• Filing Date: 2019-08-13
  • Form Type: 10-Q
  • Description: Quarterly report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 12, 2019
Document and Entity Information [Abstract]    
Entity Registrant Name DYADIC INTERNATIONAL INC  
Entity Central Index Key 0001213809  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   27,111,157
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Current Reporting Status Yes  
Entity Shell Company false  
v3.19.2
CONSOLIDATED BALANCE SHEETS - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 4,781,520 $ 2,386,314
Short-term investment securities 32,104,149 38,816,441
Interest receivable 399,242 294,240
Accounts receivable 504,510 318,744
Income tax receivable 0 506,866
Prepaid research and development 98,924 253,446
Prepaid expenses and other current assets 112,136 172,001
Total current assets 38,000,481 42,748,052
Non-current assets:    
Long-term investment securities 1,516,670 0
Long-term income tax receivable 500,616 500,616
Other assets 51,575 52,139
Total assets 40,069,342 43,300,807
Current liabilities:    
Accounts payable 963,264 309,060
Accrued expenses 396,041 399,576
Deferred research and development obligations 90,572 141,002
Total current liabilities 1,449,877 849,638
Commitments and contingencies (See Note 4)
Stockholders' equity:    
Preferred stock 0 0
Common stock 39,365 38,967
Additional paid-in capital 95,424,178 94,385,230
Treasury stock, shares held at cost (18,929,915) (18,929,915)
Accumulated deficit (37,914,163) (33,043,113)
Total stockholders’ equity 38,619,465 42,451,169
Total liabilities and stockholders’ equity $ 40,069,342 $ 43,300,807
v3.19.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value (USD per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized (in shares) 5,000,000 5,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (USD per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 100,000,000 100,000,000
Common stock, shares issued (in shares) 39,364,659 38,966,988
Common stock, shares outstanding (in shares) 27,111,157 26,713,486
Treasury stock (in shares) 12,253,502 12,253,502
v3.19.2
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues:        
Research and development revenue $ 390,874 $ 161,286 $ 793,401 $ 345,616
Costs and expenses:        
Costs of research and development revenue 322,228 129,116 650,131 275,925
Research and development 818,240 601,199 1,510,610 1,178,083
Research and development - related party 336,310 340,849 725,783 733,398
General and administrative 1,870,678 921,542 3,298,745 2,214,539
Foreign currency exchange loss (gain), net 4,932 (15,198) 10,966 (10,358)
Total costs and expenses 3,352,388 1,977,508 6,196,235 4,391,587
Loss from operations (2,961,514) (1,816,222) (5,402,834) (4,045,971)
Interest income 265,722 219,585 532,684 406,042
Loss before income taxes (2,695,792) (1,596,637) (4,870,150) (3,639,929)
Provision for income taxes 0 0 900 0
Net loss $ (2,695,792) $ (1,596,637) $ (4,871,050) $ (3,639,929)
Basic and diluted net loss per common share (USD per share) $ (0.10) $ (0.06) $ (0.18) $ (0.13)
Basic and diluted weighted-average common shares outstanding (in shares) 26,828,754 28,060,811 26,771,439 28,109,756
v3.19.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($)
Total
Common Stock
Treasury Stock
Additional paid-in capital
Accumulated deficit
Beginning balance at Mar. 31, 2018 $ 47,826,748 $ 38,937 $ (17,000,693) $ 94,183,153 $ (29,394,649)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Stock-based compensation 73,425     73,425  
Net loss (1,596,637)       (1,596,637)
Ending balance at Jun. 30, 2018 $ 46,303,536 $ 38,937 $ (17,000,693) 94,256,578 (30,991,286)
Beginning balance (in shares) at Dec. 31, 2018 38,966,988 38,966,988 (12,253,502)    
Beginning balance at Dec. 31, 2018 $ 42,451,169 $ 38,967 $ (18,929,915) 94,385,230 (33,043,113)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Stock-based compensation 309,563     309,563  
Net loss (2,175,258)       (2,175,258)
Ending balance at Mar. 31, 2019 $ 40,585,474 $ 38,967 $ (18,929,915) 94,694,793 (35,218,371)
Beginning balance (in shares) at Dec. 31, 2018 38,966,988 38,966,988 (12,253,502)    
Beginning balance at Dec. 31, 2018 $ 42,451,169 $ 38,967 $ (18,929,915) 94,385,230 (33,043,113)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Stock-based compensation $ 890,166     890,166  
Exercise of stock options (in shares) 533,500 397,671      
Exercise of stock options $ 149,180 $ 398   148,782  
Net loss $ (4,871,050)       (4,871,050)
Ending balance (in shares) at Jun. 30, 2019 39,364,659 39,364,659 (12,253,502)    
Ending balance at Jun. 30, 2019 $ 38,619,465 $ 39,365 $ (18,929,915) 95,424,178 (37,914,163)
Beginning balance at Mar. 31, 2019 40,585,474 $ 38,967 $ (18,929,915) 94,694,793 (35,218,371)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Stock-based compensation 580,603     580,603  
Net loss $ (2,695,792)       (2,695,792)
Ending balance (in shares) at Jun. 30, 2019 39,364,659 39,364,659 (12,253,502)    
Ending balance at Jun. 30, 2019 $ 38,619,465 $ 39,365 $ (18,929,915) $ 95,424,178 $ (37,914,163)
v3.19.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities    
Net loss $ (4,871,050) $ (3,639,929)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stock-based compensation expense 890,166 343,021
Amortization of held-to-maturity securities, net 90,785 492,398
Foreign currency exchange loss (gain), net 10,966 (10,358)
Changes in operating assets and liabilities:    
Interest receivable (105,002) 30,360
Accounts receivable (189,246) 265,121
Income tax receivable 506,866 0
Prepaid research and development 154,522 448,785
Prepaid expenses and other current assets 59,867 (14,973)
Accounts payable 665,126 (275,745)
Accrued expenses (3,535) 44,491
Deferred research and development obligation (50,430) 41,815
Income taxes payable 0 (102,000)
Net cash used in operating activities (2,840,965) (2,377,014)
Cash flows from investing activities    
Purchases of held-to-maturity investment securities (23,571,163) (30,320,705)
Proceeds from maturities of investment securities 28,676,000 30,507,000
Net cash provided by investing activities 5,104,837 186,295
Cash flows from financing activities    
Repurchases of common stock 0 (374,820)
Proceeds from exercise of options 149,180 0
Net cash provided by (used in) financing activities 149,180 (374,820)
Effect of exchange rate changes on cash (17,846) (1,989)
Net increase (decrease) in cash and cash equivalents 2,395,206 (2,567,528)
Cash and cash equivalents at beginning of period 2,386,314 5,786,348
Cash and cash equivalents at end of period 4,781,520 3,218,820
Supplemental cash flow information    
Cash received from income tax refund $ 506,866 $ 102,000
v3.19.2
Organization and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
Description of Business
Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our” or the “Company”) is a global biotechnology platform company based in Jupiter, Florida with operations in the United States, a satellite office in the Netherlands and research organizations performing services under contract to Dyadic in Finland and Spain. Over the past two decades, the Company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins, and has previously licensed this technology to third parties, such as Abengoa Bioenergy, BASF, Codexis and others, for use in industrial (non-pharmaceutical) applications. This technology is based on the Myceliophthora thermophila fungus, which the Company named C1. The C1 technology is a robust and versatile fungal expression system for the development and production of enzymes and other proteins.
On December 31, 2015, the Company sold its industrial technology business to DuPont Danisco (“DuPont”), the industrial biosciences business of DuPont (NYSE: DD) for $75 million (the “DuPont Transaction”). As part of the DuPont Transaction, Dyadic retained co-exclusive rights to the C1 technology for use in all human and animal pharmaceutical applications, and currently has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions). DuPont retained certain rights to utilize the C1 technology in pharmaceutical applications, including the development and production of pharmaceutical products, for which it will be required to make royalty payments to Dyadic upon commercialization. In certain circumstances, Dyadic may owe a royalty to either DuPont or certain licensors of DuPont, depending upon whether Dyadic elects to utilize certain patents either owned by DuPont or licensed in by DuPont.
After the DuPont Transaction, the Company has been focused on the biopharmaceutical industry, specifically in further improving and applying the proprietary C1 technology into a safe and efficient gene expression platform to help accelerate the development, lower production costs and improve the performance of biologic vaccines and drugs at flexible commercial scales. We believe that the C1 technology could be beneficial in the development and manufacturing of human and animal vaccines (such as virus-like particles (VLPs) and antigens), monoclonal antibodies (mAbs), Bi-Specific antibodies, Fab antibody fragments, Fc-Fusion proteins, metabolites, and other therapeutic enzymes and proteins.
Effective April 17, 2019, our common stock began trading on the NASDAQ Stock Market LLC’s NASDAQ Capital Market, under the symbol “DYAI”. Prior to the Company’s uplisting to the NASDAQ, the Company’s common stock traded on the OTCQX market.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, including the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. All significant intra-entity transactions and balances have been eliminated in consolidation. The Company has reclassified certain 2018 amounts previously reported to conform to the 2019 consolidated financial statement presentation. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2018, included in our Form 10-K which was filed with the SEC on March 27, 2019.
In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Since concluding the DuPont Transaction, the Company has conducted business in 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.
Use of Estimates
The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.
Concentrations
The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, and investment securities. 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 three months ended June 30, 2019 and 2018, the Company’s revenue was generated from four and two customers, respectively. For the six months ended June 30, 2019 and 2018, the Company’s revenue was generated from seven and three customers, respectively. As of June 30, 2019 and December 31, 2018, the Company’s accounts receivable was from three and four customers, respectively. The loss of business from one or a combination of the Company’s customers could adversely affect its operations.
The Company conducts operations in the Netherlands through its foreign subsidiary and generates a portion of its revenues from customers that are located outside of the United States. For the three and six months ended June 30, 2019, the Company had two customers outside of the United States (i.e. European customers) that accounted for approximately 73.3% or $287,000 and 71.5% or $567,000 of total revenue, respectively. For the three and six months ended June 30, 2018, 100% of the Company’s revenue was from the United States.
As of June 30, 2019, the Company had one customer outside of the United States that accounted for approximately 80.0% or $404,000 of accounts receivable. As of December 31, 2018, 100% of the Company’s accounts receivable was from the United States.
Cash and Cash Equivalents
We treat highly liquid investments with original maturities of three months or less when purchased as cash equivalents, including money market funds, which are unrestricted for withdrawal or use.
Investment Securities
The Company invests excess cash balances in short-term and long-term investment grade securities. Short-term investment securities mature within 12 months or less, and long-term investment securities mature between 12 and 18 months from the applicable reporting date. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company’s investments in debt securities have been classified and accounted for as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized over the life of the related held-to-maturity security. When a debt security is purchased at a premium, both the face value of the debt and premium amount are reflected as investing outflow. Other-than-temporary impairment charges, if incurred, will be included in other income (expense).
The Company’s investments in money market funds have been classified and accounted for as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets. As of June 30, 2019 and December 31, 2018, 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 June 30, 2019 or December 31, 2018.
Accounts Receivable
Accounts receivable consist of billed receivables currently due from customers and unbilled receivables. Unbilled receivables represent the excess of contract revenue (or amounts reimbursable under contracts) over billings to date. Such amounts become billable in accordance with the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.
Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the next twelve months. There was no allowance for doubtful accounts as of June 30, 2019 and December 31, 2018.
Accounts receivable consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Billed receivable
$
360,512

 
$
193,065

Unbilled receivable
143,998

 
125,679

 
$
504,510

 
$
318,744


Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Prepaid expenses - various
$
103,030

 
$
91,725

Prepaid insurance
8,214

 
77,249

Prepaid taxes
892

 
3,027

 
$
112,136

 
$
172,001


Equity Method Investment
The Company follows Accounting Standards Codification (“ASC”) Subtopic 323-10, Investments - Equity Methods and Joint Ventures, which requires the accounting for investments where the Company can exercise significant influence, but not control of a joint venture or equity investment. See Note 3 for the Company’s investments recorded under the equity method of accounting.
Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Accounts Payable
Accounts payable consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Research and development expenses
$
753,629

 
$
240,064

Legal expenses
82,018

 

Other
127,617

 
68,996

 
$
963,264

 
$
309,060


Accrued Expenses
Accrued expenses consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Employee wages and benefits
$
258,616

 
$
268,287

Research and development expenses
90,085

 
49,666

Other
47,340

 
81,623

 
$
396,041

 
$
399,576



Revenue Recognition
The Company has no pharmaceutical products approved for sale at this point, and all of our revenue to date has been research revenue from third party collaborations and government grants. The Company is expected to generate future revenue from license agreements and collaborative arrangements, which may include upfront payments for licenses or options to obtain a license, payment for research and development services and milestone payments, in the form of cash or non-cash considerations (e.g., minority equity interest).
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. Since the performance obligation under our collaboration agreements is generally satisfied over time, we elected to use the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.
Under the input methods, revenue will be recognized on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation. The Company believes that the cost-based input method is the best measure of progress to reflect how the Company transfers its performance obligation to a customer. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of full-time equivalent effort and third-party 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 sublicensing agreements: If the sublicense to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when technology is transferred to the customer and the customer is able to use and benefit from the license.
Milestone payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price. If the milestone payment is in exchange for a sublicense and is based on the sublicensee’s subsequent sale of product, the Company recognizes milestone payment by applying the accounting guidance for royalties. To date, the Company has not recognized any milestone payment revenue resulting from any of its sublicensing arrangements.
Royalties: With respect to licenses deemed to be the predominant item to which the sales-based royalties relate, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its sublicensing arrangements.
We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred research and development obligations), as appropriate. If upfront fees or considerations related to sublicensing agreement are received prior to the technology transfer, the Company will record the amount received as deferred revenue from licensing agreement.
The Company adopted the following practical expedients and exemptions: We generally expense sales commissions when incurred because the amortization period would be one year or less. We do not 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.
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, including related party, during the three and six months ended June 30, 2019 and 2018 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 

 

 

 

Outside contracted services
$
658,499

 
$
481,335

 
$
1,243,986

 
$
950,892

Contracted services - related party
336,310

 
340,849

 
725,783

 
733,398

Personnel related costs
122,290

 
95,558

 
217,052

 
190,548

Facilities, overhead and other
37,451

 
24,306

 
49,572

 
36,643

 
$
1,154,550

 
$
942,048

 
$
2,236,393

 
$
1,911,481


Foreign Currency Transaction Gain or Loss
The Company’s foreign subsidiary uses the U.S. dollar as its functional currency, and it initially measures 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.

Certain assets and liabilities on the balance sheets are measured at carrying values, which approximate fair values due to the short-term nature of these balances. Such items include cash and cash equivalents, accounts receivable, accounts payable, prepaid expenses, and accrued expenses. 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.
The Company utilized various methods, including income, cost and market approaches to determine the fair value of its investments in equity interest, which may fall into Level 3 of the fair value hierarchy because of the significant unobservable inputs utilized in these valuation approaches. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Our key inputs included, but were not limited to, significant management judgments and estimates, including projections of the timing and amount of the project’s cash flows, determination of a discount rate for the income approach, market multipliers, probability weighting of potential outcomes of legal and regulatory proceedings, and weighting of the valuations produced by the income, cost and market approaches.
Income Taxes
The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and became effective January 1, 2018. The TCJA contains several key provisions, including a reduction in the U.S. Federal corporate income tax rate from 35% to 21% and a change to the corporate alternative minimum tax (“AMT”). The TCJA’s reduction in the U.S. statutory tax rate had no additional impact on the consolidated financial statement for the year ended December 31, 2018.
The TCJA eliminated the corporate AMT and permits existing AMT credit carryforwards to be used to reduce the regular tax obligation in 2018, 2019, and 2020. Any AMT credit carryforwards that do not reduce regular taxes are eligible for a 50% refund in 2018 through 2020, and a 100% refund in 2021. Accordingly, we reclassified the balance of the AMT credit from the deferred tax asset to an income tax receivable in 2018. The corresponding balance in the valuation allowance has been reversed into income tax benefit in the amount of $1,001,233. As of June 2019, we have received 50% or $0.5 million refund for tax year 2018 and expect to receive the remaining 50% for tax years 2019 through 2021.
For the six months ended June 30, 2019, the Company recorded a provision for income taxes of $900. There were no unrecognized tax benefits as of June 30, 2019 and December 31, 2018.
Deferred tax assets as of June 30, 2019 and December 31, 2018 were approximately $5.7 million and $4.6 million, respectively. Due to the Company’s history of operating losses and the uncertainty regarding our ability to generate taxable income in the future, the Company has established a 100% valuation allowance against deferred tax assets as of June 30, 2019 and December 31, 2018.
On June 20, 2019, the Company received a letter from the United States Internal Revenue Service (the “IRS”) informing the Company that its 2016 federal tax return was selected for examination. A meeting with the IRS is scheduled in late August 2019. The Company has not been informed of any issues or assessment.
Stock-Based Compensation
We recognize all share-based payments to employees and our board of directors (“Board of Directors”), as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common stock 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 were exercised or converted into common stock, calculated by applying the treasury stock method.
For each of the three and six months ended June 30, 2019 and 2018, the effect of the potential exercise of options to purchase 4,108,390 and 3,441,890 shares of common stock, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive.
Recent Accounting Pronouncements Not Adopted as of June 30, 2019
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in the first quarter of 2020. The Company is currently evaluating the impact, if any, of this newly issued guidance.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements. The effective date for the standard is fiscal years beginning after December 15, 2019, which for the Company is January 1, 2020. Early adoption is permitted. The new disclosure requirements for changes in unrealized gains and losses in other comprehensive income for recurring Level 3 measurements, the range and weighted average of significant unobservable inputs and the amended requirements for the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively. The Company does not expect ASU 2018-13 to have a material impact on our consolidated financial statements.
Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Companies are required to recognize and measure leases using a modified retrospective approach at either the beginning of the earliest comparative period presented or the beginning of the reporting period in which the entity first applies the new standard. ASU 2016-02 was effective for the Company beginning in the first quarter of 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures, as the Company’s leases are one year or less and not required to recognize lease assets or liabilities under the new guidance.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for any stranded tax effects resulting from TCJA that was enacted on December 22, 2017. The new guidance will be effective for the Company beginning in the first quarter of 2019. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-based Payment Accounting. The standard expands the scope of Topic 718 to include share-based payments issued to non-employees for goods or services, simplifying the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
v3.19.2
Cash, Cash Equivalent, and Investments
6 Months Ended
Jun. 30, 2019
Cash and Cash Equivalents [Abstract]  
Cash, Cash Equivalent, and Investments
Cash, Cash Equivalent, and Investments
The Company’s investments in debt securities are classified as held-to-maturity and are recorded at amortized cost, and its investments in money market funds are classified as cash equivalents. The following table shows the Company’s cash, available-for-sale securities, and short-term and long-term investment securities by major security type as of June 30, 2019 and December 31, 2018:
 
June 30, 2019 (Unaudited)
 
 
 
 
 
Gross
 
Gross
 
 
 
Level
 
 
 
Unrealized
 
Unrealized
 
 
 
(1) 
 
Fair Value
 
Holding Gains
 
Holding Losses
 
Adjusted Cost
Cash and Cash Equivalents
 
 
 
 
 
 
 
 
 
Cash
 
 
$
767,894

 
$

 
$

 
$
767,894

Money Market Funds
1
 
4,013,626

 
 
 
 
 
4,013,626

Subtotal
 
 
4,781,520

 

 

 
4,781,520

Short-Term Investment Securities (2)
 
 
 
 
 
 
 
 
 
Corporate Bonds (4)
2
 
32,119,864

 
20,490

 
(4,775
)
 
32,104,149

Long-Term Investment Securities (3)
 
 
 
 
 
 
 
 
 
Corporate Bonds (4)
2
 
1,522,290

 
5,621

 

 
1,516,669

Total
 
 
$
38,423,674

 
$
26,111

 
$
(4,775
)
 
$
38,402,338


 
December 31, 2018 (Audited)
 
 
 
 
 
Gross
 
Gross
 
 
 
Level
 
 
 
Unrealized
 
Unrealized
 
 
 
(1) 
 
Fair Value
 
Holding Gains
 
Holding Losses
 
Adjusted Cost
Cash and Cash Equivalents
 
 

 

 

 

Cash
 
 
$
1,048,272

 
$

 
$

 
$
1,048,272

Money Market Funds
1
 
1,338,042

 

 

 
1,338,042

Subtotal
 
 
2,386,314

 

 

 
2,386,314

Short-Term Investment Securities (2)
 
 

 

 

 

Corporate Bonds (4)
2
 
38,731,120

 

 
(85,321
)
 
38,816,441

Total
 
 
$
41,117,434

 
$

 
$
(85,321
)
 
$
41,202,755

_________________
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) Long-term investment securities will mature between 12 and 18 months, from the applicable reporting date.
(4) The premium paid to purchase held-to-maturity investment securities was $23,308 and $26,014 for the three months ended June 30, 2019 and 2018, respectively. The premium paid to purchase held-to-maturity investment securities was $104,163 and $313,705 for the six months ended June 30, 2019 and 2018, respectively. The premium paid to purchase held-to-maturity investment securities was $378,681 for the year ended December 31, 2018.

The Company considers the declines in market value of its investment portfolio to be temporary in nature. The Company’s investment policy requires investment securities to be investment grade and held to maturity with the primary objective to maintain a high degree of liquidity while maximizing yield. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As of June 30, 2019, the Company does not consider any of its investments to be other-than-temporarily impaired.
v3.19.2
Research Collaboration and Sub-licensing Agreements
6 Months Ended
Jun. 30, 2019
Research and Development [Abstract]  
Research Collaboration and Sub-licensing Agreements
Research Collaboration and Sub-licensing Agreements
BDI Agreements
On June 30, 2017, the Company entered into a strategic Research Services Agreement (the “RSA”) with Biotechnology Developments for Industry in Pharmaceuticals, S.L.U. (“BDI Pharma”), and a Service Framework Agreement (the “SFA”, and together with the RSA, the “R&D Agreements”), with VLP The Vaccines Company, S.L.U. (“VLPbio”), both of which are subsidiaries of Biotechnology Developments for Industry, S.L., a Spanish biotechnology company (“BDI Holdings” and together with BDI Pharma and VLPbio, “BDI”).

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

Upon closing of the BDI transaction, the Company paid EUR €1 million (the “RSA Initial Payment”) in cash to engage BDI to develop designated C1 based product candidates and further improve the C1 manufacturing process, in consideration of which Dyadic also received a 16.1% equity interest in BDI Holdings and a 3.3% equity interest in VLPbio. BDI is obligated to spend a minimum amount of EUR €936,000 over two years in the conduct of the research and development project under the RSA. If the research and development activities produce a product that is selected for additional development and commercialization, then Dyadic expects to share with BDI a range of between 50% and 75% of the net income from such selected product, depending upon the amount of BDI’s aggregate spend in the development of the selected product, with a minimum aggregate spend by BDI of EUR €1 million for a 50% share and EUR €8 million for a 75% share. If BDI does not enter into an agreement with Dyadic for such additional development and commercialization of the selected product, then Dyadic will pay to BDI EUR €1.5 million of the net income from Dyadic’s commercialization, if any, of the selected product. In addition, under the SFA, Dyadic agreed to purchase from BDI at least USD $1 million (the “SFA Commitment”) in contract research services specified by Dyadic over two years since the closing of the BDI transaction.

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

The Company performed a valuation analysis of the components of the transaction and allocated the consideration based on the relative fair value of each component. As the fair value of BDI equity interest was considered immaterial, the RSA Initial Payment of approximately USD $1.1 million (EUR €1 million) was accounted for as a prepaid research and development collaboration payment on our consolidated balance sheet, and both the collaboration payment under the RSA and the remaining SFA Commitment of USD $1 million paid by Dyadic will be expensed as the related research services are performed by BDI. As of June 30, 2019, BDI has completed its services under the RSA, and the entire amount of the RSA Initial Payment has been expensed. Under the SFA, there were four research projects completed and three research projects in progress, and we do not have any outstanding commitment under the SFA as of June 30, 2019.

As of June 30, 2019 and December 31, 2018, the prepaid research and development collaboration related to BDI recorded on our consolidated balance sheets were approximately $0.1 million and $0.3 million, respectively. For each of the three months ended June 30, 2019 and 2018, research and development expenses related to BDI were recorded as research and development - related party in our consolidated statements of operations in the amount of approximately $0.3 million. For each of the six months ended June 30, 2019 and 2018, research and development expenses related to BDI were recorded as research and development - related party in our consolidated statements of operations in the amount of approximately $0.7 million.

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

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

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

As of June 30, 2019, the technology transfer of the Company’s C1 platform has not been completed and Novovet has not raised sufficient capital to support its required research and drug development activities. Therefore, the Novovet Up-Front Consideration received under the Luina Bio Sub-License Agreement, in the form of a 20% equity interest in Novovet, does not yet meet the revenue recognition criteria under ASC 606. The Company will account for its investment in Novovet and the related income under the equity method of accounting, once the transfer of its C1 technology is completed and Novovet receives adequate financing required to commence its research and development activities.

The Shareholder Agreement provides that, for as long as the Company has a respective proportion of Novovet equal to or more than 20% it may designate one individual to serve on the Board of Directors of Novovet. The Dyadic appointee is Mark Emalfarb, Dyadic’s CEO. Pursuant to the terms of the Shareholders Agreement, the Company agreed, subject to certain exceptions, not to sell, transfer, assign, convey or otherwise dispose of its interests in Novovet. In addition, the Company is entitled to or subject to, as applicable, anti-dilution rights, tag along rights and drag along rights, each as described in the Shareholders Agreement.

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

In consideration of the license granted pursuant to the Alphazyme Sub-License Agreement, Dyadic will receive a 7.5% ownership interest in Alphazyme (“Alphazyme Up-Front Consideration”) upon the successful transfer of C1 technology, additional milestone payments and a percentage of royalties on net sales, if any, which incorporate Dyadic's proprietary C1 gene expression platform. The Alphazyme Sub-License Agreement has an initial exclusivity period of 18 months (“Exclusivity Period”) beginning on the date the technology transfer has been completed. Following the Exclusivity Period, the sub-license will be nonexclusive. At any time prior to the expiration of the Exclusivity Period, Alphazyme has the option to extend the Exclusivity Period for an additional twelve (12) months in return for an additional 2.5% ownership interest in Alphazyme.

The Company evaluated the nature of its equity interest investment in Alphazyme and determined that Alphazyme is a Variable Interest Entity (“VIE”) due to the capital structure of the entity. However, the Company is not the primary beneficiary of Alphazyme, as Dyadic does not have the power to control or direct the activities of Alphazyme that most significantly impact the VIE. As a result, the Company does not consolidate its investments in Alphazyme. The Company will account for its investment in Alphazyme under the equity method, given that it has the ability to exercise significant influence, but not control, over Alphazyme.

As of June 30, 2019, the technology transfer of the C1 platform has not completed and Dyadic has not received the Alphazyme Up-Front Consideration. Therefore, no revenue form the Alphazyme Sub-Licensing Agreement was recorded at June 30, 2019.

Upon receipt of the Alphazyme Up-Front Consideration, Dyadic will become a party to the Alphazyme Limited Liability Company Agreement pursuant to which the Company will agree to certain customary rights, covenants and obligations.

Research and Commercialization Collaboration with Serum
On May 7, 2019, the Company entered into a research and commercialization collaboration with Serum Institute of India Pvt., Ltd (“Serum”). Under the terms of this collaboration, Serum anticipates applying Dyadic’s C1 technology to express up to twelve (12) antibodies and vaccines and will undertake commercially best efforts to fully develop and commercialize the proteins expressed from Dyadic’s C1 technology. Dyadic has agreed to grant Serum the option to obtain an exclusive commercial sub-license for each of the twelve (12) proteins in return for certain research funding, milestone payments and royalties for 15 years from the date of the first commercial sale.
v3.19.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Leases
Jupiter, Florida Headquarters
The Company’s corporate headquarters are located in Jupiter, Florida. The Company occupies approximately 4,900 square feet with a monthly rental rate and common area maintenance charges of approximately $9,700. The lease expires on June 30, 2020, and thereafter, the Company will reconsider the square footage of the leased space to align with the staffing requirements of the future operations of the Company.
The Netherlands Office
The Company maintains a small satellite office in Wageningen, The Netherlands. In 2018, the Company occupied approximately 258 square feet with annual rentals and common area maintenance charges of approximately $4,700. The lease expired on January 31, 2019, and thereafter, the Company entered into a new lease with the same lessor (the “New Lease”). The New Lease has a one-year term and includes a flexible office space with annual rentals of approximately $4,000.
VTT Research Contract Extension
On June 28, 2019, the Company extended its research contract (“Contract”) through June 2022 with VTT Technical Research Centre of Finland Ltd. (“VTT”). Under the terms of this Contract, Dyadic will pay VTT a total of EUR €2.52 million over the next three years to continue developing Dyadic’s C1 fungal expression system for therapeutic protein production, including C1 host system improvement, glycoengineering, and management of third party target protein projects. VTT is subject to an additional success bonus up to EUR €450,000 based on the technical targets stipulated in the Contract. Dyadic and its sublicensees will also have the right to use synthetic promoters developed by VTT with an access fee. Dyadic retains the right to terminate the Contract with 90 days’notice.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company does not believe that any of these claims or proceedings against us is likely to have, individually or in the aggregate, a material adverse effect on the financial condition or results of operations.
v3.19.2
Share-Based Compensation
6 Months Ended
Jun. 30, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Share-Based Compensation
Description of Equity Plans
The 2011 Equity Incentive Plan (the “2011 Plan”) was adopted by the Company’s Board of Directors on April 28, 2011 and approved by the Company’s stockholders on June 15, 2011. The 2011 Plan serves as the successor to the Company’s 2006 Stock Option Plan (the “2006 Plan”). Since the effective date of the 2011 Plan, all equity awards were made from the 2011 Plan, and no additional awards will be granted under the 2006 plan. Under the 2011 Plan, 3,000,000 shares of the Company’s common stock have been initially reserved for issuance pursuant to a variety of share-based compensation awards, plus any shares available for issuance under the 2006 Plan or are subject to awards under the 2006 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2006 Plan. In accordance with the provisions of the 2011 Plan, the Board of Directors approved an increase of 1,500,000 shares to the plan on January 1, 2019.
As of June 30, 2019, the Company had 4,108,390 stock options outstanding and an additional 1,547,211 shares of common stock available for grant under the 2011 Plan. As of December 31, 2018, there were 3,552,890 stock options outstanding and 1,136,211 shares of common stock available for grant under the 2011 Plan.
Stock Options
Options are granted to purchase common stock at prices that are equal to the fair value of the common stock on the date the option is granted. Vesting is determined by the Board of Directors at the time of grant. The term of any stock option awards under the Company’s 2011 Plan is no more than ten years except for qualified options granted to the CEO (five years) and certain contractors (two 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 after the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatility since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.
Expected life of option. The expected life of option was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The Company uses the weighted average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the qualified options granted to the CEO (i.e., 5 years) and certain contractors (i.e., 2 years).
Discount for lack of marketability. The Company applied a discount to reflect the lack of marketability due to the holding period restriction of its shares under Rule 144 prior to its April 2019 uplisting to the NASDAQ. The discount for lack of marketability is no longer applicable since the uplisting of the Company’s common stock.
The assumptions used in the Black-Scholes option pricing model for stock options granted through the six months ended June 30, 2019 are as follows:
Risk-Free interest rate
1.69% - 2.50%

Expected dividend yield
0
%
Expected stock price volatility
28.59% -37.29%

Expected life of options
2 - 6.25 Years

Discount for lack of marketability
0.0%-8.48%


The following table summarizes the stock option activities for the six months ended June 30, 2019:    

Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2018
3,552,890

 
$1.57
 
5.06
 
$1,149,461
Granted (1)
1,089,000

 
2.26

 

 

Exercised (2)
(533,500
)
 
1.59

 

 

Expired

 

 

 

Canceled

 

 

 

Outstanding at June 30, 2019
4,108,390

 
$1.75
 
6.04
 
$18,532,876
 

 

 

 

Exercisable at June 30, 2019
2,848,573

 
$1.65
 
4.79
 
$13,139,047
_________________
Notes:
(1) Represents the following stock options granted:
Annual share-based compensation awards on January 2, 2019, including: (a) 600,000 stock options with an exercise price of $1.87 per share granted to executives and key personnel, vesting upon grant, or one year anniversary, or vest annually in equal installments over four years, (b) 300,000 stock options with an exercise price of $1.87 per share granted to the Board of Directors, vesting 25% upon grant and the remaining 75% will vest annually in equal installments over four years, and (c) 24,000 stock options with an exercise price of $1.87 per share granted to employees, vesting annually in equal installments over four years.    
One-time awards granted on (a) January 2, 2019 of 50,000 stock options with an exercise price of $1.87 per share granted to a contractor, vesting upon one year anniversary, (b) March 7, 2019 of 15,000 stock options with an exercise price of $3.00 per share granted to a contractor, vesting upon one year anniversary, (c) June 25, 2019 of 75,000 stock options with an exercise price of $5.83 per share granted to three members of the Board of Directors, vesting upon one year anniversary, and (d) June 28, 2019 of 25,000 stock options with an exercise price of $6.26 per share granted to the Chief Financial Officer, vesting immediately.
(2) Represents the following stock options exercised:
A total of 533,500 stock options exercised with a weighted average market price of $5.03, including (a) net share exercise of 440,000 stock options resulting in the issuance of 304,171 shares of common stock, and surrender of 135,829 shares, and (b) 93,500 stock options exercised with cash payment.

Compensation Expenses
We recognize all share-based payments to employees and our Board of Directors, as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations, and these charges had no impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.
Total non-cash stock option compensation expense was allocated among the following expense categories:    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
General and administrative
$
555,455

 
$
54,896

 
$
839,089

 
$
304,138

Research and development
25,148

 
18,529

 
51,077

 
38,883

Total
$
580,603

 
$
73,425

 
$
890,166

 
$
343,021

v3.19.2
Shareholders' Equity
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Shareholders' Equity
Shareholders’ Equity
Issuances of Common Stock
For the six months ended June 30, 2019, there were 397,671 shares of the Company’s common stock issued as a result of the exercise of stock options with a weighted average issue price of $1.59 per share. For the six months ended June 30, 2018, no shares were issued.
Changes in Shareholders’ Equity
 
 
Six Months Ended June 30, 2019 (Unaudited)
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Total
January 1, 2019
 
$
38,967

 
$
(18,929,915
)
 
$
94,385,230

 
$
(33,043,113
)
 
$
42,451,169

Stock-based compensation
 

 

 
309,563

 

 
309,563

Net loss
 

 

 

 
(2,175,258
)
 
(2,175,258
)
March 31, 2019
 
38,967

 
(18,929,915
)
 
94,694,793

 
(35,218,371
)
 
40,585,474

Stock issued
 
398

 

 
148,782

 

 
149,180

Stock-based compensation
 

 

 
580,603

 

 
580,603

Net loss
 

 

 

 
(2,695,792
)
 
(2,695,792
)
June 30, 2019
 
$
39,365

 
$
(18,929,915
)
 
$
95,424,178

 
$
(37,914,163
)
 
$
38,619,465

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018 (Unaudited)
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Total
January 1, 2018
 
$
38,937

 
$
(16,625,873
)
 
$
93,913,557

 
$
(27,351,357
)
 
$
49,975,264

Stock repurchased
 

 
(374,820
)
 

 

 
(374,820
)
Stock-based compensation
 

 

 
269,596

 

 
269,596

Net loss
 

 

 

 
(2,043,292
)
 
(2,043,292
)
March 31, 2018
 
38,937

 
(17,000,693
)
 
94,183,153

 
(29,394,649
)
 
47,826,748

Stock-based compensation
 

 

 
73,425

 

 
73,425

Net loss
 

 

 

 
(1,596,637
)
 
(1,596,637
)
June 30, 2018
 
$
38,937

 
$
(17,000,693
)
 
$
94,256,578

 
$
(30,991,286
)
 
$
46,303,536


Stock Repurchase Programs
On February 16, 2016, the Board of Directors authorized a one-year stock repurchase program, under which the Company was authorized to repurchase up to $15,000,000 of its outstanding common stock (the “2016 Stock Repurchase Program”). The 2016 Stock Repurchase Program ended on February 15, 2017.
On August 16, 2017, the Board of Directors authorized a new one-year stock repurchase program, under which the Company may repurchase up to $5,000,000 of its outstanding common stock (the “2017 Stock Repurchase Program”). On August 6, 2018, the Board of Directors authorized an extension of this stock repurchase program through August 15, 2019.
Under the 2017 Stock Repurchase Program, the Company is authorized to repurchase shares in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The extent to which the Company repurchases its shares, and the timing of such repurchases, is dependent upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company’s management. The repurchase program may be extended, suspended or discontinued at any time. The Company expects to finance the program from its existing cash resources. All repurchased shares are held in treasury.
The following table summarizes the Company’s stock repurchase activities:    
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Amount
 
Total Number of Treasury Shares Purchased as Part of Publicly Announced Plan
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan
Privately Negotiated Transactions:
 
 
 
 
 
 
 
 
 
 
January 12, 2016 - Abengoa repurchased and retired shares
 
2,136,752

 
$
1.35

 
$
2,884,615

 

 
N/A
January 11, 2017 - Pinnacle Family Office Investments L.P. repurchased shares
 
2,363,590

 
1.54

 
3,639,929

 
2,363,590

 
N/A
 
 
 
 
 
 
 
 
 
 
$
15,000,000

2016 Stock Repurchase Program (1):
 
 
 
 
 
 
 
 
 
 
January through February 2017
 
7,863,980

 
1.58

 
12,448,283

 
7,863,980

 
$
2,551,717

 
 
 
 
 
 
 
 
 
 
 
2017 Stock Repurchase Program:
 
 
 
 
 
 
 
 
 
$
5,000,000

September through December 2017
 
381,607

 
1.41

 
537,661

 
381,607

 
$
4,462,339

January through August 2018
 
1,644,325

 
1.40

 
2,304,042

 
1,644,325

 
$
2,158,297

Total open market and privately negotiated purchases
 
14,390,254

 
$
1.52

 
$
21,814,530

 
12,253,502

 
 
_________________
Notes:
(1) The 2016 Stock Repurchase Program ended on February 15, 2017.

Treasury Stock
As of June 30, 2019 and December 31, 2018, 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.
v3.19.2
Subsequent Events
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
For purpose of disclosure in the consolidated financial statements, the Company has evaluated subsequent events through August 13, 2019, the date the consolidated financial statements were available to be issued. Management is not aware of any material events that have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in the accompanying financial statements.
v3.19.2
Organization and Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, including the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. All significant intra-entity transactions and balances have been eliminated in consolidation. The Company has reclassified certain 2018 amounts previously reported to conform to the 2019 consolidated financial statement presentation. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2018, included in our Form 10-K which was filed with the SEC on March 27, 2019.
In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation of all periods presented. The results of the Company’s operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
Since concluding the DuPont Transaction, the Company has conducted business in 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.
Use of Estimates
Use of Estimates
The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.
Concentrations
Concentrations
The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, and investment securities. 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.
Cash and Cash Equivalents
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
Investment Securities
The Company invests excess cash balances in short-term and long-term investment grade securities. Short-term investment securities mature within 12 months or less, and long-term investment securities mature between 12 and 18 months from the applicable reporting date. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company’s investments in debt securities have been classified and accounted for as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized over the life of the related held-to-maturity security. When a debt security is purchased at a premium, both the face value of the debt and premium amount are reflected as investing outflow. Other-than-temporary impairment charges, if incurred, will be included in other income (expense).
The Company’s investments in money market funds have been classified and accounted for as available-for-sale securities and presented as cash equivalents on the consolidated balance sheets.
Accounts Receivable
Accounts Receivable
Accounts receivable consist of billed receivables currently due from customers and unbilled receivables. Unbilled receivables represent the excess of contract revenue (or amounts reimbursable under contracts) over billings to date. Such amounts become billable in accordance with the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.
Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Substantially all of our accounts receivable were current and include unbilled amounts that will be billed and collected over the next twelve months.
Equity Method Investment
Equity Method Investment
The Company follows Accounting Standards Codification (“ASC”) Subtopic 323-10, Investments - Equity Methods and Joint Ventures, which requires the accounting for investments where the Company can exercise significant influence, but not control of a joint venture or equity investment. See Note 3 for the Company’s investments recorded under the equity method of accounting.
Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Revenue Recognition
Revenue Recognition
The Company has no pharmaceutical products approved for sale at this point, and all of our revenue to date has been research revenue from third party collaborations and government grants. The Company is expected to generate future revenue from license agreements and collaborative arrangements, which may include upfront payments for licenses or options to obtain a license, payment for research and development services and milestone payments, in the form of cash or non-cash considerations (e.g., minority equity interest).
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. Since the performance obligation under our collaboration agreements is generally satisfied over time, we elected to use the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.
Under the input methods, revenue will be recognized on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation. The Company believes that the cost-based input method is the best measure of progress to reflect how the Company transfers its performance obligation to a customer. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of full-time equivalent effort and third-party 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 sublicensing agreements: If the sublicense to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when technology is transferred to the customer and the customer is able to use and benefit from the license.
Milestone payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price. If the milestone payment is in exchange for a sublicense and is based on the sublicensee’s subsequent sale of product, the Company recognizes milestone payment by applying the accounting guidance for royalties. To date, the Company has not recognized any milestone payment revenue resulting from any of its sublicensing arrangements.
Royalties: With respect to licenses deemed to be the predominant item to which the sales-based royalties relate, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its sublicensing arrangements.
We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenues are recognized. When there is a timing difference between when we invoice customers and when revenues are recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred research and development obligations), as appropriate. If upfront fees or considerations related to sublicensing agreement are received prior to the technology transfer, the Company will record the amount received as deferred revenue from licensing agreement.
The Company adopted the following practical expedients and exemptions: We generally expense sales commissions when incurred because the amortization period would be one year or less. We do not 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.
Research and Development Costs
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.
Foreign Currency Transaction Gain or Loss
Foreign Currency Transaction Gain or Loss
The Company’s foreign subsidiary uses the U.S. dollar as its functional currency, and it initially measures 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
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.

Certain assets and liabilities on the balance sheets are measured at carrying values, which approximate fair values due to the short-term nature of these balances. Such items include cash and cash equivalents, accounts receivable, accounts payable, prepaid expenses, and accrued expenses. 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.
The Company utilized various methods, including income, cost and market approaches to determine the fair value of its investments in equity interest, which may fall into Level 3 of the fair value hierarchy because of the significant unobservable inputs utilized in these valuation approaches. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Our key inputs included, but were not limited to, significant management judgments and estimates, including projections of the timing and amount of the project’s cash flows, determination of a discount rate for the income approach, market multipliers, probability weighting of potential outcomes of legal and regulatory proceedings, and weighting of the valuations produced by the income, cost and market approaches.
Income Taxes
Income Taxes
The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and became effective January 1, 2018. The TCJA contains several key provisions, including a reduction in the U.S. Federal corporate income tax rate from 35% to 21% and a change to the corporate alternative minimum tax (“AMT”).
Stock-Based Compensation
Stock-Based Compensation
We recognize all share-based payments to employees and our board of directors (“Board of Directors”), as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.
Net Loss Per Share
Net Loss Per Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common stock 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 were exercised or converted into common stock, calculated by applying the treasury stock method.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Adopted as of June 30, 2019
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in the first quarter of 2020. The Company is currently evaluating the impact, if any, of this newly issued guidance.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements. The effective date for the standard is fiscal years beginning after December 15, 2019, which for the Company is January 1, 2020. Early adoption is permitted. The new disclosure requirements for changes in unrealized gains and losses in other comprehensive income for recurring Level 3 measurements, the range and weighted average of significant unobservable inputs and the amended requirements for the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively. The Company does not expect ASU 2018-13 to have a material impact on our consolidated financial statements.
Other pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not applicable or not significant to our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Companies are required to recognize and measure leases using a modified retrospective approach at either the beginning of the earliest comparative period presented or the beginning of the reporting period in which the entity first applies the new standard. ASU 2016-02 was effective for the Company beginning in the first quarter of 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures, as the Company’s leases are one year or less and not required to recognize lease assets or liabilities under the new guidance.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization of Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for any stranded tax effects resulting from TCJA that was enacted on December 22, 2017. The new guidance will be effective for the Company beginning in the first quarter of 2019. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-based Payment Accounting. The standard expands the scope of Topic 718 to include share-based payments issued to non-employees for goods or services, simplifying the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The Company adopted the standard on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
v3.19.2
Organization and Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Schedule of Accounts Receivable
Accounts receivable consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Billed receivable
$
360,512

 
$
193,065

Unbilled receivable
143,998

 
125,679

 
$
504,510

 
$
318,744

Schedule of Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Prepaid expenses - various
$
103,030

 
$
91,725

Prepaid insurance
8,214

 
77,249

Prepaid taxes
892

 
3,027

 
$
112,136

 
$
172,001

Schedule of Accounts Payable
Accounts payable consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Research and development expenses
$
753,629

 
$
240,064

Legal expenses
82,018

 

Other
127,617

 
68,996

 
$
963,264

 
$
309,060

Schedule of Accrued Expenses
Accrued expenses consist of the following:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Audited)
Employee wages and benefits
$
258,616

 
$
268,287

Research and development expenses
90,085

 
49,666

Other
47,340

 
81,623

 
$
396,041

 
$
399,576

Schedule of Research and Development Costs
Research and development costs, including related party, during the three and six months ended June 30, 2019 and 2018 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 

 

 

 

Outside contracted services
$
658,499

 
$
481,335

 
$
1,243,986

 
$
950,892

Contracted services - related party
336,310

 
340,849

 
725,783

 
733,398

Personnel related costs
122,290

 
95,558

 
217,052

 
190,548

Facilities, overhead and other
37,451

 
24,306

 
49,572

 
36,643

 
$
1,154,550

 
$
942,048

 
$
2,236,393

 
$
1,911,481

v3.19.2
Cash, Cash Equivalent, and Investments (Tables)
6 Months Ended
Jun. 30, 2019
Cash and Cash Equivalents [Abstract]  
Schedule of Cash, Available-for-sale Securities, Short-term and Long-term Investment Securities
The following table shows the Company’s cash, available-for-sale securities, and short-term and long-term investment securities by major security type as of June 30, 2019 and December 31, 2018:
 
June 30, 2019 (Unaudited)
 
 
 
 
 
Gross
 
Gross
 
 
 
Level
 
 
 
Unrealized
 
Unrealized
 
 
 
(1) 
 
Fair Value
 
Holding Gains
 
Holding Losses
 
Adjusted Cost
Cash and Cash Equivalents
 
 
 
 
 
 
 
 
 
Cash
 
 
$
767,894

 
$

 
$

 
$
767,894

Money Market Funds
1
 
4,013,626

 
 
 
 
 
4,013,626

Subtotal
 
 
4,781,520

 

 

 
4,781,520

Short-Term Investment Securities (2)
 
 
 
 
 
 
 
 
 
Corporate Bonds (4)
2
 
32,119,864

 
20,490

 
(4,775
)
 
32,104,149

Long-Term Investment Securities (3)
 
 
 
 
 
 
 
 
 
Corporate Bonds (4)
2
 
1,522,290

 
5,621

 

 
1,516,669

Total
 
 
$
38,423,674

 
$
26,111

 
$
(4,775
)
 
$
38,402,338


 
December 31, 2018 (Audited)
 
 
 
 
 
Gross
 
Gross
 
 
 
Level
 
 
 
Unrealized
 
Unrealized
 
 
 
(1) 
 
Fair Value
 
Holding Gains
 
Holding Losses
 
Adjusted Cost
Cash and Cash Equivalents
 
 

 

 

 

Cash
 
 
$
1,048,272

 
$

 
$

 
$
1,048,272

Money Market Funds
1
 
1,338,042

 

 

 
1,338,042

Subtotal
 
 
2,386,314

 

 

 
2,386,314

Short-Term Investment Securities (2)
 
 

 

 

 

Corporate Bonds (4)
2
 
38,731,120

 

 
(85,321
)
 
38,816,441

Total
 
 
$
41,117,434

 
$

 
$
(85,321
)
 
$
41,202,755

_________________
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) Long-term investment securities will mature between 12 and 18 months, from the applicable reporting date.
(4) The premium paid to purchase held-to-maturity investment securities was $23,308 and $26,014 for the three months ended June 30, 2019 and 2018, respectively. The premium paid to purchase held-to-maturity investment securities was $104,163 and $313,705 for the six months ended June 30, 2019 and 2018, respectively. The premium paid to purchase held-to-maturity investment securities was $378,681 for the year ended December 31, 2018.

v3.19.2
Share-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of valuation assumptions
The assumptions used in the Black-Scholes option pricing model for stock options granted through the six months ended June 30, 2019 are as follows:
Risk-Free interest rate
1.69% - 2.50%

Expected dividend yield
0
%
Expected stock price volatility
28.59% -37.29%

Expected life of options
2 - 6.25 Years

Discount for lack of marketability
0.0%-8.48%

Schedule of stock option activity
The following table summarizes the stock option activities for the six months ended June 30, 2019:    

Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2018
3,552,890

 
$1.57
 
5.06
 
$1,149,461
Granted (1)
1,089,000

 
2.26

 

 

Exercised (2)
(533,500
)
 
1.59

 

 

Expired

 

 

 

Canceled

 

 

 

Outstanding at June 30, 2019
4,108,390

 
$1.75
 
6.04
 
$18,532,876
 

 

 

 

Exercisable at June 30, 2019
2,848,573

 
$1.65
 
4.79
 
$13,139,047
_________________
Notes:
(1) Represents the following stock options granted:
Annual share-based compensation awards on January 2, 2019, including: (a) 600,000 stock options with an exercise price of $1.87 per share granted to executives and key personnel, vesting upon grant, or one year anniversary, or vest annually in equal installments over four years, (b) 300,000 stock options with an exercise price of $1.87 per share granted to the Board of Directors, vesting 25% upon grant and the remaining 75% will vest annually in equal installments over four years, and (c) 24,000 stock options with an exercise price of $1.87 per share granted to employees, vesting annually in equal installments over four years.    
One-time awards granted on (a) January 2, 2019 of 50,000 stock options with an exercise price of $1.87 per share granted to a contractor, vesting upon one year anniversary, (b) March 7, 2019 of 15,000 stock options with an exercise price of $3.00 per share granted to a contractor, vesting upon one year anniversary, (c) June 25, 2019 of 75,000 stock options with an exercise price of $5.83 per share granted to three members of the Board of Directors, vesting upon one year anniversary, and (d) June 28, 2019 of 25,000 stock options with an exercise price of $6.26 per share granted to the Chief Financial Officer, vesting immediately.
(2) Represents the following stock options exercised:
A total of 533,500 stock options exercised with a weighted average market price of $5.03, including (a) net share exercise of 440,000 stock options resulting in the issuance of 304,171 shares of common stock, and surrender of 135,829 shares, and (b) 93,500 stock options exercised with cash payment.

Schedule of non-cash stock option compensation expense
Total non-cash stock option compensation expense was allocated among the following expense categories:    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
General and administrative
$
555,455

 
$
54,896

 
$
839,089

 
$
304,138

Research and development
25,148

 
18,529

 
51,077

 
38,883

Total
$
580,603

 
$
73,425

 
$
890,166

 
$
343,021

v3.19.2
Shareholders' Equity (Tables)
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Schedule of stockholders equity
Changes in Shareholders’ Equity
 
 
Six Months Ended June 30, 2019 (Unaudited)
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Total
January 1, 2019
 
$
38,967

 
$
(18,929,915
)
 
$
94,385,230

 
$
(33,043,113
)
 
$
42,451,169

Stock-based compensation
 

 

 
309,563

 

 
309,563

Net loss