Agreement with VTT Technical Research Centre of Finland Ltd dated July 17, 2017 10-12G 10.17 January 14, 2019 10.15†# Joint Development Agreement with Leprino Foods Company, dated May 12, 2022 8-K 10.1 May 11, 2022 34 10.16†# Research and Commercialization Collaboration Agreement with Serum Institute of India Pvt. Ltd., dated May 7, 2019 8-K 10.1 May 8, 2019 10.17†# Non-Exclusive Sublicense Agreement among Dyadic International, Inc., Alphazyme, LLC, dated May 5, 2019 8-K 10.1 May 8, 2019 10.17.1†# Amended and Restated Non-Exclusive Sublicense Agreement among Dyadic International, Inc., Alphazyme, LLC, dated June 24, 2020 8-K 10.1 June 29, 2020 10.18# 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 10.19†# Alphazyme Sale Agreement dated January 18, 2023 8-K 10.1 January 23, 2023 10.20†# RUBIC License Agreement dated April 6, 2023 8-K 10.1 April 6, 2023 10.21†# Inzyme Development and Exclusive License Agreement, effective September 18, 2023 8-K 10.1 September 19, 2023 10.22# Securities Purchase Agreement Relating to the Senior Secured Convertible Promissory Note dated March 8, 2024 8-K 10.1 March 11, 2024 10.23# Registration Rights Agreement Relating to the Senior Secured Convertible Promissory Note dated March 8, 2024 8-K 10.2 March 11, 2024 10.24# Security Agreement Relating to the Senior Secured Convertible Promissory Note dated March 8, 2024 8-K 10.3 March 11, 2024 10.25# Subsidiary Guarantee Relating to the Senior Secured Convertible Promissory Note dated March 8, 2024 8-K 10.4 March 11, 2024 21.1 Subsidiaries of the Registrant x 23.1 Consent of Independent Registered Public Accounting Firm - Crowe LLP x 23.2 Consent of Independent Registered Public Accounting Firm - Mayer Hoffman McCann P.C. x 24.1 Power of Attorney (included on signature page) ^ 31.1 Certification of Chief Executive Officer of Dyadic International, Inc, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 x 31.2 Certification of Chief Financial Officer of Dyadic International, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 x 32.1^ Certification of Chief Executive Officer of Dyadic International, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2^ Certification of Chief Financial Officer of Dyadic International, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97 Policy Related to Recovery of Erroneously Awarded Compensation 101.INS Inline XBRL Instance Document x 101.SCH Inline XBRL Taxonomy Extension Schema Document x 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document x 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document x 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document x 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document x 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Legend: ** Identifies a management contract or compensatory plan or arrangement. † Certain provisions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. # Previously filed with the SEC. ^ Furnished herewith. Item 16. Form 10-K Summary Not applicable. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. March 28, 2024 By: /s/ Mark A. Emalfarb Mark A. Emalfarb President and Chief Executive Officer (Principal Executive Officer) March 28, 2024 By: /s/ Ping W. Rawson Ping W. Rawson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark A. Emalfarb and Ping W. Rawson, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Mark A. Emalfarb Chief Executive Officer, Director March 28, 2024 Mark A. Emalfarb (Principal Executive Officer) /s/ Ping W. Rawson Chief Financial Officer March 28, 2024 Ping W. Rawson (Principal Financial Officer and Principal Accounting Officer) /s/ Patrick Lucy Chairman, Director March 28, 2024 Patrick Lucy /s/ Jack L. Kaye Director March 28, 2024 Jack L. Kaye /s/ Seth J. Herbst Director March 28, 2024 Seth J. Herbst, MD /s/Arindam Bose Director March 28, 2024 Arindam Bose, Ph.D. /s/Barry C. Buckland Director March 28, 2024 Barry C. Buckland, Ph.D. /s/ Michael P. Tarnok Director March 28, 2024 Michael P. Tarnok 36 Index to Consolidated Financial Statements Page Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID 199) F-3 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 F-5 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F-1 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Dyadic International, Inc. Jupiter, Florida Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Dyadic International, Inc. (the "Company") as of December 31, 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Crowe LLP We have served as the Company's auditor since 2023. Livingston, New Jersey March 28, 2024 F-2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Dyadic International, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Dyadic International, Inc. and Subsidiaries (“Company”) as of December 31, 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/Mayer Hoffman McCann P.C. We have served as the Company’s auditor from 2008 through 2023. St. Petersburg, Florida March 28, 2024 F-3 DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 6,515,028 $ 5,794,272 Short-term investment securities 748,290 6,847,270 Interest receivable 10,083 58,285 Accounts receivable 466,159 330,001 Prepaid expenses and other current assets 327,775 392,236 Total current assets 8,067,335 13,422,064 Non-current assets: Operating lease right-of-use asset, net 141,439 — Investment in Alphazyme — 284,709 Other assets 10,462 6,045 Total assets $ 8,219,236 $ 13,712,818 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 656,445 $ 1,276,313 Accrued expenses 1,057,164 955,081 Deferred research and development obligations 490,113 40,743 Deferred license revenue, current portion — 176,471 Operating lease liability, current portion 48,059 — Total current liabilities 2,251,781 2,448,608 Deferred license revenue, net of current portion — 176,471 Operating lease liability, net of current portion 88,870 — Total liabilities 2,340,651 2,625,079 Commitments and contingencies (Note 5) Stockholders’ equity: Preferred stock, $. 0001 par value: Authorized shares - 5,000,000 ; none issued and outstanding — — Common stock, $. 001 par value: Authorized shares - 100,000,000 ; issued shares - 41,064,563 and 40,816,602 , outstanding shares - 28,811,061 and 28,563,100 as of December 31, 2023 and 2022, respectively 41,065 40,817 Additional paid-in capital 105,044,756 103,458,697 Treasury stock, shares held at cost - 12,253,502 ( 18,929,915 ) ( 18,929,915 ) Accumulated deficit ( 80,277,321 ) ( 73,481,860 ) Total stockholders’ equity 5,878,585 11,087,739 Total liabilities and stockholders’ equity $ 8,219,236 $ 13,712,818 The accompanying notes are an integral part of these audited consolidated financial statements. F-4 DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2023 2022 Revenues: Research and development revenue $ 2,545,865 $ 2,683,244 License revenue 352,941 247,059 Total revenue 2,898,806 2,930,303 Costs and expenses: Costs of research and development revenue 1,975,849 2,123,193 Research and development 3,297,266 4,501,365 General and administrative 5,817,013 6,421,505 Foreign currency exchange loss 38,417 49,918 Total costs and expenses 11,128,545 13,095,981 Loss from operations ( 8,229,739 ) ( 10,165,678 ) Other income: Interest income 416,686 180,420 Gain on sale of Alphazyme 1,017,592 — Other income — 250,000 Total other income 1,434,278 430,420 Net loss $ ( 6,795,461 ) $ ( 9,735,258 ) Basic and diluted net loss per common share $ ( 0.24 ) $ ( 0.34 ) Basic and diluted weighted-average common shares outstanding 28,798,833 28,364,482 The accompanying notes are an integral part of these audited consolidated financial statements. F-5 DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Treasury Stock Additional Accumulated Shares Amount Shares Amount paid-in capital deficit Total Balance at December 31, 2021 40,482,659 $ 40,483 ( 12,253,502 ) $ ( 18,929,915 ) $ 101,026,496 $ ( 63,746,602 ) $ 18,390,462 Stock-based compensation expenses — — — — 1,888,944 — 1,888,944 Issuance of common stock upon exercise of stock options 333,943 334 — — 543,257 — 543,591 Net loss — — — — — ( 9,735,258 ) ( 9,735,258 ) Balance at December 31, 2022 40,816,602 $ 40,817 ( 12,253,502 ) $ ( 18,929,915 ) $ 103,458,697 $ ( 73,481,860 ) $ 11,087,739 Stock-based compensation expenses — — — — 1,244,121 — 1,244,121 Issuance of common stock upon vesting of restricted stock units 247,961 248 — — 341,938 — 342,186 Net loss — — — — — ( 6,795,461 ) ( 6,795,461 ) Balance at December 31, 2023 41,064,563 $ 41,065 ( 12,253,502 ) $ ( 18,929,915 ) $ 105,044,756 $ ( 80,277,321 ) $ 5,878,585 The accompanying notes are an integral part of these audited consolidated financial statements. F-6 DYADIC INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 6,795,461 ) $ ( 9,735,258 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 1,244,121 1,888,944 Amortization of held-to-maturity securities, net ( 53,032 ) 33,790 Gain on investment in Alphazyme ( 1,017,592 ) — Foreign currency exchange loss 38,418 49,918 Changes in operating assets and liabilities: Operating lease assets and liabilities, net ( 4,510 ) — Interest receivable 48,202 36,090 Accounts receivable ( 141,332 ) ( 83,265 ) Prepaid expenses and other current assets 64,902 ( 13,925 ) Accounts payable ( 651,168 ) ( 248,128 ) Accrued expenses 444,269 245,521 Deferred license revenue ( 352,942 ) ( 147,058 ) Deferred research and development obligations 449,370 ( 110,404 ) Net cash used in operating activities ( 6,726,755 ) ( 8,083,775 ) Cash flows from investing activities Purchases of held-to-maturity investment securities ( 2,995,988 ) ( 9,869,280 ) Proceeds from maturities of investment securities 9,148,000 7,500,000 Proceeds from the sale of investment in Alphazyme 1,297,884 — Net cash provided by (used in) investing activities 7,449,896 ( 2,369,280 ) Cash flows from financing activities Proceeds from exercise of options — 543,591 Net cash provided by financing activities — 543,591 Effect of exchange rate changes on cash ( 2,385 ) ( 44,744 ) Net decrease in cash and cash equivalents 720,756 ( 9,954,208 ) Cash and cash equivalents at beginning of period 5,794,272 15,748,480 Cash and cash equivalents at end of period $ 6,515,028 $ 5,794,272 Supplemental cash flow information Vesting of restricted stock units $ 342,186 $ — Right-of-use asset obtained in exchange for lease obligations $ 156,983 $ — The accompanying notes are an integral part of these audited consolidated financial statements. F-7 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 company based in Jupiter, Florida with operations in the United States and a satellite office in the Netherlands, and it utilizes third -party consultants and research organizations to carry out the Company’s activities. Over the past two plus decades, the Company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins, and has previously licensed this technology to third parties, such as Abengoa BioenergySA, BASF SE, Codexis, Inc. and others, for use in industrial (non-pharmaceutical) applications. This technology is based on the Thermothelomyces heterothallica (formerly known as Myceliophthora thermophila ) fungus, which the Company named C1. Subsequent to the Company selling its industrial technology business to Danisco USA (“Danisco”), the industrial biosciences business of DuPont (NYSE: DD) (the “DuPont Transaction”) on December 31, 2015, the Company has been focused on building the C1 -cell protein production platform for the development and production of biologic products including enzymes and other proteins for human and animal health. Some examples of human and animal vaccines and drugs which have the potential to be produced from C1 -cells are protein antigens, ferritin nanoparticles, virus-like particles (“VLPs”), monoclonal antibodies (“mAbs”), Bi/Tri-specific antibodies, Fab antibody fragments, Fc-fusion proteins, as well as other therapeutic enzymes and proteins. The Company is involved in multiple funded research collaborations with animal and human pharmaceutical companies which are designed to leverage its C1 -cell protein production platform to develop innovative vaccines and drugs, biosimilars and/or biobetters. The Company also developed the Dapibus™ thermophilic filamentous fungal based microbial protein production platform to enable the rapid development and large-scale manufacture of low-cost proteins, metabolites, and other biologic products for use in non-pharmaceutical applications, such as food, nutrition, and wellness. Liquidity and Capital Resources The Company expects to incur losses and have negative net cash flows from operating activities as it continues developing its microbial platforms and related products, and as it expands its pipelines and engages in further research and development activities for internal products as well as for its third -party collaborators and licensees. The success of the Company depends on its ability to develop its technologies and products to the point of regulatory approval and subsequent revenue generation or through the sublicensing of the Company’s technologies and products, to raise capital to finance these developmental efforts. For the year ended December 31, 2023, the Company received $ 1.3 million from the sale of its equity interest in Alphazyme, LLC, and $ 600,000 upfront payment from a product development and licensing agreement. On March 8, 2024, the Company sold and 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 in reliance on the exemption from registration provided by Section 4 (a)( 2 ) of the Securities Act of 1933, as amended (the “Securities Act”). The purchasers of the Convertible Notes include 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 than 5% of the Company’s outstanding common stock, (collectively, the “Purchasers”). The Convertible Notes will be senior, secured obligations of Dyadic and its affiliates, and interest will be 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. The conversion price is $ 1.79 per share of the Common Stock, which is equal to 125 % of the trailing 30 -day VWAP of the Common Stock ending on the trading day immediately preceding the date of the securities purchase agreement. This private placement funding strengthened our financial position, and it will support our new-term revenue growth and accelerate our strategic objective of commercialization opportunities for pharmaceutical and non-pharmaceutical applications. The Company has received successful top-line results for the Phase 1 clinical trial of DYAI- 100, and we do not plan to continue Phase 2/3 clinical trials unless third -party funding is secured. 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 next twelve ( 12 ) months from the date of issuance of the financial statements contained in this Form 10 -K. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. In the event our financing needs are not able to be met by our existing cash, cash equivalents and investments, we would seek to raise additional capital through strategic financial opportunities that could include, but are not limited to, future public or private equity offerings, collaboration agreements, and/or other means. Any amounts raised may be used for the further development and commercialization of product candidates, and for other working capital purposes. There is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing shareholders. Basis of Presentation The accompanying audited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Dyadic consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold and/or control, directly or indirectly, more than 50% of the voting rights. All significant intra-entity transactions and balances have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The Company conducts business in one operating segment, which is identified by the Company based on how resources are allocated, and operating decisions are made. Management evaluates performance and allocates resources based on the Company as a whole. F- 8 Use of Estimates The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements. Concentrations and Credit Risk The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, investment securities, and accounts receivable. At times, the Company has cash, cash equivalents, and investment securities at financial institutions exceeding the Federal Depository Insurance Company (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”) insured limit on domestic currency and the Netherlands FDIC counterpart for foreign currency. The Company only deals with reputable financial institutions and has not experienced any losses in such accounts. For the years ended December 31, 2023 and 2022 , the Company’s revenue was generated from sixteen and fourteen customers, respectively. As of December 31, 2023 and 2022 , the Company’s accounts receivable was from thirteen and six customers, respectively. Significant customers are those that account for greater than 10% of the Company’s revenues. For the years ended December 31, 2023 and 2022 , two and three signifi cant customers accounted for approximately $ 1,150,000 or 45.2 % an d $ 1,811,000 or 67.5 % of r esearch and development revenue, 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 years ended December 31, 2023 and 2022 , the Company had six customers outside of the United Sates (i.e. European and Asian customers) that accounted for approximately $ 537,000 or 21.1 % and $ 586,000 or 21.8 % of total revenue, respectively. As of December 31, 2023 and 2022 , the Company had six and four customers outside of the United Sates (i.e. European and Asian customers) that accounted for approximately $ 213,000 or 45.6 % and $ 91,000 or 27.4 % of accounts receivable, respectively. The Company uses contract research organizations (“CROs”) to conduct its research projects and manage its clinical trial. For each of the years ended December 31, 2023 and 2022 , three CROs accounted for approximately $4,644,0 00 or 96.0 % and $ 5,575,000 or 97.9 % of total research services we purchased, respectively. As of December 31, 2023 , three CROs accounted for approximately $ 620,000 or 94.4 % of a ccounts payable. As of December 31, 2022 , three CROs accounted for approximately $ 1,018,000 or 79.7 % of accounts payable. The loss of business from any CRO or a combination of the Company’s CROs could adversely affect its operations. Cash and Cash Equivalents We treat highly liquid investments with original maturities of three months or less when purchased as cash equivalents, including money market funds, which are unrestricted for withdrawal or use. Investment Securities The Company’s investment policy requires investment securities to be investment grade and held to maturity with the primary objective to maintain a high degree of liquidity while maximizing yield. The Company invests excess cash balances in short-term and long-term investment grade securities. Short-term investment securities mature within twelve ( 12 ) months or less, and long-term investment securities mature over twelve ( 12 ) months from the applicable reporting date. Management determines the appropriate classification of each investment at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its investments in debt securities as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, net of allowance for credit losses if applicable, and adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized over the life of the related held-to-maturity security. When a debt security is purchased at a premium, both the face value of the debt and premium amount are reflected as investing outflow. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. The Company measures expected credit losses on held to maturity debt securities on an individual security basis. The estimate of expected credit losses considers historical credit information from external sources. The impairment of the investment that is related to the credit loss, if any, is expensed in the period in which the event or change occurred. As of December 31, 2023 and 2022 , 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 December 31, 2023 and 2022 . 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. F- 9 Accounts receivable are stated net of an allowance for credit losses, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions and changes in our customer collection trends. If necessary, an allowance for credit losses is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. Accounts receivable balances are written off against the allowance for credit losses when the potential for collectability is considered remote. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the next twelve ( 12 ) months. Management determined that no allowance for credit losses was required as of December 31, 2023 and 2022 . Accounts receivable consist of the following: December 31, 2023 2022 Billed receivable $ 410,617 $ 115,469 Unbilled receivable 55,542 214,532 $ 466,159 $ 330,001 Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: December 31, 2023 2022 Prepaid insurance $ 209,888 $ 265,429 Prepaid expenses - various 117,887 124,273 Prepaid taxes — 2,534 $ 327,775 $ 392,236 Accounts Payable Accounts payable consist of the following: December 31, 2023 2022 Research and development expenses $ 575,436 $ 1,067,958 Legal expenses 1,957 56,514 Other 79,052 151,841 $ 656,445 $ 1,276,313 Accrued Expenses Accrued expenses consist of the following: December 31, 2023 2022 Employee wages and benefits $ 561,720 $ 580,264 Research and development expenses 274,080 343,457 Legal expenses 210,004 — Other 11,360 31,360 $ 1,057,164 $ 955,081 Revenue Recognition The Company has no products approved for sale. All our revenue to date has been research revenue from third -party collaborations and government grants, as well as revenue from sublicensing agreements and collaborative arrangements, which may include upfront payments, options to obtain a license, payment for research and development services, milestone payments and royalties, in the form of cash or non-cash considerations (e.g., minority equity interest). F- 10 Revenue related to research collaborations and agreements: The Company typically performs research and development services as specified in each respective agreement on a best-efforts basis, and recognizes revenue from research funding under collaboration agreements in accordance with the 5 -step process outlined in ASC Topic 606 (“Topic 606” ): (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We recognize revenue when we satisfy a performance obligation by transferring control of the service to a customer in an amount that reflects the consideration that we expect to receive. Depending on how the performance obligation under our license and collaboration agreements is satisfied, we recognize the revenue either at a point in time or over time by using the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation. Under the input method, revenue will be recognized based on the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation. The Company believes that the cost-based input method is the best measure of progress to reflect how the Company transfers its performance obligation to a customer. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of full-time equivalent effort and third -party contract costs. Revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. Revenue related to grants: The Company may receive grants from governments, agencies, and other private and not -for-profit organizations. These grants are intended to be used to partially or fully fund the Company’s research collaborations . However, most, if not all, of such potential grant revenues, if received, is expected to be earmarked for third parties to advance the research required, including preclinical and clinical trials for SARS-CoV- 2 vaccines and/or antibodies candidates. Revenue related to sublicensing agreements: If the sublicense to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when technology is transferred to the customer and the customer can use and benefit from the license. Customer options: If the sublicensing agreement includes customer options to purchase additional goods or services, the Company will evaluate if such options are considered material rights to be deemed as separate performance obligations at the inception of each arrangement. Milestone payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price. If the milestone payment is in exchange for a sublicense and is based on the sublicensee’s subsequent sale of product, the Company recognizes milestone payment by applying the accounting guidance for royalties. To date, the Company has not recognized any milestone payment revenue resulting from any of its sublicensing arrangements. Royalties: With respect to licenses deemed to be the predominant item to which the sales-based royalties relate, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all 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. F- 11 Leases The Company determines if an arrangement is, or contains, a lease at contract inception and during modifications or renewal of existing leases. The Company does not recognize leases with terms of twelve months or less on the balance sheet. Options to extend or terminate a lease are not included in the Company’s initial lease term assessment, unless there is reasonable certainty that the Company will exercise any such option. Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. For operating leases, right-of-use assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses an estimated rate of interest that they would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease right-of-use asset also includes any lease payments made and excludes any lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s prior lease for its corporate headquarters located at 140 Intracoastal Pointe Dr. expired on August 31, 2023, and there was no right-of-use asset or lease liability recognized for this lease due to its short-term nature. In August 2023, the Company entered into a new lease ( “1044 N Lease”) comprising approximately 1,719 square feet of office space located at 1044 N US 1, Jupiter, Florida, commencing September 1, 2023 ( “Commencement Date”) and will expire on August 31, 2026. Rent is subject to three percent ( 3 %) annual increases, and the Company is responsible for certain common area maintenance charges and taxes throughout the life of the 1044 N Lease. The 1044 N Lease has an initial term of three ( 3 ) years, following the Commencement Date with an option to extend for two ( 2 ) successive one ( 1 ) year terms. The options were not included in the lease term used in determining the right-of-use asset or lease liability as the Company did not consider it reasonably certain they would exercise the options. For the years ended December 31, 2023 and 2022 , the Company’s total operating lease expense was approximately $ 72,000 and $ 58,000 , respectively. As of December 31, 2023 , the Company’s total operating lease liabilities was approximately $ 136,929 , which is presented net of imputed interest of $ 16,770 , and the operating lease right-of-use asset was approximately $ 141,439 . There were no operating lease liabilities or operating lease right-of-use assets as of December 31, 2022. As of December 31, 2023 , the weighted average remaining lease term was 2.7 years, and the weighted average discount rate was 8.8 %. Research and Development Costs Research and development (“R&D”) costs are expensed as incurred. R&D costs are related to 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, during the years ended December 31, 2023 and 2022 were as follows: Years Ended December 31, 2023 2022 Outside contracted services $ 2,677,941 $ 3,707,269 Personnel related costs 553,741 743,051 Facilities, overhead and other 65,584 51,045 $ 3,297,266 $ 4,501,365 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 – Quoted prices in active markets for identical assets or liabilities. • Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. The Company’s financial instruments included cash and cash equivalents, investment in debt securities, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, deferred research and development obligations and deposits. The carrying amount of these financial instruments, except for investment in debt securities, approximates fair value due to the short-term maturities of these instruments. The Company’s short-term and long-term investments in debt securities are recorded at amortized cost, and their estimated fair value amounts are provided by the third -party broker service for disclosure purposes. F- 12 Income Taxes The Company accounts for income taxes under the asset and liability method in accordance with ASC 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 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 ASC 740 related to the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 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 benefits, because it represents a company’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provision of ASC 740. Other Income For the year ended December 31, 2023 , other income of approximately $ 1,018,000 was related to the sale of the equity interest in Alphazyme, LLC. For the year ended December 31, 2022, other income of $ 250,000 was related to a settlement payment we received from the termination of term sheet of a proposed license and collaboration. 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 U.S. 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 (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 expense 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 shares outstanding during the reporting period. Diluted net loss per share adjusts the weighted average number of common stock outstanding for the potential dilution that could occur if common stock equivalents, such as stock options, warrants, restricted stock, restricted stock units and convertible debt, were exercised and converted into common stock, calculated by applying the treasury stock method. For the years ended December 31, 2023 and 2022 , the effect of the potential exercise of options to purchase 5,469,247 and 5,031,097 shares of common stock, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (the “ASU”) 2016 - 13, Financial Instruments — Credit Losses (Topic 326 ) : Measurement of Credit Losses on Financial Instruments . which replaces the incurred loss model with a forward-looking expected credit loss (“CECL”) model and requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses. ASU 2016 - 13 applies to financial assets, measured at amortized cost, including held-to-maturity debt securities and accounts receivable. ASU 2016 - 13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to members’ equity in the period of adoption. The Company adopted ASU 2016 - 13 and related amendments as of January 1, 2023, and the adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. F- 13 Recent Accounting Pronouncements Not Adopted as of December 31, 2023 In December 2023, the FASB issued Accounting Standards Update 2023 - 09 – Income Taxes (Topic ASC 740 ) 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 ASU 2023 - 09 will become effective beginning with our 2025 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not 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 Update 2023 - 07 – Segment Reporting (Topic ASC 280 ) 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 of other segment items by reportable segment and a description of the composition of other segment items , require annual disclosures under ASC 280 to be provided in interim periods, clarify use of more than one 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 ASC 280. ASU 2023 - 07 is effective for public business entities for fiscal years beginning after December 15, 2023, with early adoption permitted. We continue to evaluate these changes and do not expect that this guidance will have a material impact on our financial position, results of operations, or financial statement disclosures. Note 2: Cash, Cash Equivalent, 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 December 31, 2023 and 2022 : December 31, 2023 Gross Gross Level Unrealized Unrealized (1) Fair Value Holding Gains Holding Losses Adjusted Cost Cash and Cash Equivalents Cash $ 25,775 $ — $ — $ 25,775 Money Market Funds 1 6,489,253 — — 6,489,253 Subtotal 6,515,028 — — 6,515,028 Short-Term Investment Securities (2) Corporate Bonds (3) 2 748,105 — ( 185 ) 748,290 Total $ 7,263,133 $ — $ ( 185 ) $ 7,263,318 December 31, 2022 Gross Gross Level Unrealized Unrealized (1) Fair Value Holding Gains Holding Losses Adjusted Cost Cash and Cash Equivalents Cash $ 26,782 $ — $ — $ 26,782 Money Market Funds 1 5,767,490 — — 5,767,490 Subtotal 5,794,272 — — 5,794,272 Short-Term Investment Securities (2) Corporate Bonds (3) 2 6,800,062 — ( 47,208 ) 6,847,270 Total $ 12,594,334 $ — $ ( 47,208 ) $ 12,641,542 Notes: ( 1 ) Definition of the three -level fair value hierarchy: • 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 ) Short-term investment securities will mature within 12 months or less, from the applicable reporting date. ( 3 ) For the years ended December 31, 2023 and 2022 , the Company received discounts of $ 39,012 and $ 6,280 to purchase held-to-maturity investment securities, respectively. The Company considers 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 December 31, 2023 , the Company does not consider any of its investments to be other-than-temporarily impaired. F- 14 Note 3: Research and Collaboration Agreements, Sublicense Agreements, and Investments in Privately Held Companies 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. Under the terms of the 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 and an additional payment payable upon the first commercial sale of product. Dyadic will also be eligible to receive success fees upon the achievement of certain target yields, milestone payments upon the first commercial sale of each product and royalties. In October 2023, the Company received the 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 of first refusal for certain product candidates. For the year ended December 31, 2023 , the Company recorded research and development revenues of approximately $ 110,000 , in connection with 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 candid ates. As of December 31, 2023, th e GFIC has completed its one -year funding commitment for the initial phase of research collaboration in an amount approximatin g $1.35 million, and, pu rsuant to the GFIC’s rights under the JDA, the Company and the GFIC are conferring to decide whether or not, and if it is possible, to move forward to the next phase of the project. The Company is also considering other funding sources to continue the project. For the years ended December 31, 2023 and 2022 , the Company recorded research and development revenues, including milestone payments, of approximate ly $ 631,000 and $ 790,000 , respectively, in c onnection with the JDA. Phibro/Abic On February 10, 2022, the Company entered into an exclusive sub-license agreement with Abic Biological Laboratories Ltd. (“Abic”), an affiliate of Phibro Animal Health Corporation (“Phibro”) to provide services for a targeted disease (the “Phibro/Abic Agreement”). The Phibro/Abic Agreement was an addendum to the initially non-exclusive sub-license agreement the Company signed with Phibro on July 1, 2020. According to the Phibro/Abic Agreement, the Company received an exclusivity payment in April 2022. Since then, the Company has expanded the license agreement to include additional research projects to develop animal vaccines for livestock. Under the Phibro/Abic Agreement, the Company has received an exclusivity payment in April 2022 and is eligible to receive certain milestone payment upon regulatory approval, and future sales-based royalty payments. The milestone payment is considered constrained variable consideration and excluded from the transaction price at inception . The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company will not recognize revenue related to sales-based royalty until the associated event occurs. As of December 31, 2023 , there were no events or circumstances that would change the transaction price and no milestone or royalty payments have been recognized. 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 its C1 -cell protein production platform with Janssen Biotech, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”). On October 2, 2 023, 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 the years ended December 31, 2023 and 2022 , the Company recognized approximately $ 353,000 and $ 176,000 license revenue and research and development revenues of approximat ely $ 520,000 and $ 539,000 , resp ectively, in connection with the Janssen Agreement. As of December 31, 2023 and 2022 , approximately $ 145,000 an d $ 121,000 of accounts receivable were related to Janssen, respectively. Alphazyme In 2019 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 is not the primary beneficiary of Alphazyme as Dyadic does not have the power to control or direct the activities of Alphazyme that most significantly impact the VIE. As a result, the Company does not consolidate its investment in Alphazyme. The Company reports its investment in Alphazyme under the cost method of accounting, given that it does not have the ability to exercise significant influence or control over Alphazyme. F- 15 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 milestone and royalty payments upon the commercialization of Alphazyme products using Dyadic’s proprietary C1 -cell protein production platform. For the year ended December 31, 2023, the Company received a total cash payment of approximately $ 1.3 million from the sale of its equity interest in Alphazyme, LLC. Note 4: Income Taxes For the year ended December 31, 2023 , there was no provision for income taxes or unrecognized tax benefits recorded. The significant components of gain (loss) before income taxes are as follows: Years Ended December 31, 2023 2022 U.S. operations $ ( 6,766,409 ) $ ( 9,828,427 ) Foreign operations ( 29,052 ) 93,169 Total loss before provision for income taxes $ ( 6,795,461 ) $ ( 9,735,258 ) The Company has no current or deferred income tax for the years ended December 31, 2023 and 2022 . The income tax provision differs from the expense amount that would result from applying the federal statutory rates to income before income taxes due to permanent differences, state income taxes and a change in the deferred tax valuation allowance. The reconciliation between the statutory tax rate and the Company’s actual effective tax rate is as follows: Years Ended December 31, 2023 2022 Tax at U.S. statutory rate ( 21.00 )% ( 21.00 )% State taxes, net of federal benefit ( 4.19 ) ( 4.35 ) Non-deductible items 0.76 — Change in valuation allowance 14.54 24.77 True-up adjustment 10.00 0.34 Foreign operations ( 0.11 ) 0.24 Change in tax rate — — Other — — Effective income tax rate — % — % The significant components of the Company’s net deferred income tax assets are as follows: December 31, 2023 2022 Section 174 - R&D expenses $ 1,769,000 $ 1,046,400 Stock option expense 1,419,300 1,341,900 NOL carryforward 11,620,700 11,524,900 Research and development credits 1,503,600 1,623,100 Operating lease liability 34,700 — Right-of-use asset ( 35,800 ) — Other 134,800 ( 78,200 ) Deferred tax asset, net of deferred tax liabilities 16,446,300 15,458,100 Valuation allowance ( 16,446,300 ) ( 15,458,100 ) Net deferred tax asset $ — $ — Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, Management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on Management’s evaluation, the net deferred tax asset, was offset by a full valuation allowance as of December 31, 2023 and 2022. F- 16 The Company had federal and state net operating loss (“NOL”) carryforwards available as of December 31, 2023, and 2022, in the amount of approximately $ 45.9 million and $ 44.0 million, respectively. Approximately $ 42.9 million of the federal net operating loss carryforwards will be carried forward indefinitely and will be available to offset 80 % of taxable income. The remaining amount of the net operating loss carryforwards will expire at varying dates through 2037. In addition, the Company had foreign net operating loss carryforwards available as of December 31, 2023, and 2022, in the amounts of approximately $ 1.4 million and $ 1.4 million. These foreign net operating loss carryforwards will begin to expire, if unused, in various amounts between 2025 and 2027. The Tax Cuts and Jobs Act eliminated the current year deduction election for research and experimental expenditures. Instead, a taxpayer must charge such expenditures to a capital account and is allowed to amortize such expenditures ratably over a five -year period (or fifteen -year period for expenditures attributable to foreign research), beginning with the midpoint of the tax year in which such expenditures are paid or incurred. Note 5: Commitments and Contingencies Leases Jupiter Florida Headquarters In August 2023, the Company entered into a new lease comprising approximately 1,719 square feet of office space located at 1044 N US 1, Jupiter, Florida, commencing September 1, 2023, and will expire on August 31, 2026. The Company occupies this space for an annual rental rate of approximately $ 59,000 . 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 $ 4,800 . The lease expires on January 31, 2025, and thereafter, the Company will reconsider the leased space to a lign with the future operations of the Company. As of December 31, 2023 , the future minimum annual lease payments under the operating leases are below. There are no future minimum annual lease payments after 2026. 2024 $ 53,361 2025 59,901 2026 35,638 Total $ 148,900 Purchase Obligations Purchase obligations are primarily related to our contracts with the Company’s contract research organizations to provide certain research services. The contracts set forth the Company’s minimum purchase requirements that are subject to adjustments based on certain performance conditions. The commitments related to agreements to purchase certain services in the ordinary course of business, as of December 31, 2023 is approximately $ 932,000 . All current contracts expire in 2024. VTT Research Contract Extension On January 31, 2024, the Company entered into the Third Amendment to the commission contract concerning VTT Technical Research Centre of Finland Ltd. (“VTT”) to develop Dyadic’s C1 fungal expression system for ther apeutic 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 is extended to January 31, 2025 and Dyadic will pay VTT approximately a total of EUR €186,000 to continue developing Dyadic’s C1 -cell protein production platform for therapeutic protein production, including C1 host system. Dyadic retains the right to terminate the contract with 90 days’ notice. F- 17 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 6: Share-Based Compensation Description of Equity Plans The 2021 Equity Incentive Award Plan (the “2021 Plan”) was adopted by the Company's Board of Directors on April 9, 2021, and approved by the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) on June 11, 2021. The 2021 Plan serves as a successor to the Company’s 2011 Equity Incentive Plan (the “2011 Plan”). Since the adoption of the 2021 Plan, all equity awards were made from the 2021 Plan and no additional awards will be granted under the 2011 Plan. The 2021 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, the 2021 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 the 2011. As of December 31, 2023 , the Company had 5,469,247 stock options outstanding and an additio nal 2,773,406 share s of common stock available for grant under the 2021 Plan. As of December 31, 2022 , there were 5,031,097 stock options outstanding and an additional 3,672,561 shares of common stock available for grant under the 2021 Plan. Stock Options Options are granted to purchase common stock at prices that are equal to the fair value of the common stock on the date the option is granted. Vesting is determined by the Board of Directors at the time of grant. The term of any stock option awards under the Company’s 2011 Plan and 2021 Plan is ten years, except for certain options granted to the contractors which are either one or three years. The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite service period, which is generally the vesting period, for each separately vesting portion of the award as if the award was, in substance, multiple awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the following: Risk-free interest rate . The risk-free interest rate is based on U.S. Treasury rates with securities approximating the expected lives of options at the date of grant. Expected dividend yield . The expected dividend yield is zero, as the Company has never paid dividends to common shareholders and does not currently anticipate paying any in the foreseeable future. Expected stock price volatility. The expected stock price volatility was calculated based on the Company’s own volatility. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities. 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 contract ors (i.e., 1 or 3 years). The assumptions used in the Black-Scholes option pricing model for stock options granted for the years ended December 31, 2023 and 2022 are as follows: Years Ended December 31, 2023 2022 Risk-free interest rate 3.90% -5.12% 1.40 % - 3.24 % Expected dividend yield —% —% Expected stock price volatility 62.22 % - 64.27 % 61.30 % - 61.58 % Expected life of options (in years) 1.13 -6.25 5.5 - 6.25 F- 18 The following table summarizes the combined stock option activity under the Company’s Equity Compensation Plans: Weighted- Average Weighted- Remaining Aggregate Average Contractual Intrinsic Shares Exercise Price Term (Years) Value Outstanding at December 31, 2021 4,774,215 $ 3.04 6.14 $ 8,413,444 Granted 865,825 4.43 Exercised ( 333,943 ) 1.63 Expired ( 200,000 ) 5.47 Canceled ( 75,000 ) 4.81 Outstanding at December 31, 2022 5,031,097 $ 3.25 5.75 $ 13,000 Granted (1) 805,350 1.45 Exercised — — Expired (2) ( 351,520 ) 1.71 Canceled (3) ( 15,680 ) 3.50 Outstanding at December 31, 2023 5,469,247 $ 3.08 5.66 $ 322,738 Exercisable at December 31, 2023 4,160,298 $ 3.15 4.81 $ 161,427 Notes: ( 1 ) Represents the following stock options granted: • Annual share-based compensation awards on January 3, 2023, including: (a) 406,250 stock options with an exercise price of $ 1.38 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 262,500 stock options with an exercise price of $ 1.38 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 24,100 stock options with an exercise price of $ 1.38 per share granted to employees, vesting annually in equal installments over four years, and (d) 15,000 stock options with an exercise price of $ 1.38 per share granted to a consultant, vesting upon one year anniversary. • Throughout the year the following stock options were granted: (a) on May 30, 2023, 37,500 stock options with an exercise price of $ 2.23 per share granted to a consultant, vesting over two months from the grant date, (b) on September 15, 2023, 55,000 stock options with an exercise price of $ 1.75 per share granted to a consultant, vesting over a year and half from the grant date, and (c) on October 23, 2023, 5,000 stock options with an exercise price of $ 1.66 per share granted to an employee vesting annually in equal installments over four years. ( 2 ) Represents the following stock options expired: • 27 0,000 stock options with an exercise price of $ 1.39 per share granted to executive, (b) 25,000 stock options with an exercise price of $ 3.99 per share granted to a consultant, (c) 25,000 stock options with an exercise price of $ 1.75 per share granted to a member of the Board of Directors, (d) 31,520 stock options with an exercise price ranging between $ 1.39 and $ 5.27 per share granted to a former employee. ( 3 ) Represents the cancellation of unvested portion of the stock options granted previously to a former employee with exercise price ranging between $ 1.39 to $ 5.27 . The weighted average grant-date fair market value of stock options granted for the years ended December 31, 2023 and 2022 was $ 0.81 and $ 2.49 , respectively, based on the Black-Scholes option pricing model. The intrinsic value of options exercised for the years ended December 31, 2023 and 2022 was $ 0 and $ 365,000 , respectively. As of December 31, 2023 and 2022 , total unrecognized compensation cost related to non-vested stock options granted under the Company’s equity compensation plans was $ 559,121 and $ 919,000 , respectively, which is expected to be recognized over a weighted average period of 2.68 years and 2.76 years, respectively. The Company adjusts unrecognized compensation cost for actual forfeitures as they occur. 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 during the year ended December 31, 2023 : Weighted-Average Grant Date Shares Fair Value Outstanding at December 31, 2022 — $ — Granted (1) 461,005 1.38 Vested (1) ( 247,961 ) 1.38 Outstanding at December 31, 2023 213,044 $ 1.38 Notes: ( 1 ) On January 3, 2023, the Company granted 247,961 RSUs with immediate vesting, to executives and key personnel in lieu of cash bonuses earned for the year ended 2022. The Company also granted 163,044 RSUs, vesting upon one year anniversary of the grant, to the Board of Directors as a result of the Board agreeing to a reduction in director cash compensation for 2023. On December 6, 2023, the Company granted 50,000 RSUs to a consultant, vesting at the end of the service period. F- 19 Compensation Expenses We recognize all share-based payments to employees, consultants, and our Board, as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations, and these charges had no impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur. For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date. There was no performance-based award recognized during the years ended December 31, 2023 and 2022 . Total non-cash stock option compensation expense was allocated among the following expense categories: Years Ended December 31, 2023 2022 General and administrative $ 1,201,027 $ 1,661,025 Research and development 43,094 227,919 Total $ 1,244,121 $ 1,888,944 The following table summarizes the Company’s non-cash share-based compensation expenses: Years Ended December 31, 2023 2022 Share based compensation expense- stock options $ 1,004,054 $ 1,888,944 Share based compensation expense- restricted stock units 240,067 — Total $ 1,244,121 $ 1,888,944 Note 7: Shareholders’ Equity Issuances of Common Stock For the year ended December 31, 2023 , there were 247,961 shares 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. For the year ended December 31, 2022, there were 333,943 shares of the Company’s common stock issued resulting from the exercise of stock options, with a weighted average issue price of $ 1.63 per share. Treasury Stock As of December 31, 2023 , and 2022 , 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. Note 8: Subsequent Events For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through March 28, 2024 , the date the consolidated financial statements were available to be issued. Except for items mentioned in the notes, and as discussed below, management is not aware of any material events that have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in the accompanying financial statements. 2024 Annual Grants On January 2, 2024, the Company granted an annual stock option award with an exercise price of $ 1.59 , including: (a) 387,500 stock options granted to executives and key personnel, vesting upon one year anniversary, or annually in equal installments over four years, (b) 352,500 stock options granted to members of the Board of Directors, vesting upon one year anniversary, (c) 17,600 stock options granted to employees, vesting annually in equal installments over four years, and (d) 15,000 stock options granted to a consultant, vesting upon one year anniversary. On January 2, 2024, the Company grant ed 141,510 restricted stock units , vesting upon one year anniversary, to the Board of Directors as a result of reduction in director cash compensation of 2024. The grant of these RSUs has been approved by the Compensation Committee of the Board of Directors in December 2023. On March 11, 2024, the Compensation Committee of the Board of Directors approved and granted an aggregate of 212,709 restricted stock units, vested in full, to executives and key personnel in lieu of cash bonus earned for the year ended December 31, 2023. F- 20 Senior Secured Convertible Promissory Notes On March 8, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company issued 8.0 % Senior Secured Convertible Promissory Notes due March 8, 2027 in an aggregate principal amount of $ 6.0 million (the “Convertible Notes”). The purchasers of the Convertible Notes include 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 U/A/D February 28, 1996, an existing holder of more than 5% of our outstanding common stock, (collectively, the “Purchasers”). The Convertible Notes were sold in a private placement in reliance on the exemption from registration provided by Section 4 (a)( 2 ) of the Securities Act of 1933, as amended. The net proceeds from the sale of the Convertible Notes, after deducting offering expenses, will be approximately $ 5,850,000 . 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 will be senior, secured obligations of the Company and its affiliates, and interest will be payable quarterly in cash on the principal amount equal to 8 % per annum, and guaranteed by 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 will mature on March 8, 2027 , unless earlier converted or redeemed in accordance with the terms of the Convertible Notes. The Convertible Notes are secured by a first priority lien on substantially all assets of the Company and its subsidiary, Dyadic International (USA), Inc., pursuant to the Security Agreement (as defined below). 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 an initial conversion price of $ 1.79 per share of common stock, subject to adjustment in certain circumstances; provided that the Company shall not effect any Conversion of a Note and the Holder thereof shall not have any right to convert any portion of such Note to the extent that, after giving effect to such conversion, such Holder would beneficially own shares of the company in excess of the limits provided in the applicable Convertible Notes; provided further that the Company shall not issue any common stock pursuant to the terms of the Convertible Notes if such issuance would exceed 19.99% of the Company’s issued and outstanding Common Stock on date of the Purchase Agreement or otherwise exceed the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of Nasdaq. The Holders may require the Company to redeem all or any part of the Convertible Notes on a redemption date falling on any of the 18, 21, 24, 27, 30, and 33 -month anniversaries of the original issue date of the Convertible Notes (any such date, a “Redemption Date”) upon not less than 60 calendar days written notice prior to the applicable Redemption Date. The Company may also elect to redeem all or any part of the Convertible Notes on a Redemption Date upon not less than 60 calendar days written notice prior to the applicable Redemption Date. The Convertible Notes contain customary terms and covenants and customary events of default ("Events of Default”). Upon the occurrence of any Event of Default, at the Holder’s election, the outstanding principal amount of the applicable Convertible Notes, plus accrued but unpaid interest, liquidated damages, and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable. After the occurrence of any Event of Default that results in the eventual acceleration of any Note, the interest rate on such Note shall accrue at an interest rate equal to 18 % per annum (with a credit for any “unused” guaranteed interest). The Securities Purchase Agreement also contains certain affirmative and negative covenants (including, without limitation, restrictions on our ability to incur indebtedness, permit liens, make dividends or certain debt payments or consummate certain affiliate transactions) and customary representations and warranties of the Company and the Purchasers, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties. The Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to register under the Securities Act any common stock of the Company issuable upon conversion of the Convertible Notes. The Company also entered into a security agreement (the “Security Agreement”) with the Purchasers, pursuant to which the Company granted the Purchasers a continuing security interest in certain collateral to secure the full and prompt payment, performance and observance of all present and future indebtedness, obligations, liabilities and agreements of any kind of the Company to the Purchasers arising under or in connection with the Convertible Notes. Dyadic International (USA), Inc., a subsidiary of the Company (the “Guarantor”) also entered into a subsidiary guarantee (the “Subsidiary Guarantee”) with the Purchasers, pursuant to which the Guarantor has guaranteed to the Purchasers the prompt and complete payment and performance when due of the obligations under the Securities Purchase Agreement. F-21